SECTION 5.2004. Medical Liability Insurance and General Liability Insurance

(a) The policy.

(1) Approval. The procedures regarding rates, rating plans, rating rules, rating classifications, territories, and policy forms applicable to insurance written by the association and related statistics must comply with Insurance Code Chapter 2203, Subchapter E.

(2) Duration of policies.

(A) All policies issued by the association must be written for a term of one year or less, as determined by the association, to begin at 12:01 a.m. on their respective effective dates.

(B) The association may not issue a policy with an effective date after a date set under Insurance Code Article 21.49-3, §11 for a plan of suspension to become effective and operative.

(C) All policies must be written on forms approved by the department, and must contain a provision that requires, as a condition precedent to settlement or compromise of any claim, the consent or acquiescence of the insured. If, however, the insured refuses to consent to any settlement recommended in writing by the association and elects to contest or continue any legal proceedings, the liability of the association must not exceed the amount for which the claim could have been settled plus the cost and expenses incurred up to the date of the refusal.

(3) Installment payment plan. The association may offer an installment plan for coverage obtained through the association or for payment of the stabilization reserve fund charge. The association may require the policyholder to pay the stabilization reserve fund charge as an annual lump sum.

(4) Limits of liability.

(A) No individual or organization may be insured by a policy issued, or caused to be issued, by the association for an amount exceeding a total of $1 million per occurrence (for all coverages combined) and $3 million aggregate per annum (for all coverages combined). As used in this paragraph, the terms "individual" and "organization" mean each physician, health care provider, health care practitioner, and health care facility holding a separate license or accreditation from the appropriate licensing or accrediting agency as applicable.

(B) If provided, general liability limits must be the same as medical liability limits subject to the maximum policy limits specified in subparagraph (A) of this paragraph.

(5) Special provisions.

(A) The association may issue policies with deductibles.

(B) The association may issue policies subject to retrospective rating plans.

(C) Policies of excess medical liability insurance and excess general liability insurance written by the association must:

(i) be on a following form basis to the underlying medical liability insurance or underlying general liability insurance coverage over which it is written;

(ii) be issued subject to review of the underlying coverage if review is deemed necessary by the association or its representatives;

(iii) not be issued in those cases where the net retention at risk by the primary carrier is less than $100,000 per occurrence or less than $300,000 aggregate per annum after applying any applicable deductible;

(iv) be issued only when the underlying insurance coverage is underwritten by a member of the association and the underlying insurance coverage does not have a deductible in excess of $25,000;

(v) terminate automatically if the underlying primary medical liability insurance policy or underlying primary general liability insurance is not maintained for any reason, except exhaustion by payment of a loss or losses. If the aggregate underlying primary medical liability insurance or general liability insurance is exhausted by the payment of a loss or losses occurring during the policy period, the insurance provided by the excess policy must apply in the same manner as if the underlying primary insurance was in full force and effect;

(vi) not be accepted for a hospital or other institutional health care provider or health care facility if the applicant does not provide evidence that all physicians, surgeons, podiatrists, dentists, pharmacists, chiropractors, or other health care providers or health care practitioners with staff privileges are insured for their individual medical liability with limits of liability of at least $100,000 per occurrence and $300,000 aggregate per annum; and

(vii) not be accepted for physicians, surgeons, podiatrists, dentists, pharmacists, chiropractors, or other health care providers or health care practitioners who employ or contract with other physicians, surgeons, podiatrists, dentists, pharmacists, chiropractors, or other health care providers or health care practitioners if the applicant does not provide evidence that all employed physicians, surgeons, podiatrists, dentists, pharmacists, chiropractors, or other health care providers or health care practitioners who are eligible to obtain coverage from the association are insured for their individual medical liability with limits of liability of at least $100,000 per occurrence and $300,000 aggregate per annum.

(D) No hospital or other institutional health care provider, health care facility or physicians, surgeons, podiatrists, dentists, pharmacists, chiropractors, or other health care providers or health care practitioners that have employed or contracted physicians, surgeons, podiatrists, dentists, pharmacists, chiropractors, or other health care providers or health care practitioners can be accepted for coverage in the association without evidence that all physicians, surgeons, podiatrists, dentists, pharmacists, chiropractors, or other health care providers, or health care practitioners with staff privileges or employed or contracted by the applicant are insured for their individual medical liability with limits of at least $100,000 per occurrence and $300,000 aggregate per annum.

(E) For purposes of this section, the term "health care providers or health care practitioners" does not include personnel at or below the level of employed registered nurse. Insurance required for physicians, surgeons, podiatrists, dentists, pharmacists, chiropractors, health care practitioners, or other health care providers with hospital staff privileges or employed or contracted by the applicant must be limited to any one of the following entities:

(i) an insurance company authorized and licensed to write and writing health care liability or medical liability insurance in Texas under Insurance Code Chapter 801;

(ii) an insurance company eligible to write and writing health care liability or medical liability insurance in Texas as a surplus lines carrier under Insurance Code Chapter 981;

(iii) the Texas Medical Liability Insurance Underwriting Association, established under Insurance Code Chapter 2203;

(iv) a self-insurance trust created to provide health care liability or medical liability insurance, established under Insurance Code Chapter 2212;

(v) a risk retention group or purchasing group writing health care liability or medical liability insurance in Texas, registered under Insurance Code Chapter 2201;

(vi) a plan of self-insurance of an institution of higher education that provides health care liability or medical liability coverage, established under Education Code Chapter 59; or

(vii) a plan of self-insurance that meets each of the following criteria:

(I) the plan's liabilities must be fully funded, and the plan must be solvent. The plan must have a minimum net worth equal to the lesser of $1 million or that amount of net worth that results in a capitalization ratio of 5%. As used in this subclause, "net worth" is calculated by determining the excess, if any, of the plan's total assets over the plan's total liabilities. As used in this subclause, "capitalization ratio" means the ratio of the plan's net worth (as the numerator) to the plan's total assets (as the denominator). Notwithstanding the preceding, the net worth requirements in this subclause do not apply to a plan that lawfully has taxing authority over a segment of the Texas public, provided that the taxing authority may be used to meet the plan's liabilities and other obligations;

(II) the plan must annually obtain from a qualified actuary who is a member in good standing of the American Academy of Actuaries an actuarial analysis that reflects that its operations are viable. Notwithstanding the preceding, an actuarial opinion filed with the department under Insurance Code §802.002 may be accepted for purposes of this subsection;

(III) financial statements of the plan must annually be audited by an independent certified public accountant who is a member in good standing of the American Institute of Certified Public Accountants (AICPA). The audits must use generally accepted auditing standards and must result in a report that attests to whether the financial statements comply with generally accepted accounting principles adopted by the AICPA. Notwithstanding the preceding, an audit report filed with the department under Insurance Code Chapter 401 may be accepted for purposes of this subsection; and

(IV) the plan must have competent and trustworthy management who are generally knowledgeable of insurance matters. A plan is not eligible if a plan officer or member of the plan's board of directors or similar governing body has been convicted of a felony involving moral turpitude or breach of fiduciary duty.

(6) Rates, rating plans, and rating rules applicable. The rates, rating plans, rating rules, rating classifications, and territories applicable must be those established under Insurance Code Chapter 2203, Subchapter E.

(b) Application, underwriting standards, and acceptance or rejection.

(1) Eligibility and forms.

(A) Any physician and any health care provider as defined in Insurance Code §2203.002 and any health care practitioner and health care facility as defined in Insurance Code §2203.103 that falls within any of the categories of physicians, health care providers, health care practitioners, or health care facilities established by order of the Commissioner from time to time as being eligible to obtain coverage from the association is entitled to apply to the association for a medical liability insurance policy. However, if the applicant is a partnership, professional association, or corporation (other than a nonprofit corporation certified under Occupations Code Chapter 162) composed of eligible health care providers or health care practitioners (such as physicians, dentists, or podiatrists), all of the partners, professional association members, or shareholders must also be individually insured in the association.

(i) Any category of physician or health care provider, which by order of the Commissioner has been excluded from eligibility to obtain coverage from the association, may be eligible for coverage in the association if, after at least 10 days' notice and an opportunity for a hearing, the Commissioner determines that medical liability insurance is not available for the category of physician or health care provider. In addition, a for-profit or not-for-profit nursing home or assisted living facility not otherwise eligible for coverage from the association is eligible for coverage if the nursing home or assisted living facility demonstrates, in accordance with the requirements of the association, that the nursing home or assisted living facility made a verifiable effort to obtain coverage from authorized insurers and eligible surplus lines insurers and was unable to obtain substantially equivalent coverage and rates.

(ii) All applications for medical liability and general liability insurance must be made on forms prescribed by the board of directors of the association and approved by the department. The application forms must contain a statement as to whether or not there are any unpaid premiums, assessments, or stabilization reserve fund charges due from the applicant for prior insurance. Application may be made on behalf of the applicant by an agent authorized under Insurance Code Chapter 4051. The agent need not be appointed by a servicing company.

(B) The association may issue a general liability insurance policy to an applicant specified in subparagraph (A) of this paragraph only if the association issues to that applicant a medical liability insurance policy.

(2) Licensed agent. If a liability insurance policy is written through a licensed agent, then:

(A) the commission paid to the licensed agent must be 10% of the first readtac$ext.TacPage?sl=T&app=9&p_dir=F&p_rloc=201104&p_tloc=9976&p_ploc=1&pg=2&p_tac=&ti=28&pt=1&ch=5&rl=2004,000 of the policy premium, 5% of the next $9,000 of the policy premium, and 2% of the policy premium in excess of $10,000 for policies written by the association on the form approved for physicians and noninstitutional health care providers;

(B) the commission paid to the licensed agent must be 12.5% of the first $2,000 of the policy premium, 7.5% of the next $3,000 of the policy premium, 5% of the next $15,000 of the policy premium, and 2% of the policy premium in excess of $20,000 for policies written by the association on the form approved for hospitals and other institutional health care providers;

(C) the commission paid to the licensed agent must be 10% of the policy premium for an excess liability insurance policy written by the association for a physician or any other health care provider as defined in Insurance Code §2203.002. The commission, however, may not exceed $250 for a policy written on the form approved for physicians and other noninstitutional health care providers, and may not exceed $500 for a policy written on the form approved for hospitals and other institutional health care providers; and

(D) no commission may be payable for any assessment payable by the policyholder by reason of a deficit incurred by the association, including charges for the stabilization reserve funds. On cancellation, the agent must refund any unearned portion of the commission to the association.

(3) Submission. Application for medical liability or general liability insurance on the prescribed form must be accompanied by tender of the amount of the deposit premium and the charge for the stabilization reserve fund required to bind the policy.

(4) Underwriting standards.

(A) On initial application and every reapplication to the association, the following underwriting standards must apply for policies of medical liability insurance written by the association:

(i) all applicants to the association must be currently licensed, chartered, certified, or accredited to practice or provide their respective health care services in Texas;

(ii) all health care provider, practitioner and facility and physician applicants to the association must provide evidence of inability to obtain medical liability coverage. The evidence must be two written rejections by carriers licensed and engaged in writing the coverage applied for in Texas or by a self-insurance trust created under Insurance Code Chapter 2212;

(iii) all for-profit and not-for-profit nursing home and assisted living facility applicants to the association must provide evidence of inability to obtain coverage from authorized insurers and eligible surplus lines insurers for substantially equivalent coverage and rates. The evidence must be two written rejections by insurers licensed and engaged in writing the coverage applied for in Texas or by eligible surplus lines insurers. For purposes of this subsection, a rejection has occurred if the applicant:

(I) made a verifiable effort to obtain insurance coverage from authorized insurers and eligible surplus lines insurers; and

(II) was unable to obtain substantially equivalent insurance coverage and rates.

(iv) any material misrepresentation in the application for coverage must be cause to decline coverage on discovery by the association or its authorized representative;

(v) each application must be accompanied by authorization for and consent to investigations of material information bearing on the moral character, professional reputation, and fitness to engage in the activities embraced by the applicant's license with respect to applicants who are to be provided coverage on the form approved for physicians and noninstitutional health care providers, or the reputation, method of operation, accident prevention programs, and fitness to engage in the activities embraced by the applicant's license, charter, certificate, or accreditation for applicants who are to be provided coverage on the form approved for hospitals and other institutional health care providers, including authorization to every person or entity, public or private, to release to the association any documents, records, or other information bearing on this information;

(vi) no coverage may be afforded either by binder or by policy issuance to any applicant whose license, charter, certificate, or accreditation has been ordered canceled, revoked, or suspended, provided that, if the order has been probated by the appropriate regulatory body or licensing agency, then the probation may be reviewed by the association for a determination whether and on what basis coverage may be afforded in the association;

(vii) the applicant, to be eligible for coverage in the association, must comply with all significant recommendations arising out of a loss control or risk management report either before binding coverage or as soon as practicable concurrently with coverage;

(viii) there must be no unpaid, uncontested premium; assessment; or charge due from the applicant; and

(ix) there must be no unpaid deductible, in whole or part, owed to the association.

(5) Receipt of the application. On receipt of the application, the required deposit premium, and the applicable stabilization reserve fund charge, the association must, within 30 days:

(A) cause a binder or insurance policy to be issued; or

(B) advise the agent or applicant that the applicant does not meet the underwriting standards of the association, in which case the association must indicate the reasons the applicant does not meet the underwriting standards.

(c) Cancellation, nonrenewal, and notice.

(1) Cancellation by the association. The association may not cancel an insurance policy except for:

(A) nonpayment of premium;

(B) nonpayment of the applicable stabilization reserve fund charge;

(C) nonpayment of assessment;

(D) evidence of fraud or material misrepresentation;

(E) cause that would have been grounds for nonacceptance of the risk under this subchapter had the cause been known to the association at the time the policy was issued;

(F) any cause arising after the policy is issued that would have been grounds for nonacceptance of the risk under this subchapter had the cause existed at the time of acceptance; or

(G) noncompliance with reasonable loss control or risk management recommendations under subsection (b)(4)(A)(vii) of this section. On cancellation of an insurance policy by the association, the association must refund to the insured the unearned portion of any paid premium and, if canceled within the 90th day of coverage, the unearned portion of the paid fund charges under Insurance Code Chapter 2203, Subchapter G on a pro rata basis, provided that all assessments and fund charges earned under Insurance Code Chapter 2203, Subchapter G have been fully paid; otherwise, only that portion of unearned premium over any unpaid assessment and fund charges under Insurance Code Chapter 2203, Subchapter G will be refunded. Policyholder assessments and fund charges under Insurance Code Chapter 2203, Subchapter G are fully earned on payment; therefore, except as provided in Insurance Code Chapter 2203 or §5.2003(c)(2) of this title (relating to Members and Policyholders Participation in the Texas Medical Liability Insurance Underwriting Association), no portion is refundable.

(2) Cancellation by the insured. An insurance policy may be canceled at any time:

(A) by the insured, on written request for cancellation of the policy; or

(B) by an insurance premium finance company in accordance with Insurance Code Chapter 651.

(3) Refund of unearned portion of paid premium. The association must refund the unearned portion of any paid premium and, if canceled within the 90th day of coverage, the unearned portion of the paid fund charges under Insurance Code Chapter 2203, Subchapter G according to the approved short-rate table, provided all assessments and fund charges under Insurance Code Chapter 2203, Subchapter G earned have been fully paid; otherwise, only that portion of the unearned premium over any unpaid assessment and fund charges under Insurance Code Chapter 2203, Subchapter G will be refunded. Policyholder assessments and fund charges under Insurance Code Chapter 2203, Subchapter G are fully earned on payment; therefore, except as provided in Insurance Code Chapter 2203 or §5.2003(c)(2) of this title, no portion is refundable.

(4) Exhausted policy limits. If there is an outstanding claim or claims under any insurance policy on which a reserve or reserves have been established, which in the aggregate or when combined with losses previously paid under the policy equal or exceed the aggregate limits of coverage under the policy, the association must notify the insured. At the insured's option, the policy may be canceled. If the policy is canceled, the premium must be considered fully earned and the insured may apply for a new policy to be effective concurrently with the termination date of the canceled policy.

(5) Notice of cancellation, nonrenewal, or premium increase.

(A) The association may cancel a medical liability insurance policy and general liability insurance policy, or decline to renew a policy for any reason listed in paragraph (1) of this subsection at any time within the first 90 days from the effective date of the policy by sending 90 days written notice to the insured.

(B) The association may cancel a medical liability insurance policy and general liability insurance policy or decline to renew a policy for nonpayment of premium, assessments, or fund charges under Insurance Code Chapter 2203, Subchapter G, or for loss of license, charter, certification, or accreditation at any time during the policy period by sending 10 days' written notice to the insured.

(C) Notice of cancellation or nonrenewal under subparagraphs (A) and (B) of this paragraph must contain a statement of the reason for the cancellation or nonrenewal and a statement that the insured has the right to appeal under Insurance Code Chapter 2203, Subchapter I.

(D) The association must give at least 90 days' written notice to an insured before increasing the premium by reason of a rate increase on the insured's medical liability insurance policy. The notice must state the amount of the increase.

(6) General liability insurance. A general liability insurance policy issued by the association under Insurance Code §2203.151(b) automatically terminates on the same effective date and time as the termination of the medical liability insurance policy.

(d) Suspension of policy. The association must, on written request from a policyholder subject to the Servicemembers Civil Relief Act of 2003 (50 United States Code App. §§501, et seq.), suspend the policy issued by the association, in accordance with the Servicemembers Civil Relief Act of 2003.

(e) Removal of risks. Any member, or self-insurance trust established under Insurance Code Chapter 2212, at any time, on written consent from the insured filed with the association, may write the risk as regular business, in which event the association must cancel its policy pro rata as of a date and time specified by the manager of the association. The association will require written confirmation that the member or self-insurance trust is taking the risk out of the association before allowing pro rata cancellation.

(f) Payment of claims.

(1) Report of loss. All losses must be reported to the association in the manner prescribed by the board of directors.

(2) Adjustment of loss. All losses must be adjusted in the manner designated by the board of directors subject to the provisions of this plan of operation and the insurance laws of Texas.

Source Note: The provisions of this §5.2004 adopted to be effective January 1, 1976; amended to be effective October 31, 1984, 9 TexReg 5426; amended to be effective January 19, 1988, 13 TexReg 124; amended to be effective March 18, 1993, 18 TexReg 1411; amended to be effective April 7, 1997, 22 TexReg 3039; amended to be effective January 23, 2005, 30 TexReg 76; amended to be effective August 27, 2017, 42 TexReg 4139; amended to be effective September 16, 2020, 45 TexReg 6363