6.1 The Commissioner of Insurance: Powers, Examinations, Investigations, Hearings, and Penalties
Key Takeaways
- The governor appoints the commissioner with the advice and consent of the senate for a two-year term that expires on February 1 of each odd-numbered year (TIC § 31.022).
- The commissioner must be a competent and experienced administrator, well informed in insurance regulation, with at least five years of experience in business or government administration or as a practicing attorney or CPA (TIC § 31.023).
- Surplus lines agents' records are subject to examination by TDI and the Comptroller at any time without notice, and a person receiving a TDI inquiry must answer in writing within 15 days (TIC § 38.001; 28 TAC § 15.108).
- The commissioner may issue an ex parte emergency cease and desist order; it becomes final on the 61st day after service unless the person requests a hearing in writing within 60 days (TIC §§ 83.051-.053).
- Sanctions include revocation, suspension for up to one year, cease and desist orders, restitution, and administrative penalties of up to $25,000 per violation (TIC §§ 82.051-.053, 84.022).
6.1 The Commissioner of Insurance: Powers, Examinations, Investigations, Hearings, and Penalties
The first Texas-law block of the Surplus Lines content outline covers the Commissioner of Insurance: general powers and duties, examination of records, investigations and hearings, and penalties and sanctions. Surplus lines insurers do not file rates or forms, but surplus lines agents are fully subject to TDI's licensing, examination, and enforcement powers. The Stamping Office is supervised by the commissioner too.
1. The Commissioner and the Department
| Topic | Rule | Source |
|---|---|---|
| Department duties | Regulate the business of insurance, administer the workers' compensation system, ensure insurance laws are executed, protect consumers, and ensure fair competition | TIC § 31.002 |
| Role | The commissioner is TDI's chief executive and administrative officer and administers and enforces the Insurance Code | TIC § 31.021 |
| Appointment and term | Appointed by the governor with the advice and consent of the senate; serves a two-year term expiring February 1 of each odd-numbered year | TIC § 31.022 |
| Qualifications | Competent and experienced administrator; well informed and qualified in insurance and insurance regulation; at least five years of experience in business or government administration, or as a practicing attorney or certified public accountant | TIC § 31.023 |
Surplus Lines Powers
- Rulemaking: The commissioner may adopt rules to implement Chapter 981 or to satisfy federal law (TIC § 981.009). Those rules are 28 TAC Chapter 15.
- Monitoring agents: The commissioner must monitor surplus lines agents' activities as necessary to protect the public (TIC § 981.218).
- Supervising the Stamping Office: The commissioner supervises and may examine the Stamping Office at the office's expense, approves its plan of operation, and approves stamping fee changes (TIC §§ 981.153-.156; 28 TAC § 15.201).
- Revoking contracts: The commissioner may order revocation of a contract issued by an insurer that does not meet the eligibility requirements (TIC § 981.064).
Exam Warning: The commissioner adopts rules; only the Legislature enacts statutes. The commissioner is appointed, not elected.
2. Examination of Records
- Surplus lines agents: An agent's surplus lines records and accounts are subject to examination by TDI and the Comptroller at all times and without notice, and must be available for five years after the contract expires or terminates (28 TAC § 15.108(b)). By statute, the contract record must be open to TDI without notice until at least the third anniversary of expiration or cancellation (TIC § 981.215(b)). Failing to allow an examination, or failing to keep the required records, is a ground for sanctions (28 TAC § 15.4(a)(2)).
- TDI inquiries: TDI may send a reasonable inquiry to any insurer, agent, or other holder of an authorization about its business condition or any matter TDI considers necessary. The recipient must respond in writing within 15 days, and TDI must grant a 10-day extension on written notice (TIC § 38.001).
- Insurers: TDI examines Texas-domiciled carriers, including domestic surplus lines insurers, and other authorized carriers at least once every five years. It has free access to their books and may examine officers and agents under oath (TIC §§ 401.051-.054).
- Managing general agents: An MGA must submit to financial and compliance examinations at its own expense (TIC § 4053.107).
- Complaints: TDI keeps an information file on each complaint about a regulated activity and notifies the parties of the complaint's status at least quarterly (TIC §§ 521.003-.004).
3. Investigations and Hearings
Unfair-Practice Proceedings (TIC §§ 541.101-.103)
TDI may examine and investigate any person in the business of insurance to determine whether it has engaged in an unfair method of competition or an unfair or deceptive act. If TDI has reason to believe a violation occurred and a proceeding is in the public interest, it serves a statement of charges and a notice of hearing. The hearing may not be held before the sixth day after the notice is served. At the hearing, the person may show cause why a cease and desist order should not issue.
Emergency Cease and Desist Orders (TIC Chapter 83)
- The commissioner may issue an order ex parte (without a prior hearing) if the commissioner believes that:
- an authorized person is committing an unfair act, or is in a hazardous financial condition, and the conduct is fraudulent, hazardous, or likely to cause immediate, irreparable public injury; or
- an unauthorized person is engaging in the business of insurance in violation of Chapter 101 and does not meet a statutory exception (§ 83.051).
- The order is served by registered or certified mail and requires the person to stop the conduct immediately (§ 83.052).
- The affected person may request a hearing in writing within 60 days after service (§ 83.053). Otherwise the order becomes final on the 61st day (§ 83.051(b)).
- TDI must docket a timely request at the State Office of Administrative Hearings (SOAH) within 30 days (§ 83.054). The order stays in effect pending the hearing unless the commissioner stays it (§ 83.055).
License Hearings
An applicant or license holder is entitled to a SOAH hearing before TDI denies an original license or suspends, revokes, or denies renewal of a license (TIC § 4005.104).
4. Penalties and Sanctions
| Remedy | Rule | Source |
|---|---|---|
| Revocation or cancellation | After notice and opportunity for hearing, for violating the Code or a rule | TIC § 82.051 |
| Suspension | For a specified time not to exceed one year | TIC § 82.052(1) |
| Cease and desist | Order to stop the violating activity | TIC § 82.052(2) |
| Administrative penalty | Up to $25,000 per violation unless another statute sets a different amount | TIC §§ 82.052(3), 84.022 |
| Restitution | Complete restitution to harmed Texas residents, insureds, and entities | TIC § 82.053 |
| Mandatory cancellation | If the holder fails to comply with a sanction order after hearing, the commissioner shall cancel each authorization | TIC § 82.054 |
| Informal disposition | Consent order or agreed settlement, which may reserve that the holder does not admit a violation | TIC § 82.055 |
| Notice to other states | The commissioner notifies every other state of sanctions taken | TIC § 82.056 |
| Licensing remedies | Deny, suspend, revoke, or refuse renewal; probation of a suspended license; reprimand; penalty | TIC §§ 4005.102-.103 |
Setting the penalty amount (TIC § 84.022(b)): seriousness of the violation (nature, circumstances, extent, gravity, and hazard to the public); economic harm to the public interest or public confidence; history of previous violations; the amount needed to deter future violations; efforts to correct the violation; whether it was intentional; and any other matter justice requires. TDI must give written notice of a recommended penalty within 14 days after its report, including the right to a hearing (TIC § 84.041).
Surplus-Lines-Specific Sanction Grounds (28 TAC § 15.4)
Chapter 82 applies to any surplus lines agent or eligible insurer that violates Chapter 981 or 225 (TIC § 981.006). Rule 15.4 lists grounds, including:
- Conduct that would support sanctions against the agent's P&C or MGA license;
- Refusing examination by TDI or the Comptroller, or failing to keep required records;
- Failing to file reports when due;
- Failing to collect and pay required taxes and stamping fees, or to submit tax reports;
- Failing to maintain the qualifications for the license; and
- Violating the Insurance Code or other applicable law.
A revoked or suspended surplus lines agent will not be relicensed, renewed, or reinstated until all fines, penalties, delinquent taxes, and delinquent stamping office fees are paid (28 TAC § 15.4(c)). An individual whose agent license is revoked generally may not apply again before the fifth anniversary of the revocation (TIC § 4005.105).
5. Hypothetical: An Unlicensed "Surplus Lines" Operation
A Houston entity with no license sells "excess liability binders" to oilfield contractors, collects premium, and never places coverage with any insurer.
- Emergency order: Because an unauthorized person is engaging in the business of insurance in violation of Chapter 101, the commissioner may issue an ex parte emergency cease and desist order (§ 83.051). The entity has 60 days to request a hearing, or the order becomes final.
- Penalties: The commissioner may impose administrative penalties on the unauthorized person of up to $25,000 per violation (TIC §§ 84.021-.022).
- Civil liability: Anyone who assisted in procuring the unauthorized coverage is liable to the insureds for unpaid claims (TIC § 101.201).
- Fraud referral: Fraudulent insurance acts must be reported to TDI's insurance fraud unit (TIC Chapter 701).
Which statement correctly describes how the Texas Commissioner of Insurance holds office?
After notice and hearing, TDI finds that a surplus lines agent willfully failed to file 40 policies. What is the maximum administrative penalty per violation under TIC Chapter 84, unless another statute specifies a different amount?
The commissioner issues an ex parte emergency cease and desist order against an unlicensed person selling fake surplus lines binders. The order is served on March 1. What happens if the person does nothing?
Under TIC § 82.052, when the commissioner suspends a surplus lines agent's license rather than revoking it, what is the maximum length of the suspension?