FRAUDULENT AND UNFAIR TRADE PRACTICES REGARDING...

1095

FRAUDULENT AND FRAUDULENT AND

UNFAIR TRADE UNFAIR TRADE

PRACTICES REGARDING PRACTICES REGARDING

SMALL EMPLOYER SMALL EMPLOYER

HEALTH BENEFIT PLANSHEALTH BENEFIT PLANS

1096

In This Section…• Unfair Methods of Competition and Unfair or Deceptive Acts or

Practices: Texas Insurance Code, Title 5, Subtitle C, Chapter 541

• Processing and Settlement of Claims: Texas Insurance Code, Title 5, Subtitle C, Chapter 542

• False Advertising by Unauthorized Insurers: Texas Insurance Code, Title 5, Subtitle C, Chapter 547

• Unauthorized Health Insurance: TDI Commissioner’s Bulletin B-0004-07, February 2, 2007

• Deceptive Trade Practices and Consumer Protection Act: Business and Commerce Code, Chapter 17, Subchapter E

• Insurance Fraud: Texas Penal Code, Chapter 35

• TDI Resources: Fraud

1097

Unfair Methods of Unfair Methods of Competition and Unfair Competition and Unfair or Deceptive Actsor Deceptive Acts

Subchapter A: General Provisions

1099

PurposeThe purpose of this chapter is to regulate trade practices in the business of insurance by:

(1) 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

(2) prohibiting those trade practices.

1100

KnowinglyActual awareness of the falsity, unfairness, or deceptiveness of the act or practice on which a claim for damages under Subchapter D is based. Actual awareness may be inferred if objective manifestations indicate that a person acted with actual awareness.

1101

PersonAn individual, corporation, association, partnership, reciprocal or inter-insurance exchange, Lloyd's plan, fraternal benefit society, or other legal entity engaged in the business of insurance, including an agent, broker, adjuster, or life and health insurance counselor.

1102

Unfair or Deceptive Acts Prohibited

UNFAIR METHODS OF COMPETITION AND UNFAIR OR DECEPTIVE ACTS OR PRACTICES PROHIBITED.

A person may not engage in this state in a trade practice that is defined in this chapter as or determined under this chapter to be an unfair method of competition or an unfair or deceptive act or practice in the business of insurance.

1103

Prohibited ContentPROHIBITED CONTENT OF CERTAIN INSURANCE POLICIES.

Notwithstanding any other provision of this code, it is unlawful for an insurer engaged in the business of life, accident, or health insurance to issue or deliver in this state a policy containing the words "Approved by the Texas Department of Insurance" or words of a similar meaning.

SUBCHAPTER B. UNFAIR METHODS OF COMPETITION AND UNFAIR OR DECEPTIVE

ACTS OR PRACTICES DEFINED

1105

Misrepresentation Regarding Policy or Insurer

It is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to:(1) make, issue, or circulate or cause to be made, issued, or circulated an estimate, illustration, circular, or statement misrepresenting with respect to a policy issued or to be issued:(A) the terms of the policy;(B) the benefits or advantages promised by the policy; or(C) the dividends or share of surplus to be received on the policy;(2) make a false or misleading statement regarding the dividends or share of surplus previously paid on a similar policy;(3) make a misleading representation or misrepresentation regarding:(A) the financial condition of an insurer; or(B) the legal reserve system on which a life insurer operates;(4) use a name or title of a policy or class of policies that misrepresents the true nature of the policy or class of policies; or(5) make a misrepresentation to a policyholder insured by any insurer for the purpose of inducing or that tends to induce the policyholder to allow an existing policy to lapse or to forfeit or surrender the policy.

1106

False Information and Advertising

It is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to make, publish, disseminate, circulate, or place before the public or directly or indirectly cause to be made, published, disseminated, circulated, or placed before the public an advertisement, announcement, or statement containing an untrue, deceptive, or misleading assertion, representation, or statement regarding the business of insurance or a person in the conduct of the person's insurance business.

1107

False Information and Advertising

This section applies to an advertisement, announcement, or statement made, published, disseminated, circulated, or placed before the public:

(1) in a newspaper, magazine, or other publication;

(2) in a notice, circular, pamphlet, letter, or poster;

(3) over a radio or television station;

(4) through the Internet; or

(5) in any other manner.

1108

Defamation of InsurerIt is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to directly or indirectly make, publish, disseminate, or circulate or to aid, abet, or encourage the making, publication, dissemination, or circulation of a statement that:

(1) is false, maliciously critical of, or derogatory to the financial condition of an insurer; and

(2) is calculated to injure a person engaged in the business of insurance.

1109

Defamation of InsurerThis section applies to any oral or written statement, including a statement in any pamphlet, circular, article, or literature.

1110

Boycott, Coercion, or Intimidation

It is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to commit through concerted action or to enter into an agreement to commit an act of boycott, coercion, or intimidation that results in or tends to result in the unreasonable restraint of or a monopoly in the business of insurance.

1111

False Financial StatementIt is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to, with intent to deceive:

(1) file with a supervisory or other public official a false statement of financial condition of an insurer; or

(2) make, publish, disseminate, circulate, deliver to any person, or place before the public or directly or indirectly cause to be made, published, disseminated, circulated, delivered to any person, or placed before the public a false statement of financial condition of an insurer.

1112

False Financial StatementIt is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to make a false entry in an insurer's book, report, or statement or willfully omit to make a true entry of a material fact relating to the insurer's business in the insurer's book, report, or statement with intent to deceive:

(1) an agent or examiner lawfully appointed to examine the insurer'scondition or affairs; or

(2) a public official to whom the insurer is required by law to report or who has authority by law to examine the insurer's condition or affairs.

1113

Prohibited Rebates and Inducements

Subject to Section 541.058 and except as otherwise expressly provided by law, it is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to knowingly permit the making of, offer to make, or make a life insurance contract, life annuity contract, or accident and health insurance contract or an agreement regarding the contract, other than as plainly expressed in the issued contract, or directly or indirectly pay, give, or allow or offer to pay, give, or allow as inducement to enter into a life insurance contract, life annuity contract, or accident and health insurance contract a rebate of premiums payable on the contract, a special favor or advantage in the dividends or other benefits of the contract, or a valuable consideration or inducement not specified in the contract, or give, sell, or purchase or offer to give, sell, or purchase in connection with a life insurance, life annuity, or accident and health insurance contract or as inducement to enter into the contract stocks, bonds, or other securities of an insurer or other corporation, association, or partnership, dividends or profits accrued from the stocks, bonds, or securities, or anything of value not specified in the contract.

1114


It is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to issue or deliver or to permit an agent, officer, or employee to issue or deliver as an inducement to insurance:

(1) company stock or other capital stock;

(2) a benefit certificate or share in a corporation;

(3) securities; or

(4) a special or advisory board contract or any other contract promising returns or profits.

1115


Subsection (b) does not prohibit issuing or delivering a participating insurance policy otherwise authorized by law.

1116

Not Discrimination or Inducement

In this section:

(1) "Health-related services" means services that are available in connection with an accident and health insurance policy or certificate or an evidence of coverage and that are directed to an individual's health improvement or maintenance.

(2) "Health-related information" means that information that is directed to an individual's health improvement or maintenance or to costs associated with particular options available in connection with an accident and health insurance policy or certificate or an evidence of coverage.

1117


It is not a rebate or discrimination prohibited by Section 541.056(a) or 541.057:

1118


for a group insurance policy, to readjust the rate of premium based on the loss or expense experience under the policy at the end of a policy year if the adjustment is retroactive for only that policy year;

1119


in connection with an accident and health insurance policy, to provide to policy or certificate holders, in addition to benefits under the terms of the insurance contract, health-related services or health-related information, or to disclose the availability of those additional services and information to prospective policy or certificate holders; or

1120


in connection with a health maintenance organization evidence of coverage, to provide to enrollees, in addition to benefits under the evidence of coverage, health-related services or health-related information, or to disclose the availability of those additional services and information to prospective enrollees or contract holders.

1121

Deceptive Name, Word, Symbol, etc.

Except as provided by Subsection (b), it is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to use, display, publish, circulate, distribute, or cause to be used, displayed, published, circulated, or distributed in a letter, pamphlet, circular, contract, policy, evidence of coverage, article, poster, or other document, literature, or public media:

(1) a name as the corporate or business name of a person or entity engaged in the business of insurance or in an insurance-related business in this state that is the same as or deceptively similar to the name adopted and used by an insurance entity, health maintenance organization, third-party administrator, or group hospital service corporation authorized to engage in business under the laws of this state; or

(2) a word, symbol, device, or slogan, either alone or in combination and regardless of whether registered, and including the titles, designations, character names, and distinctive features of broadcast or other advertising, that is the same as or deceptively similar to a word, symbol, device, or slogan adopted and used by an insurance entity, health maintenance organization, third-party administrator, or group hospital service corporation to distinguish the entity or the entity's products or services from another entity.

1122

Deceptive Name, Word, Symbol, etc.

If more than one person or entity uses names, words, symbols, devices, or slogans, either alone or in combination, that are the same or deceptively similar and are likely to cause confusion or mistake, the person or entity that demonstrates the first continuous actual use of the name, word, symbol, device, slogan, or combination has not engaged in an unfair method of competition or deceptive act or practice under this section.

1123

Unfair Settlement PracticesIt is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to engage in the following unfair settlement practices with respect to a claim by an insured or beneficiary:

1124

Unfair Settlement Practicesmisrepresenting to a claimant a material fact or policy provision relating to coverage at issue;

1125

Unfair Settlement Practicesfailing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of:

(A) a claim with respect to which the insurer's liability has becomereasonably clear; or

(B) a claim under one portion of a policy with respect to which the insurer's liability has become reasonably clear to influence the claimant to settle another claim under another portion of the coverage unless payment under one portion of the coverage constitutes evidence of liability under another portion;

1126

Unfair Settlement Practicesfailing to promptly provide to a policyholder a reasonable explanation of the basis in the policy, in relation to the facts or applicable law, for the insurer's denial of a claim or offer of a compromise settlement of a claim;

1127

Unfair Settlement Practicesfailing within a reasonable time to:

(A) affirm or deny coverage of a claim to a policyholder; or

(B) submit a reservation of rights to a policyholder;

1128

Unfair Settlement Practicesrefusing, failing, or unreasonably delaying a settlement offer under applicable first-party coverage on the basis that other coverage may be available or that third parties are responsible for the damages suffered, except as may be specifically provided in the policy;

1129

Unfair Settlement Practicesundertaking to enforce a full and final release of a claim from a policyholder when only a partial payment has been made, unless the payment is a compromise settlement of a doubtful or disputed claim;

1130

Unfair Settlement Practicesrefusing to pay a claim without conducting a reasonable investigation with respect to the claim;

1131

Unfair Settlement Practiceswith respect to a Texas personal automobile insurance policy, delaying or refusing settlement of a claim solely because there is other insurance of a different kind available to satisfy all or part of the loss forming the basis of that claim; or

1132

Unfair Settlement Practicesrequiring a claimant as a condition of settling a claim to produce the claimant's federal income tax returns for examination or investigation by the person unless:

(A) a court orders the claimant to produce those tax returns;

(B) the claim involves a fire loss; or

(C) the claim involves lost profits or income.

1133

Unfair Settlement PracticesSubsection (a) does not provide a cause of action to a third party asserting one or more claims against an insured covered under a liability insurance policy.

1134

Misrepresentation of Insurance Policy

It is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to misrepresent an insurance policy by:(1) making an untrue statement of material fact;(2) failing to state a material fact necessary to make other statements made not misleading, considering the circumstances under which the statements were made;(3) making a statement in a manner that would mislead a reasonably prudent person to a false conclusion of a material fact;(4) making a material misstatement of law; or(5) failing to disclose a matter required by law to be disclosed, including failing to make a disclosure in accordance with another provision of this code.

SUBCHAPTER B-1. ADVERTISING REQUIREMENTS

1136

Advertising and Internet Websites

In this section, "insurer" includes:(1) a life insurance company;(2) a health insurance company;(3) an accident insurance company;(4) a general casualty company;(5) a mutual life insurance company or other mutual insurance company;(6) a mutual or natural premium life insurance company;(7) a Lloyd's plan;(8) a county mutual insurance company;(9) a farm mutual insurance company;(10) a reciprocal or interinsurance exchange;(11) a fraternal benefit society;(12) a local mutual aid association;(13) a health maintenance organization;(14) a group hospital service corporation; or(15) a multiple employer welfare arrangement that holds a certificate of coverage under Chapter 846.

1137


A web page of an insurer's Internet website must include all appropriate disclosures and information required by applicable rules adopted by the commissioner relating to advertising only if the web page:

(1) describes specific policies or coverage available in this state; or

(2) includes an opportunity for an individual to apply for coverage or obtain a quote from an insurer for an insurance policy or certificate or an evidence of coverage.

1138


As may be permitted by commissioner rule, an insurer may comply with Subsection (b) by including a link to a web page that includes the information necessary to comply with the applicable rules relating to advertising. The link must be prominently placed on the insurer's web page.

1139


Web pages of an Internet website that do not refer to a specific insurance policy, certificate of coverage, or evidence of coverage or that do not provide an opportunity for an individual to apply for coverage or request a quote from an insurer are considered to be institutional advertisements subject to rules adopted by the commissioner relating to advertising.

1140


Web pages or navigation aids within an insurer's Internet website that provide a link to a web page described by Subsection (b) but that do not otherwise contain content described in Subsection (b) are considered to be institutional advertisements subject to rules adopted by the commissioner relating to advertising.

1141

Advertising to Certain Associations

An insurer may advertise to the general public policies or coverage available only to members of an association described by Section 1251.052.

1142

Advertising Relating to Medicare Program

A person may not use an advertisement for an insurance product relating to Medicare coverage unless the advertisement includes in a prominent place the following language or similar language: "Not connected with or endorsed by the United States government or the federal Medicare program."

1143

Advertising Relating to PPOsIt is sufficient for an insurer to use the term "PPO plan" in advertisements when referring to a preferred provider benefit plan offered under Chapter 1301.

1144

Advertising Regarding Guaranteed Renewable

An advertisement for a guaranteed renewable accident and health insurance policy must include, in a prominent place, a statement indicating that rates for the policy may change if the advertisement suggests or implies that rates for the product will not change.

1145

Advertising Regarding Guaranteed Renewable

If an advertisement is required to include the statement described by Subsection (a), the statement must generally identify the manner in which rates may change, such as by age, by health status, by class, or through application of other general criteria.

1146

Advertisements Exempt from Filing

An advertisement subject to requirements regarding filing of theadvertisement with the department for department review under this code or commissioner rule and that is the same as or substantially similar to an advertisement previously reviewed and accepted by the department is not required to be filed for department review.

1147

Processing and Processing and Settlement of ClaimsSettlement of Claims

General Provisions

1149

Short TitleThis subchapter may be cited as the Unfair Claim Settlement Practices Act.

1150

ApplicabilityThis subchapter applies to the following insurers whether organized as a proprietorship, partnership, stock or mutual corporation, or unincorporated association:(1) a life, health, or accident insurance company;(2) a fire or casualty insurance company;(3) a hail or storm insurance company;(4) a title insurance company;(5) a mortgage guarantee company;(6) a mutual assessment company;(7) a local mutual aid association;(8) a local mutual burial association;(9) a statewide mutual assessment company;(10) a stipulated premium company;(11) a fraternal benefit society;(12) a group hospital service corporation;(13) a county mutual insurance company;(14) a Lloyd's plan;(15) a reciprocal or interinsurance exchange; and(16) a farm mutual insurance company.

1151

Unfair Claim Settlement Practices Prohibited

An insurer engaging in business in this state may not engage in an unfair claim settlement practice.

1152

Unfair Claim Settlement Practices

Any of the following acts by an insurer constitutes unfair claim settlement practices:

(1) knowingly misrepresenting to a claimant pertinent facts or policy provisions relating to coverage at issue;

(2) failing to acknowledge with reasonable promptness pertinent communications relating to a claim arising under the insurer's policy;

(3) failing to adopt and implement reasonable standards for the prompt investigation of claims arising under the insurer's policies;

(4) not attempting in good faith to effect a prompt, fair, and equitable settlement of a claim submitted in which liability has become reasonably clear;

(5) compelling a policyholder to institute a suit to recover an amount due under a policy by offering substantially less than the amount ultimately recovered in a suit brought by the policyholder;

(6) failing to maintain the information required by Section 542.005; or

(7) committing another act the commissioner determines by rule constitutes an unfair claim settlement practice.

1153

Examination of Tax Returns Prohibited

An insurer regulated under this code may not require a claimant, as a condition of settling a claim, to produce the claimant's federal income tax returns for examination or investigation by the insurer unless:

(1) the claimant is ordered to produce the tax returns by a court; or

(2) the claim involves:

(A) a fire loss; or

(B) a loss of profits or income.

1154


An insurer that violates this section commits:

(1) a prohibited practice under this subchapter; and

(2) a deceptive trade practice under Subchapter E, Chapter 17, Business & Commerce Code.

1155


A claimant affected by a violation of this section is entitled to remedies under Subchapter E, Chapter 17, Business & Commerce Code.

1156

Record of ComplaintsIn this section, "complaint" means any written communication primarily expressing a grievance.

1157

Record of ComplaintsAn insurer shall maintain a complete record of all complaints received by the insurer during the preceding three years or since the date of the insurer's last examination by the department, whichever period is shorter. The record must indicate:

(1) the total number of complaints;

(2) the classification of complaints by line of insurance;

(3) the nature of each complaint;

(4) the disposition of the complaints; and

(5) the time spent processing each complaint.

1158

Periodic Reporting RequirementIn this section, "claim" means a written claim filed by a resident of this state with an insurer engaging in business in this state.

1159

Periodic Reporting RequirementIf, based on complaints of unfair claim settlement practices under this subchapter, the department finds that an insurer should be subjected to closer supervision with respect to the insurer's claim settlement practices, the department may require the insurer to file periodic reports at intervals the department determines necessary.

COMPARISON OF CERTAIN INSURERS TO MINIMUM STANDARD OF PERFORMANCE;

INVESTIGATION.

1161

Complaints Against Insurers, Investigation

The department shall establish a system for receiving and processing individual complaints alleging a violation of this subchapter by an insurer regardless of whether the insurer is required to file a periodic report under Section 542.006.

1162

Complaints Against Insurers, Investigation

The department shall investigate an insurer if the department determines that:

(1) based on the number and type of complaints against an insurer, the insurer does not meet the minimum standard of performance adopted under Section 542.007; or

(2) the number and type of complaints against the insurer are not proportionate to the number and type of complaints against other insurers writing similar lines of insurance.

1163

Review of Investigation Results, Hearing

On receiving the results of an investigation instituted under Section 542.007 or 542.008, the department shall review those results considering the standards of this subchapter to determine whether further action is necessary.

1164

Cease and Desist Orders, Enforcement

If the department determines that an insurer has violated this subchapter, the department shall issue a cease and desist order to the insurer directing the insurer to stop the unlawful practice.

1165

Cease and Desist Orders, Enforcement

If the insurer fails to comply with the cease and desist order, the department may:

(1) revoke or suspend the insurer's certificate of authority; or

(2) limit, regulate, and control:

(A) the insurer's line of business;

(B) the insurer's writing of policy forms or other particular forms; and

(C) the volume of the insurer's:

(i) line of business; or

(ii) writing of policy forms or other particular forms.

1166

Time Limit to AppealAn insurer affected by a ruling or order of the department under this subchapter may appeal the ruling or order, in accordance with Subchapter D, Chapter 36, by filing a petition for judicial review not later than the 20th day after the date of the ruling or order.

SUBCHAPTER B. PROMPT PAYMENT OF CLAIMS

1168

Definitions• "Business day" means a day other than a Saturday, Sunday, or holiday

recognized by this state.

• "Claim" means a first-party claim that:

– (A) is made by an insured or policyholder under an insurance policy or contract or by a beneficiary named in the policy or contract; and

– (B) must be paid by the insurer directly to the insured or beneficiary.

• "Claimant" means a person making a claim.

• "Notice of claim" means any written notification provided by a claimant to an insurer that reasonably apprises the insurer of the facts relating to the claim.

1169

ApplicabilityThis subchapter applies to any insurer authorized to engage in business as an insurance company or to provide insurance in this state.

1170

ExceptionThis subchapter does not apply to:

(1) workers' compensation insurance;

(2) mortgage guaranty insurance;

(3) title insurance;

(4) fidelity, surety, or guaranty bonds;

(5) marine insurance as defined by Section 1807.001; or

(6) a guaranty association created and operating under Chapter 2602.

1171

ExceptionA guaranty association operating under Chapter 462 or 463 is not subject to the damage provisions of Section 542.060.

1172

ExceptionThis subchapter does not apply to a health maintenance organization except as provided by Section 1271.005(c).

1173

ExceptionThis subchapter does not apply to a claim governed by Subchapter C, Chapter 1301.

1174

Receipt and Notice of ClaimNot later than the 15th day or, if the insurer is an eligible surplus lines insurer, the 30th business day after the date an insurer receives notice of a claim, the insurer shall:

(1) acknowledge receipt of the claim;

(2) commence any investigation of the claim; and

(3) request from the claimant all items, statements, and forms that the insurer reasonably believes, at that time, will be required from the claimant.

1175

Receipt and Notice of ClaimAn insurer may make additional requests for information if during the investigation of the claim the additional requests are necessary.

1176

Receipt and Notice of ClaimIf the acknowledgment of receipt of a claim is not made in writing, the insurer shall make a record of the date, manner, and content of the acknowledgment.

1177

Notice of Acceptance or Rejection

Except as provided by Subsection (b) or (d), an insurer shall notify a claimant in writing of the acceptance or rejection of a claim not later than the 15th business day after the date the insurer receives all items, statements, and forms required by the insurer to secure final proof of loss.

1178


If an insurer has a reasonable basis to believe that a loss resulted from arson, the insurer shall notify the claimant in writing of the acceptance or rejection of the claim not later than the 30th day after the date the insurer receives all items, statements, and forms required by the insurer.

1179


If the insurer rejects the claim, the notice required by Subsection (a) or (b) must state the reasons for the rejection.

1180


If the insurer is unable to accept or reject the claim within the period specified by Subsection (a) or (b), the insurer, within that same period, shall notify the claimant of the reasons that the insurer needs additional time. The insurer shall accept or reject the claim not later than the 45th day after the date the insurer notifies a claimant under this subsection.

1181

Payment of ClaimExcept as otherwise provided by this section, if an insurer notifies a claimant under Section 542.056 that the insurer will pay a claim or part of a claim, the insurer shall pay the claim not later than the fifth business day after the date notice is made.

1182

Payment of ClaimIf payment of the claim or part of the claim is conditioned on the performance of an act by the claimant, the insurer shall pay the claim not later than the fifth business day after the date the act is performed.

1183

Payment of ClaimIf the insurer is an eligible surplus lines insurer, the insurer shall pay the claim not later than the 20th business day after the notice or the date the act is performed, as applicable.

1184

Delay in Payment of ClaimExcept as otherwise provided, if an insurer, after receiving all items, statements, and forms reasonably requested and required under Section 542.055, delays payment of the claim for a period exceeding the period specified by other applicable statutes or, if other statutes do not specify a period, for more than 60 days, the insurer shall pay damages and other items as provided by Section 542.060.

1185

Delay in Payment of ClaimSubsection (a) does not apply in a case in which it is found as a result of arbitration or litigation that a claim received by an insurer is invalid and should not be paid by the insurer.

1186

Delay in Payment of ClaimA life insurer that receives notice of an adverse, bona fide claim to all or part of the proceeds of the policy before the applicable payment deadline under Subsection (a) shall pay the claim or properly file an interpleader action and tender the benefits into the registry of the court not later than the 90th day after the date the insurer receives all items, statements, and forms reasonably requested and required under Section 542.055. A life insurer that delays payment of the claim or the filing of an interpleader and tender of policy proceeds for more than 90 days shall pay damages and other items as provided by Section 542.060 until the claim is paid or an interpleader is properly filed.

1187

Extension of Deadlines(a) A court may grant a request by a guaranty association for an extension of the periods under this subchapter on a showing of good cause and after reasonable notice to policyholders.

(b) In the event of a weather-related catastrophe or major natural disaster, as defined by the commissioner, the claim-handling deadlines imposed under this subchapter are extended for an additional 15 days.

1188

Liability for Violation(a) If an insurer that is liable for a claim under an insurance policy is not in compliance with this subchapter, the insurer is liable to pay the holder of the policy or the beneficiary making the claim under the policy, in addition to the amount of the claim, interest on the amount of the claim at the rate of 18 percent a year as damages, together with reasonable attorney's fees.

(b) If a suit is filed, the attorney's fees shall be taxed as part of the costs in the case.

1189

Remedies Not ExclusiveThe remedies provided by this subchapter are in addition to any other remedy or procedure provided by law or at common law.

1190

False Advertising by False Advertising by Unauthorized InsurersUnauthorized Insurers

SUBCHAPTER A. GENERAL PROVISIONS

1192

Definitions• "Alien or foreign insurer" means an insurance company organized under

the laws of:

– a country other than the United States; or

– a state of the United States other than this state.

• "Resident" includes a domestic, alien, or foreign:

– corporation;

– partnership; or

– person.

SUBCHAPTER B. PROHIBITION; ENFORCEMENT

1194

Acts ProhibitedThis section applies only to an insurer's misrepresentation of:

(1) the insurer's financial condition;

(2) the terms of an existing or future contract;

(3) the benefits or advantages promised by an existing or future contract; or

(4) the dividends or share of surplus to be received on an existing or future contract.

1195

Acts ProhibitedAn unauthorized alien or foreign insurer may not:

(1) make, issue, circulate, or cause to be made, issued, or circulated to a resident of this state a misrepresentation in an advertisement, estimate, illustration, circular, pamphlet, or letter that violates Chapter 541; or

(2) cause to be made to a resident of this state in a newspaper, magazine, or other publication, or over a radio or television station, a misrepresentation in an announcement or statement that violates Chapter 541.

1196

Notice to Domiciliary State(a) In this section, the domiciliary state of an alien insurer is the state of entry or the state of the insurer's principal office in the United States.

(b) If the department has reason to believe that an insurer has engaged in an act prohibited by Section 547.051, the department shall notify, by registered mail, the insurer and the insurance supervisory official of the insurer's domiciliary state.

1197

Enforcement ActionThe department shall take action under Chapter 541 against an insurer notified under Section 547.052 if:

(1) after the 30th day following the date of notice, the insurer has not stopped making, issuing, or circulating or causing to be made, issued, or circulated in this state the false misrepresentations; and

(2) the department has reason to believe that:

(A) the insurer is issuing or delivering insurance contracts to residents of this state or is collecting premiums on those contracts; and

(B) a department proceeding regarding the misrepresentations is in the public interest.

1198

B-0004-07, February 2, 2007

Unauthorized Health Insurance

COBRA requires group health plans to give qualified beneficiaries an election period during which they can decide whether to elect continuation coverage, and

COBRA also gives qualified beneficiaries specific election rights.

1199

February 2, 2007TO: Preferred Provider Organizations and the Texas Public Generally

RE: Unauthorized Health Insurance

1200

The ProblemThe Department continues to be concerned about unauthorized health insurance plans operating in and from Texas and about claims going unpaid by such plans.

The U.S. General Accountability Office has found that more than 200,000 policyholders nationwide over a three-year period have been affected by unauthorized health insurance plans, leaving at least $252 million in unpaid medical claims to policyholders and providers.

The Department seeks the help of preferred provider organizations (PPO’s) in combating this problem.

1201

Due DiligenceTo avoid such losses for Texas policyholders and providers, the Department is again urging and advising PPO’s to exercise and document appropriate due diligence to establish that the proffered health benefit plan is not unauthorized insurance, prior to entering into any contract with a person offering or providing a health benefit plan in this state.

This due diligence includes, but is not limited to, the following measures.

1202

Due DiligenceFor any insurance coverage that is represented as relating to the health benefit plan, the PPO should:

– contact the insurance carrier to verify that the named insurer has actually issued the policy or is being represented by the person soliciting the PPO contract;

– conduct a detailed review of the policy to determine whether the coverage is as represented; and

– refer to www.naic.org, www.tdi.state.tx.us, or call the Texas Department of Insurance at 1-800-252-3439 to confirm that the insurer is an admitted insurer in this state.

1203

Due DiligenceFor any health benefit plan represented as established pursuant to a collective bargaining agreement, the PPO should verify that the plan is indeed established or maintained pursuant to such an agreement under the criteria provided by 29 CFR 2510.3-40.

1204

Due DiligenceFor any health benefit plan represented as established by an employee leasing arrangement, the PPO should confirm that the plan is fully insured and issued through an authorized carrier using the procedures described in item (1).

1205

Due DiligenceFor any health plan represented as established by a single employer, the PPO should confirm that the plan covers solely employees and their dependants of a single employer as defined by the 1974 Employee Retirement Income Security Act and that the employer controls and directs the work of the employees.

1206

You Might Be a Fake Plan If…The following is a list of some circumstances and product characteristics that should prompt a PPO to further review and investigate a health benefit plan or product.

While these circumstances and characteristics do not conclusively determine whether a health benefit plan or product is or is not part of an unauthorized insurance scam, this list is meant to assist PPO’s in reviewing and investigating health benefit plans or products.

1207

Like Insurance, But NotThe product operates like insurance but claims that it is not insurance or claims that it is only providing benefits and not insurance.

1208

No-Name CarrierThe product claims to be “fully funded,” “fully insured” or “reinsured” but the plan’s agents or sponsors do not name the carrier insuring or underwriting the product.

1209

Membership RequiredThe plan is marketed to both individuals and employers who are required to join and pay dues to a trade, occupational or consumer “association” solely to obtain health coverage.

Also, the enrollees do not control or sponsor the activities of the association, or are not given association bylaws or voting rights.

1210

Staff Leasing ArrangementAgents market an employee or staff leasing arrangement that is not fully insured.

1211

Unusually Lenient UnderwritingThe product has unusually lenient underwriting.

For example, it accepts and covers individuals with preexisting conditions, even though the individuals have no creditable coverage as described, for example, in Insurance Code §1205.004(a).

1212

Please Report Illegal OperationsThe Department asks that you promptly report any potentially illegal operations described in this Bulletin.

Note that Insurance Code §701.051 requires all persons to report suspected fraudulent insurance acts to the Department.

Insurance

1213

QuestionsQuestions about licensure may be directed to the Department’s Consumer Protection Division at 1-800-252-3439. Suspected fraud may be reported to the Department’s Fraud Unit at 1-888-327-8818.

The Department has, in previous years, provided notice on these issues through prior bulletins. More detailed discussion of these issues may also be found in Commissioner’s Bulletin’s B-0009-02, B-0032-03, and B-0008-06 available on the TDI website, www.tdi.state.tx.us.

Sincerely,

Sara Shiplet Waitt

Senior Associate Commissioner

Legal & Compliance Division

For more information contact:

[email protected]

1214

Deceptive Trade Deceptive Trade Practices and Consumer Practices and Consumer

Protection ActProtection Act

1215

Short TitleThis subchapter may be cited as the Deceptive Trade Practices-Consumer Protection Act.

1216

Waivers: Public PolicyAny waiver by a consumer of the provisions of this subchapter is contrary to public policy and is unenforceable and void; provided, however, that a waiver is valid and enforceable if:

(1) the waiver is in writing and is signed by the consumer;

(2) the consumer is not in a significantly disparate bargaining position; and

(3) the consumer is represented by legal counsel in seeking or acquiring the goods or services.

1217

Waivers: Public PolicyA waiver under Subsection (a) is not effective if the consumer's legal counsel was directly or indirectly identified, suggested, or selected by a defendant or an agent of the defendant.

1218

Waivers: Public PolicyA waiver under this section must be:

(1) conspicuous and in bold-face type of at least 10 points in size;

(2) identified by the heading "Waiver of Consumer Rights," or words of similar meaning; and

(3) in substantially the following form:

"I waive my rights under the Deceptive Trade Practices-Consumer Protection Act, Section 17.41 et seq., Business & Commerce Code, a law that gives consumers special rights and protections. After consultation with an attorney of my own selection, I voluntarily consent to this waiver."

1219

Waivers: Public PolicyThe waiver required by Subsection (c) may be modified to waive only specified rights under this subchapter.

1220

Waivers: Public PolicyThe fact that a consumer has signed a waiver under this section is not a defense to an action brought by the attorney general under Section 17.47.

1221

Cumulative RemediesThe provisions of this subchapter are not exclusive.

The remedies provided in this subchapter are in addition to any other procedures or remedies provided for in any other law; provided, however, that no recovery shall be permitted under both this subchapter and another law of both damages and penalties for the same act or practice.

A violation of a provision of law other than this subchapter is not in and of itself a violation of this subchapter.

An act or practice that is a violation of a provision of law other than this subchapter may be made the basis of an action under this subchapter if the act or practice is proscribed by a provision of this subchapter or is declared by such other law to be actionable under this subchapter.

The provisions of this subchapter do not in any way preclude other political subdivisions of this state from dealing with deceptive trade practices.

1222

Deceptive Trade Practices Unlawful

False, misleading, or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful and are subject to action by the consumer protection division under Sections 17.47, 17.58, 17.60, and 17.61 of this code.

1223

Deceptive Trade PracticesPassing off goods or services as those of another;

1224

Deceptive Trade PracticesCausing confusion or misunderstanding as to the source, sponsorship, approval, or certification of goods or services;

1225

Deceptive Trade PracticesCausing confusion or misunderstanding as to affiliation, connection, or association with, or certification by, another;

1226

Deceptive Trade PracticesUsing deceptive representations or designations of geographic origin in connection with goods or services;

1227

Deceptive Trade PracticesRepresenting that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have or that a person has a sponsorship, approval, status, affiliation, or connection which he does not;

1228

Deceptive Trade PracticesRepresenting that goods are original or new if they are deteriorated, reconditioned, reclaimed, used, or secondhand;

1229

Deceptive Trade PracticesRepresenting that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another;

1230

Deceptive Trade PracticesDisparaging the goods, services, or business of another by false or misleading representation of facts;

1231

Deceptive Trade PracticesAdvertising goods or services with intent not to sell them as advertised;

1232

Deceptive Trade PracticesAdvertising goods or services with intent not to supply a reasonable expectable public demand, unless the advertisements disclosed a limitation of quantity;

1233

Deceptive Trade PracticesMaking false or misleading statements of fact concerning the reasons for, existence of, or amount of price reductions;

1234

Deceptive Trade PracticesRepresenting that an agreement confers or involves rights, remedies, or obligations which it does not have or involve, or which are prohibited by law;

1235

Deceptive Trade PracticesKnowingly making false or misleading statements of fact concerning the need for parts, replacement, or repair service;

1236

Deceptive Trade PracticesMisrepresenting the authority of a salesman, representative or agent to negotiate the final terms of a consumer transaction;

1237

Deceptive Trade PracticesBasing a charge for the repair of any item in whole or in part on a guaranty or warranty instead of on the value of the actual repairs made or work to be performed on the item without stating separately the charges for the work and the charge for the warranty or guaranty, if any;

1238

Deceptive Trade PracticesDisconnecting, turning back, or resetting the odometer of any motor vehicle so as to reduce the number of miles indicated on the odometer gauge;

1239

Deceptive Trade PracticesAdvertising of any sale by fraudulently representing that a person is going out of business;

1240

Deceptive Trade PracticesAdvertising, selling, or distributing a card which purports to be a prescription drug identification card issued under Section 4151.152, Insurance Code, in accordance with rules adopted by the commissioner of insurance, which offers a discount on the purchase of health care goods or services from a third party provider, and which is not evidence of insurance coverage, unless:

(A) the discount is authorized under an agreement between the seller of the card and the provider of those goods and services or the discount or card is offered to members of the seller;

(B) the seller does not represent that the card provides insurance coverage of any kind; and

(C) the discount is not false, misleading, or deceptive;

1241

Deceptive Trade PracticesUsing or employing a chain referral sales plan in connection with the sale or offer to sell of goods, merchandise, or anything of value, which uses the sales technique, plan, arrangement, or agreement in which the buyer or prospective buyer is offered the opportunity to purchase merchandise or goods and in connection with the purchase receives the seller's promise or representation that the buyer shall have the right to receive compensation or consideration in any form for furnishing to the seller the names of other prospective buyers if receipt of the compensation or consideration is contingent upon the occurrence of an event subsequent to the time the buyer purchases the merchandise or goods;

1242

Deceptive Trade PracticesRepresenting that a guarantee or warranty confers or involves rights or remedies which it does not have or involve, provided, however, that nothing in this subchapter shall be construed to expand the implied warranty of merchantability as defined in Sections 2.314 through 2.318 and Sections 2A.212 through 2A.216 to involve obligations in excess of those which are appropriate to the goods;

1243

Deceptive Trade PracticesPromoting a pyramid promotional scheme, as defined by Section 17.461;

1244

Deceptive Trade PracticesRepresenting that work or services have been performed on, or parts replaced in, goods when the work or services were not performed or the parts replaced;

1245

Deceptive Trade PracticesFiling suit founded upon a written contractual obligation of and signed by the defendant to pay money arising out of or based on a consumer transaction for goods, services, loans, or extensions of credit intended primarily for personal, family, household, or agricultural use in any county other than in the county in which the defendant resides at the time of the commencement of the action or in the county in which the defendant in fact signed the contract; provided, however, that a violation of this subsection shall not occur where it is shown by the person filing such suit he neither knew or had reason to know that the county in which such suit was filed was neither the county in which the defendant resides at the commencement of the suit nor the county in which the defendant in fact signed the contract;

1246

Deceptive Trade PracticesFailing to disclose information concerning goods or services which was known at the time of the transaction if such failure to disclose such information was intended to induce the consumer into a transaction into which the consumer would not have entered had the information been disclosed;

1247

Deceptive Trade PracticesUsing the term "corporation," "incorporated," or an abbreviation of either of those terms in the name of a business entity that is not incorporated under the laws of this state or another jurisdiction;

1248

Deceptive Trade PracticesSelling, offering to sell, or illegally promoting an annuity contract under Chapter 22, Acts of the 57th Legislature, 3rd Called Session, 1962 (Article 6228a-5, Vernon's Texas Civil Statutes), with the intent that the annuity contract will be the subject of a salary reduction agreement, as defined by that Act, if the annuity contract is not an eligible qualified investment under that Act or is not registered with the Teacher Retirement System of Texas as required by Section 8A of that Act; or

1249

Deceptive Trade PracticesTaking advantage of a disaster declared by the governor under Chapter 418, Government Code, by:

(A) selling or leasing fuel, food, medicine, or another necessity at an exorbitant or excessive price; or

(B) demanding an exorbitant or excessive price in connection with the sale or lease of fuel, food, medicine, or another necessity.

1250

Listing Business Location in Directory

A person is considered to misrepresent the geographical location of a business for purposes of Subsection (a) if the name of the business indicates that the business is located in a geographical area and:

(1) the business is not located within the geographical area indicated;

(2) the listing fails to identify the municipality and state of the business's geographical location; and

(3) a telephone call to the local telephone number listed in the directory or database routinely is forwarded or transferred to a location that is outside the calling area covered by the directory or database in which the number is listed.

1251


A person may place a directory listing for a business described by Subsection (a) the name of which indicates that it is located in a geographical area that is different from the geographical area in which the business is located if a conspicuous notice in the listing states the municipality and state in which the business is located.

1252


This section creates no duty and imposes no obligation upon anyone other than the business that is the subject of the advertisement or listing.

1253


A violation of this section is a false, misleading, or deceptive act or practice under this subchapter, and any public or private right or remedy prescribed by this subchapter may be used to enforce this section.

1254

Remainder of ChapterThe remainder of this subchapter talks, in general, about how the courts should enforce these laws.

1255

Insurance Fraud: Insurance Fraud: Texas Penal CodeTexas Penal Code

Definitions

1257

Insurance PolicyA written instrument in which is provided the terms of any certificate of insurance, binder of coverage, contract of insurance, benefit plan, nonprofit hospital service plan, motor club service plan, surety bond, cash bond, or any other alternative to insurance authorized by Chapter 601, Transportation Code. The term includes any instrument authorized to be regulated by the Texas Department of Insurance.

1258

StatementAn oral or written communication or a record or documented representation of fact made to an insurer. The term includes computer-generated information.

1259

Value of the ClaimThe total dollar amount of a claim for payment under an insurance policy or, as applicable, the value of the claim determined under Section 35.025.

1260

MaterialityA statement is material for the purposes of this chapter, regardless of the admissibility of the statement at trial, if the statement could have affected:

(1) the eligibility for coverage or amount of the payment on a claim for payment under an insurance policy; or

(2) the decision of an insurer whether to issue an insurance policy.

1261

Insurance FraudA person commits an offense if, with intent to defraud or deceive an insurer, the person, in support of a claim for payment under an insurance policy:

(1) prepares or causes to be prepared a statement that:

– (A) the person knows contains false or misleading material information; and

– (B) is presented to an insurer; or

(2) presents or causes to be presented to an insurer a statement that the person knows contains false or misleading material information.

1262

Insurance FraudA person commits an offense if, with intent to defraud or deceive an insurer, the person solicits, offers, pays, or receives a benefit in connection with the furnishing of goods or services for which a claim for payment is submitted under an insurance policy.

1263

Insurance FraudAn offense under Subsection (a) or (b) is:

(1) a Class C misdemeanor if the value of the claim is less than $50;

(2) a Class B misdemeanor if the value of the claim is $50 or more but less than $500;

(3) a Class A misdemeanor if the value of the claim is $500 or more but less than $1,500;

(4) a state jail felony if the value of the claim is $1,500 or more but less than $20,000;

(5) a felony of the third degree if the value of the claim is $20,000 or more but less than $100,000;

(6) a felony of the second degree if the value of the claim is $100,000 or more but less than $200,000; or

(7) a felony of the first degree if:

(A) the value of the claim is $200,000 or more; or

(B) an act committed in connection with the commission of the offense places a person at risk of death or serious bodily injury.

1264

Insurance Fraud (a-1)A person commits an offense if the person, with intent to defraud or deceive an insurer and in support of an application for an insurance policy:

(1) prepares or causes to be prepared a statement that:

– (A) the person knows contains false or misleading material information; and

– (B) is presented to an insurer; or

(2) presents or causes to be presented to an insurer a statement that the person knows contains false or misleading material information.

An offense under Subsection (a-1) is a state jail felony.

1265

Insurance FraudThe court shall order a defendant convicted of an offense under this section to pay restitution, including court costs and attorney's fees, to an affected insurer.

1266

Insurance FraudIf conduct that constitutes an offense under this section also constitutes an offense under any other law, the actor may be prosecuted under this section, the other law, or both.

1267

Insurance FraudFor purposes of this section, if the actor proves by a preponderance of the evidence that a portion of the claim for payment under an insurance policy resulted from a valid loss, injury, expense, or service covered by the policy, the value of the claim is equal to the difference between the total claim amount and the amount of the valid portion of the claim.

1268

Insurance FraudIf it is shown on the trial of an offense under this section that the actor submitted a bill for goods or services in support of a claim for payment under an insurance policy to the insurer issuing the policy, a rebuttable presumption exists that the actor caused the claim for payment to be prepared or presented.

1269

Value of ClaimExcept as provided by Subsection (b) and subject to Subsection (c), for the purposes of Section 35.02(c), if the value of a claim is not readily ascertainable, the value of the claim is:

(1) the fair market value, at the time and place of the offense, of the goods or services that are the subject of the claim; or

(2) the cost of replacing the goods or services that are the subject of the claim within a reasonable time after the claim.

1270

Value of ClaimIf goods or services that are the subject of a claim cannot be reasonably ascertained under Subsection (a), the goods or services are considered to have a value of $500 or more but less than $1,500.

1271

Value of ClaimIf the actor proves by a preponderance of the evidence that a portion of the claim for payment under an insurance policy resulted from a valid loss, injury, expense, or service covered by the policy, the value of the claim is equal to the difference between the total claim amount and the amount of the valid portion of the claim.

1272

Aggregation and Multiple Offenses

When separate claims in violation of this chapter are communicated to an insurer or group of insurers pursuant to one scheme or continuing course of conduct, the conduct may be considered as one offense and the value of the claims aggregated in determining the classification of the offense. If claims are aggregated under this subsection, Subsection (b) shall not apply.

1273

Aggregation and Multiple Offenses

When three or more separate claims in violation of this chapter are communicated to an insurer or group of insurers pursuant to one scheme or continuing course of conduct, the conduct may be considered as one offense, and the classification of the offense shall be one category higher than the most serious single offense proven from the separate claims, except that if the most serious offense is a felony of the first degree, the offense is a felony of the first degree. This subsection shall not be applied if claims are aggregated under Subsection (a).

1274

Jurisdiction of Attorney General(a) The attorney general may offer to an attorney representing the state in the prosecution of an offense under Section 35.02 the investigative, technical, and litigation assistance of the attorney general's office.

(b) The attorney general may prosecute or assist in the prosecution of an offense under Section 35.02 on the request of the attorney representing the state described by Subsection (a).

1275

TDI Consumer TDI Consumer Resources: FraudResources: Fraud

1276

Insurance FraudMany Texans know firsthand the harm caused by insurance fraud. Consumers who buy policies from unauthorized or unlicensed insurance companies can be left without coverage or forced to pay the full cost of their claims. But if you have an insurance policy, you have experienced the adverse effects of insurance fraud, even if only indirectly.

Fraudulent claims drive up the cost of insurance coverage for everyone. Nationally, insurance fraud costs consumers an estimated $150 billion annually, an average of nearly $1,000 per family each year in additional insurance premiums and added costs to consumable goods.

1277

What is Insurance Fraud?Fraud is a deception or misrepresentation for financial gain. Insurance fraud can be committed against policyholders or insurance companies.

Since companies divide the costs of claims among policyholders, fraudulent insurance claims drive premium costs up. The consequences of insurance fraud are wide ranging and often severe.

Common Insurance Fraud Schemes

1279

Unauthorized InsuranceThe sale of unauthorized health insurance plans is one of the most financially and emotionally harmful schemes against consumers. It is illegal to sell insurance in Texas without a license. (The only exception is for surplus lines carriers, which are out-of-state companies that insure unusual or hard-to-place risks. Surplus lines carriers must still register with the Texas Department of Insurance (TDI) to do business in Texas, and they must be licensed in their home state or country.)

1280

Unauthorized InsuranceUnlicensed companies that sell phony insurance usually don’t meet the state’s minimum financial requirements and may not have the financial resources to pay claims. The company collects your premiums and often pays a few small claims so that you’ll continue making your payments. Then, when you have an expensive claim or several claims at once, the company could vanish and leave you with no coverage and expensive health care bills to pay.

1281

Unauthorized InsuranceThese companies usually attract customers by offering extensive coverage at a very low rate or with very lax underwriting requirements. Businesses are often targets of unauthorized insurance schemes. It’s possible that you could become the victim of an unlicensed insurance company, even if you have coverage through an employer-sponsored group health plan.

1282

Unauthorized InsurancePrevention tips:

Make sure your agent or company is properly licensed or registered to sell insurance in Texas. If you have health coverage through your employer –especially if you work for a small employer – it’s still a good idea to make sure your insurance carrier is licensed. You can learn an agent or company’s license status by calling the TDI Consumer Help Line or by viewing company profiles on our website.

1-800-252-3439463-6515 in Austin www.tdi.state.tx.us

When you check a company’s license status, be sure you know the company’s exact name. Unauthorized companies often use names that closely resemble the names of legitimate companies. If you find even a small difference between the name a company provides and the name TDI has on record, please notify TDI immediately.

1283

Health Care Provider FraudHealth care provider fraud most often occurs when providers bill insurance companies for services that weren’t actually provided. Providers can also commit fraud by performing unneeded tests and procedures; by billing for treatments for unspecified illnesses; or by cutting corners to increase profit from claims settlements.

1284

Health Care Provider FraudPrevention tips:

Ask questions about treatment.

Be wary if a physician recommends any new, unusual, or experimental procedure.

Review your doctor and provider bills and the explanation of benefits (EOB) statement from your insurance company to make sure that all the charges listed were for services that were actually performed. If you find discrepancies in the bills and the services you received, contact your carrier.

1285

Fraud Against SeniorsSeniors are often insurance fraud targets, particularly in regard to life and health insurance. Seniors are more likely than others to feel they need these coverages, and many worry that they’ll become a burden to family if they don’t have enough insurance.

1286

Fraud Against SeniorsPrevention tips:

Seek advice from your friends or family or from an accountant, attorney, or financial adviser before making an insurance purchase.

Be wary of agents who • Contact you unsolicited. The salesperson has probably obtained your information through a mailing list. Not all agents who contact you are dishonest, but it’s a good idea to be cautious. • Use high-pressure tactics. Common tactics include offering a “last-chance deal”or appealing to your sympathy or emotions. Any decision to buy insurance should be made rationally and be based on a sound assessment of your financial needs. • Urge you to cash in an existing annuity or life insurance policy to buy a new annuity, life insurance policy, or other investment. Annuities and life insurance are generally worth more the longer you keep them. Changing to a new annuity or policy can usually cause you to lose money over the first three to five years. • Claim to be from Medicare, Social Security, or another government agency. The government does not sell insurance. An agent or broker who claims to be associated with the government is breaking the law.

1287

Fraud Against BusinessesBusinesses are often targets of the most ambitious and financially damaging schemes. Businesses with risks that are hard to insure and small businesses that have difficulty affording coverage are particularly vulnerable.

1288

Fraud Against BusinessesThe sale of unauthorized health insurance is one of the most common schemes. A fraudulent insurer may claim to be associated with a trade union, trust, or multiple employer welfare agreement (MEWA). MEWAs are organizations that allow small companies to pool their resources to purchase inexpensive health plans. Like insurance companies, MEWAs must be licensed to legally do business in Texas.

1289

Fraud Against BusinessesA fraudulent company may also claim its plan is exempt from state regulation because it’s a self-funded or ERISA plan. ERISA plans are plans authorized by the federal Employee Retirement Income Security Act. While it is true that ERISA plans are exempt from most state laws, they are usually created by businesses and organizations to cover their own employees or members. Your business will almost never be sold a valid ERISA plan from an outside company or agent.

1290

Fraud Against BusinessesBusiness insurance fraud also frequently involves workers’ compensation coverage. In most cases, employers with a valid workers’ compensation policy are legally protected from lawsuits by injured employees. Policies sold by unauthorized or fraudulent companies are not considered workers’compensation under state law and do not provide these protections.

1291

Fraud Against BusinessesOther lines of insurance that are frequently sold fraudulently to businesses include:

• medical malpractice

• commercial general liability

• contractor performance bonds

• auto liability coverage for truckers

1292

Fraud Against BusinessesPrevention tips:

Beware of unsolicited offers or offers to upgrade coverage.

Verify with TDI the license or surplus lines registration status of the companies you’re considering.

When buying health insurance, request that the plans provide you with references of other enrolled employers. Ask employers about benefit payment history and claim turn-around time.

1293

Also Included• Auto Accident Fraud

• Workers’ Compensation Fraud

• Mortgage Fraud

Additional Tips to Prevent Fraud

1295

If It Sounds Too Good To Be True…

Beware of unreasonably low premiums. Many schemes promise extensive coverage at a very low price. You can usually save money by shopping carefully, but be cautious of any plan or policy that costs significantly less than others you’ve priced.

1296

Research the AgentGet agent and company information from TDI. In addition to license status, TDI can provide you with an agent and company’s complaint index and financial ratings. The complaint index and financial rating help indicate whether a company provides good customer service and is financially stable.

1297

Take Your TimeTake your time. Take as much time as you need when buying any type of insurance. Don’t let an agent or company representative pressure you into making a hasty decision. Consult with your family, an attorney, or a financial adviser if you’re unsure of any details. If an agent is evasive when you ask about prices, coverage, or payment arrangements, be suspicious. Legitimate agents will respond to your questions and concerns and allow you all the time you need to make your decision.

1298

Pay By Check or Credit CardAlways pay by check or credit card. Check and credit card payments can usually be traced and verified. If you pay by credit card, the credit card company might reimburse you in the event of fraud. If you must pay cash, be sure to get a receipt that shows the name of the company, the date, and the amount paid.

1299

Avoid Door to Door SalesBe cautious of policies sold door to door or over the phone. Unauthorized companies often use these methods to market their products. Insist on knowing a company’s physical address, and make sure you verify that the company and agent are licensed. Even though policies sold in this manner are sometimes legitimate, their rates are often higher and they provide less coverage than policies sold by traditional agents or brokers.

1300

Be Careful on the InternetIf you buy insurance over the Internet, take the same precautions as you would for any insurance purchase. Many legitimate companies have websites that allow you to purchase insurance online. This can make shopping for insurance easy and convenient. However, the Internet provides the anonymity that also can allow illegitimate companies to flourish. Be especially cautious of insurance that’s offered through unsolicited e-mails.

1301

Protect Your Insurance Documents

Keep and protect your insurance documents. In addition to the actual policy, keep a copy of any correspondence between you and the insurance company, including advertisements, receipts, and details of any claims submitted. Also keep notes of any telephone or in-person contacts with the company, including the name and title of the person you spoke with, the date, and what was said. Good recordkeeping can protect you in the event of a broken promise.

1302

Reporting Suspected FraudTexas law requires individuals who become aware of insurance fraud to report it within 30 days. The law protects you from any retribution or liability as a consequence of reporting fraud.

If you believe you’ve been a target of insurance fraud or you become aware of a fraud operation, report it to the TDI Fraud Unit. You can report suspected insurance fraud online or by calling our toll-free Fraud Hot Line

1-888-327-8818www.tdi.state.tx.us Direct fraud complaints involving Medicare, Medicaid, or drug or health care discount programs to the Texas Attorney General’s Consumer Protection Hot Line

1-800-621-0508475-4413 in Austin

1303

For More Information & Assistance

For answers to general insurance questions or for information on filing an insurance-related complaint, call the Consumer Help Line between 8 a.m. and 5 p.m., Central time, Monday-Friday, or visit our website1-800-252-3439463-6515 in Austin www.tdi.state.tx.usYou can also visit HelpInsure.com to help you shop for automobile, homeowners, condo, and renters insurance, and TexasHealthOptions.com to learn more about health care coverage and your options.For printed copies of consumer publications, call the 24-hour Publications Order Line1-800-599-SHOP (7467)305-7211 in Austin Help us prevent insurance fraud. To report suspected fraud, call our toll-free Fraud Hot Line1-888-327-8818To report suspected arson or suspicious activity involving fires, call the State Fire Marshal’s 24-hour Arson Hot Line1-877-4FIRE45 (434-7345)

TDI Fraud Unit

1305

What is Insurance Fraud?Insurance fraud is an intentional deception committed by applicants, policyholders, claimants, providers, agents and company employees. It may occur during the process of buying, using, selling or underwriting insurance and is usually motivated by greed.

Insurance Fraud is a crime in Texas!

1306

Responsibilities of the Fraud Unit

Texas Insurance Code §701.101(a) describes the purpose of the Texas Department of Insurance TDI Insurance Fraud Unit, which is to enforce laws relating to fraudulent insurance acts. The unit’s responsibilities include receiving and reviewing reports of fraud, initiating inquiries, and conducting investigations when TDI has reason to suspect insurance fraud. In addition, the unit actively seeks criminal indictments, makes arrests, and assists in prosecutions to deter insurance fraud in Texas.

Frequently Asked Questions

1308

How Serious is the Fraud Problem?

Insurance is one of the most costly white collar crimes in America, ranking second to tax evasion.*

According to the National Insurance Crime Bureau (NICB), 10 percent of property and casualty insurance claims are fraudulent.

1309

Who Pays for Insurance Fraud?Insurance companies, policy holders, taxpayers and the general public pick up the tab through increased insurance rates, higher taxes, and inflated prices for consumer goods and services.*

NICB estimates that property and casualty based insurance fraud cost Americans $30 billion per year. In comparison, Hurricane Andrew's devastation totaled $17 billion in damages. If you include other insurance lines like health, life and specialty insurance, the total cost of insurance fraud may exceed $120 billion annually.

1310

Who Commits Insurance Fraud?Insurance fraud perpetrators can be members of complex organized fraud rings or a neighbor looking for additional income.

People who would never think of committing a crime can find the temptations of claim money from insurance fraud hard to resist.

1311

Fraud Hurts EverybodyNICB states the average household pays an additional $200 to $300 in insurance premiums every year to offset the cost of fraud.

The "hidden fraud tax" paid in the form of higher prices for goods and services, may increase the cost to $1,000 per year, per family.

Examples of Insurance Fraud

1313

Staged or Caused AccidentsStaged or caused accidents, may involve one or more vehicles and individuals causing a collision with an innocent driver who ultimately appears to be at fault.

1314

Paper AccidentsPaper accidents, the accident only exists on paper. A vehicle may have pre-existing damage which is claimed as occurring during the purported collision. Parties conspire to create illusion of legitimate accident using either pre-damaged vehicles or by intentionally and covertly inflicting damage on the suspect's vehicle(s). Generally, law enforcement is not called to the scene of the accident.

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Faked or Inflated DamagesFaked and or Inflated Damages, damages to vehicle exaggerated, non-existent, inflated, pre-existing or vehicle damaged at a later point in time.

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Organized Claim Fraud RingOrganized Claim Fraud Ring, collision(s) orchestrated by organized criminal activity involving attorneys, doctors, other medical professionals, office administrators and/or runners and cappers.

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Exaggerated Injury ClaimsExaggerated injury claims, these may result from a staged or caused collision or a fabricated accident at retail establishment.

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Owner Give-UpOwner give-up, vehicle owner makes a false report that their vehicle was stolen in order to recover insurance money.

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Premium TheftPremium Theft, the single most prevalent type of agent misconduct Instances can range from a single theft of minimal amounts to multi-million dollar scams perpetrated on the public and the insurance industry.

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Health Care FraudHealth care fraud, medical provider’s bill insurance companies for services not rendered or unneeded tests and procedures.

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Provider FraudProvider Fraud, Medical provider knowingly submits false medical bills by billing for services not rendered, billing for wrong procedure codes or billing for procedures of a medical necessity when procedures may have been elective or cosmetic in nature and not covered by health insurance

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Identity TheftIdentity Theft - Using another's identity to secure health care benefits.

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Surgery Center FraudSurgery Center Fraud - Any alleged fraudulent activity (billing fraud, etc.) pertaining to outpatient surgery centers.

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Disability FraudDisability - Disability claim submitted against disability insurance policy while claimant on permanent or temporary disability and receiving continual benefits and/or vocational benefits and/or claimant reported working or performing activities exceeding alleged physical limitations.

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Inflated BillingInflated Billing - Inflated billing by any medical facility, doctor, chiropractor, laboratory, etc.

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PharmacyPharmacy - Pharmacist or pharmacy inflates bills or falsifies billing; person illegally obtains medical prescriptions and submits prescriptions for habitual need.

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Dental FraudDental - Dentist or dental office inflates bills or falsifies billing codes.

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Padding or Inflating of Insurance Claim

Padding or inflating an insurance claim, may involve any type of insurance but most commonly occurs with homeowners and auto claims. Generally, these are legitimate claims where additional lost property or damages are reported to increase the claim or offset the insured’s deductible.

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Senior Citizen Abuse - FraudSenior Citizen Abuse – Fraud, agents and insurers concentrate their marketing efforts on senior citizens. Agents and insurers may abuse their senior citizen customers by overselling, misrepresenting and selling unneeded or even inappropriate insurance products to them. The conduct may at time even be criminal. The most common types of abuse and fraud schemes involve marketing annuities, life and health insurance.

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Unauthorized or Phony InsurersUnauthorized or Phony Insurance Companies – A type of scheme that runs the gamut of selling what appears to be an insurance policy or contract. This includes everything from phony insurance cards to offshore insurance companies issuing policies they have no intention of honoring and low cost health insurance plans.

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Workers’ Compensation• Claimant Fraud - Suspicious employee applicant claim, working and

drawing benefits.

• Legal Provider - Legal provider inflates billing or materially misrepresents the facts.

• Medical Provider - Medical provider inflates billing, knowingly submits bills with improper medical codes and misrepresents facts.

• Pharmacy - Pharmacy inflates bills or falsifies codes.

• Misclassification - Misclassifying the type of workers to obtain workers' compensation coverage at a lower premium. (Example: classifying roofers as clerical, etc.)

• Under Reported Wages - Misrepresenting payroll to obtain workers' compensation coverage at a lower premium. (Example: Over-reporting wages as if employees are experienced journeyman with less likelihood of injury and thus allowing for lower premiums or under-reporting payroll to keep premiums lower.)

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ReviewReview

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Who Still Has Questions?Who Still Has Questions?

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Final ExamFinal Exam

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Date post:	15-May-2020
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