1. (a) Membership. The association is created by the Act. The membership of the association shall consist of all insurers authorized to write and engaged in writing, within this state, on a direct basis, automobile liability and/or liability other than automobile insurance on or after January 1, 1975, except farm mutual companies and county mutual companies. Any insurer authorized to write and engaged in writing any insurance, the writing of which requires such insurer to become a member of the association, who becomes authorized to write and engages in writing such insurance after the effective date of the Act shall become a member of the association on the first day of January immediately following the date such insurer engaged in writing such insurance, and the determination of such insurer's participation in the association shall be made as of the date of such membership in the same manner as for all members of the association. Any member which ceases to be authorized to write or which ceases to engage in the writing of any insurance which would require such insurer to become a member of the association shall remain a member of the association until midnight of December 31 next following the date such insurer ceases to be authorized to write or ceases to write such insurance, and such insurer's participation in the association shall cease as of that time; provided, however, that each member shall participate in any financial deficit of the association for all calendar years subsequent to December 31, 1976, during which the insurer was a member of the association, whenever such deficit is determined. The member shall be charged or credited in due course with its proper share of all expenses or losses and any recoupment or reimbursement allocable thereto. In the event that a member is merged or consolidated with another insurer, the continuing insurer shall become a member of the association in place of the merged or consolidated member, provided that such member shall be deemed to have become a member of the association on the date the merged or consolidated member became a member and provided, further, that such member shall pay no initial expense fee.

2. (b) Expense fees.

   1. (1) Initial expense fee. Each member shall pay to the association an initial expense fee of $100. All charter members of the association shall pay such fee on or before the 25th day of August, 1975. All other members of the association shall pay such fees on or before the date they become members of the association.
   2. (2) Annual expense fee. In addition to the initial expense fee, each member shall pay to the association an annual expense fee in an amount to be determined by the board of directors and approved by the board. All members of the association shall pay such fee on or before January 1, 1976, and annually on the first of January for each year thereafter during which the association exists.
   3. (3) Remedy for failure to pay fees. If any member shall fail or refuse to pay either the initial expense fee or the annual expense fee after receipt of written notice by the association that such fee is due and payable, then such member shall be subject to the same remedies as provided herein for the failure of such member to pay any assessment levied by the association.
   4. (4) Use of fees. All expense fees paid to the association shall be used in such manner as the board of directors may from time to time direct in accordance with these sections.

3. (c) Meetings of members.

   1. (1) Notice of meetings. Written or printed notice stating the place, day, and hour of the meeting, and in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the chairman of the board of directors, the secretary, or other person calling the meeting, to each member entitled to vote at such meeting.

   2. (2) Meetings.

      1. (A) Annual meeting. The annual meeting of the members shall be held not later than the 30th day of September of each year at an hour and place to be determined by the board of directors for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the election of directors shall not be held on the day so designated for any annual meeting of the members, the board of directors shall cause the election to be held at a special meeting of the members as soon thereafter as may be convenient.
      2. (B) Special meetings. The board of directors, the chairman of the board of directors, or 20% of the members may call a special meeting of the members and designate any place as the place of such meeting.
   3. (3) Quorum. Fifty members, represented by person or by proxy, shall constitute a quorum at a meeting of the members. If less than 50 members are represented at a meeting, a majority of the members so represented may adjourn the meeting from time to time without further notice. At the next meeting after adjournment at which a quorum is present or represented any business may be transacted at the meeting as originally notified. The members represented at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough persons to leave less than a quorum.

   4. (4) Voting.

      1. (A) Each member shall be entitled to one vote at the annual meeting and each special meeting.
      2. (B) A member may vote by proxy executed in writing by the member. No proxy shall be valid after the next annual meeting after the date of its execution unless otherwise provided in the proxy. Each proxy shall be revocable.
      3. (C) Each member's vote may be voted by such officer, agent, or proxy as the bylaws of such member may authorize or, in the absence of such authorization, as such member may determine.
      4. (D) Voting on any question or in any election may be by voice vote or by show of hands unless the presiding officer shall order, or any member shall demand, that voting be by written ballot.
   5. (5) Rules. To the extent applicable, Robert's Rules of Order shall govern the conduct of and procedure at all meetings of the members.

4. (d) Directors.

   1. (1) Selection. At a special meeting of members to be held prior to October 1, 1991, and at each annual meeting, the members shall elect five directors from among member companies for the categories set forth in paragraph (2)(B) and (C) of this subsection. Four directors shall be selected in the manner set forth in paragraph (2)(D)-(F) of this subsection. Members of the board of directors take office on October 1 of each year.

   2. (2) Membership.

      1. (A) The number of the directors of the association shall be nine.

      2. (B) Three directors to be elected in accordance with paragraph (1) of this subsection shall be elected by the members and shall be separate members of the association representing each of the following:

         1. (i) National Association of Independent Insurers;
         2. (ii) American Insurance Association; and
         3. (iii) Alliance of American Insurers.

      3. (C) Two directors shall be elected by the members and shall be:

         1. (i) a member insurer organized under the laws of and domiciled in the State of Texas; and
         2. (ii) a member insurer that is not a member of those associations described in subparagraph (B) of this paragraph.
      4. (D) One director shall be a physician who is appointed by the Texas Medical Association or its successor.
      5. (E) One director shall be a representative of hospitals appointed by the Texas Hospital Association or its successor.
      6. (F) Two directors shall be members of the public to be appointed by the board.
      7. (G) No member of the board of directors shall fill more than one seat on the board of directors, and no member affiliated by ownership, management, or control shall simultaneously occupy seats on the board of directors. No later than 60 days prior to the annual meeting, the board of directors shall select a nominating committee of three member companies. The three directors representing the organizations set forth in subparagraph (B) of this paragraph shall be nominated by the nominating committee. The two directors described in subparagraph (C) of this paragraph may be nominated by any member of the association by submitting such nominee's name to the nominating committee. In order to be eligible for selection to the board of directors by the members, a member must be nominated at least 30 days prior to the annual meeting at which such directors are selected.
   3. (3) Term of office. Unless removed in accordance with this subchapter, each director shall hold office for the term of one year or until a successor shall have been selected and qualified.
   4. (4) Regular meetings. A regular meeting of the board of directors shall be held without other notice than provided for herein, immediately after and at the same place as the annual meeting of the members. The board of directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution.
   5. (5) Notice of special meeting. Notice of any special meeting shall be given at least five days prior thereto by notice delivered personally or mailed to each director's business address or by telegram. If mailed, such notice shall be deemed to delivered when deposited in the United States mail, so addressed with postage thereon prepaid. If the notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any director may waive notice of any meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objection to the transaction of any business because the meeting is not lawfully called or convened.
   6. (6) Special meetings. Special meetings of the board of directors may be called by the chairman of the board, or at the request of any two directors. The person or persons authorized to call special meetings of the board of directors may fix any place as the place for holding any special meeting of the board of directors called by them.
   7. (7) No statement of purpose of meeting required. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice, or waiver of notice, of such meeting.
   8. (8) Quorum. A majority of the directors shall constitute a quorum for the transaction of business at any meeting of the board of directors. Action taken by a majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors. If at any meeting of the board of directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at said meeting which shall be so adjourned.
   9. (9) Presumption of assent. A director of the association who is present at the meeting of the board of directors at which action on any matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting, or unless he shall file his written dissent to such action with the person acting as secretary of the meeting before the adjournment thereof, or shall forward such dissent by registered mail to the secretary of the association postmarked within 48 hours after adjournment of the meeting. Such right to dissent shall not be available to a director who voted in favor of such action.
   10. (10) Compensation. By resolution of the board of directors, the directors and member of committees of the association may be paid their expenses, if any, of attendance at each meeting of the board of directors, or each meeting of a committee of the association. No other payment shall be made to directors than provided herein except, however, that nothing herein shall be construed as preventing any director from serving the association in any other capacity and receiving compensation therefor.

   11. (11) General powers. The board of directors shall have the management of the business and affairs of the association subject to the supervision and control, at all times, of the board as herein and in the Act set forth. Included among the powers of the board of directors, but not in limitation thereof, are the following:

       1. (A) to purchase or otherwise acquire for the association any property, rights, or privileges which the association is authorized to acquire;
       2. (B) to remove any officer summarily for cause, or without cause and, in their discretion, from time to time to dissolve the powers and duties of any officers and to confer such powers and duties upon any other person for the time being;
       3. (C) to appoint and remove or suspend such subordinate officers, agents, employees, or representatives as they may deem necessary and to determine their duties, and fix, and from time to time change, their salaries or remuneration, and to require security as and when they think fit;
       4. (D) to confer upon any officer of the association the power to appoint, remove, and suspend subordinate officers or employees;
       5. (E) to determine who shall be authorized on the association's behalf to make and sign bills, notes, acceptances, endorsements, checks, releases, receipts, contracts, and other instruments;
       6. (F) to delegate any of the powers of the board of directors in relation to the ordinary business of the association to any standing or special committee, or to any officers or agent (with power to subdelegate) upon such terms as they think fit;
       7. (G) to contract, from time to time, with one or more members for single or multi-year terms, to act as servicing carriers to perform all policy functions of the association, including, without limitation to, underwriting, issuance of policy, coding and premium accounting, settlement of claims to conclusion, and reporting to the association, as may be directed by the association, subject to provisions of law and these sections, upon the terms and for the consideration expressed herein. Such contracts may not become effective until the same have been approved by the board;
       8. (H) to approve expenses and levy assessments, including preliminary assessments for initial expenses necessary to commence operations, and assessments to defray losses and expenses;
       9. (I) to establish necessary facilities;
       10. (J) to enter into commission arrangements with agents regarding the sale of medical liability insurance through the association;
       11. (K) to promulgate reasonable and objective underwriting standards;
       12. (L) to either or both accept and refuse the assumption of reinsurance from its members, and cede and purchase reinsurance; provided, however, that such reinsurance shall be governed by rules promulgated by the board; and
       13. (M) to direct the collection, administration, investment, and valuation of the policyholder's stabilization reserve fund consistent with the Act and these sections.

   12. (12) Committees.

       1. (A) The board of directors, by resolution or resolutions passed by a majority of the whole board of directors, may designate one or more committees, each committee to consist of two or more of the directors of the association which, to the extent provided in said resolution or resolutions, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the association. Such committee or committees shall have such name or names as may be determined from time to time by appropriate resolution. All such committees shall keep regular minutes of their proceedings and report the same to the board of directors when required.
       2. (B) The chairman may appoint the members of such committees as may be appropriate to carry out the business of the association.
       3. (C) The delegation to a committee of authority consistent with this section shall not operate to relieve the board of directors, or any member thereof, of any responsibility imposed upon it or him by law.
   13. (13) Removal. Any person serving as a director may be removed from his position as director either with or without cause at any special meeting of members if notice of intention to act upon the question of removing such director shall have been stated as one of the purposes for the calling of such meeting provided, however, that this section shall not be construed so as to allow the removal of any member from the board of directors.

   14. (14) Vacancies.

       1. (A) A particular directorship shall be considered to be vacant upon the resignation of the member holding such directorship.
       2. (B) Any vacancy occurring in the board of directors may be filled at the next meeting of the board of directors following the occurrence of such vacancy. Subject to the provisions of paragraph (2) of this subsection hereof, such vacancy shall be filled by the affirmative vote of a majority of the remaining directors though less than a quorum. A director elected to fill a vacancy shall be elected for the unexpired term of its predecessor in such directorship.
   15. (15) Executive committee. The board of directors, by resolution or resolutions passed by a majority of the whole board of directors, may designate an executive committee to consist of a chairman, a vice chairman, a secretary, a treasurer, and the immediate past chairman, provided the immediate past chairman is a member of the board of directors. The general manager shall be an ex officio member of the executive committee. To the extent provided in said resolution or resolutions, the executive committee shall have and may exercise the powers of the board of directors in the management of the business and affairs of the association. Such committee shall keep regular minutes of its proceedings and report the same to the board of directors. The delegation authority consistent with this section shall not operate to relieve the board of directors, or any member thereof, of any responsibility imposed by law upon the board of directors or any member thereof.

5. (e) Officers.

   1. (1) Number. The officers of the association shall be the chairman of the board of directors, the vice chairman of the board of directors, the secretary, the treasurer, and such other officers as the board may desire, all of whom shall be elected by the board of directors. No two offices may be held by the same person except for the offices of secretary and treasurer.
   2. (2) Election and term of office. The officers of the association shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of the members. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been otherwise removed.
   3. (3) Removal and vacancies. Any officer or agent elected or appointed by the board of directors may be removed by the board of directors whenever in its judgment the best interests of the association would be served thereby or otherwise in accordance with these sections, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. A vacancy in any office because of death, resignation, removal, disqualification, or otherwise may be filled by the board of directors for the unexpired portion of the term.
   4. (4) Chairman of the board. The chairman of the board shall preside at all meetings of the members and at all meetings of the directors, appoint and discharge employees and agents of the association subject to the approval of the directors, fix the compensation of employees and agents, make and sign contracts and agreements in the name of the association, and appoint committees. He shall see that the books, reports, statements, and certificates are properly kept, made, and filed, if necessary, and he shall generally do and perform all acts incident to the office of chairman of the board or which may be authorized or required by law, by these sections, or by the board of directors, not inconsistent herewith.
   5. (5) Vice chairman of the board. The vice chairman, elected by the board of directors, shall have such powers and shall perform such duties as shall be assigned to him, not inconsistent herewith.

   6. (6) Secretary. The secretary shall:

      1. (A) keep the minutes of the members and of the board of directors' meetings in one or more books provided for that purpose;
      2. (B) see that all notices are duly given as required by the provisions of these sections. In case of the secretary's absence or refusal or neglect to give the required notice, such notice may be given at the direction of the chairman of the board of directors, or of the members upon whose request the meeting is called;
      3. (C) be custodian of the association's records;
      4. (D) keep a register of the post office address of each member;
      5. (E) annually determine each member's participation in the association in the manner required by the Act and these sections and shall keep a register of each member's percentage of participation; and
      6. (F) in general perform all duties incident to the office of secretary and such other duties as from time to time may be delegated to him by the chairman of the board or by the board of directors.
   7. (7) Treasurer. The treasurer shall have custody of all funds, securities, evidences of indebtedness, and other valuable documents of the association, including those attributable to the policyholders' stabilization reserve fund. He shall receive and give, or cause to be given, receipts and acquittances for money paid in on account of the association, and shall pay out of the funds on hand all just debts of the association, of whatever nature, upon maturity of the same. He shall enter, or cause to be entered, in books of the association to be kept for that purpose, full and accurate accounts of all money received and paid out on account of the association, and whenever required by the board of directors, he shall keep, or cause to be kept, such other books as would show a true record of the reserves, expenses, losses, gains, assets, and liabilities of the association.
6. (f) Fiscal year. The fiscal year of the association shall be the calendar year.
7. (g) Waiver of notice. Whenever any notice is required to be given to any members or director of the association under the provisions of these sections a waiver thereof, in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.
8. (h) Protection of directors and officers. Any person or insurer made or threatened to be made a party to any civil, criminal, administrative, or investigative action, suit, or proceeding (other than an action by or in the right of the association) because such person or insurer is or was a member or is serving or served on a committee or is or was an officer or employee of the association, or is or was serving any other entity or organization at the request of the association, shall be entitled without further act on that person's or insurer's part to be indemnified by the association against all judgments, fines, amounts paid in settlement, reasonable costs and expenses (including attorneys' fees) and other liabilities actually and reasonably incurred (other than for amounts paid to the association itself) as a result of such threatened or actual action, suit, or proceeding except in relation to matters as to which that person or insurer shall be finally adjudged in such action, suit, or proceeding to be liable by reason of willful misconduct in the performance of that person's or insurer's duties or obligations to the association or other entity as previously provided and, with respect to any criminal actions or proceedings, except when such person or insurer believed or had reasonable cause to believe that their conduct was unlawful. Such indemnification shall be provided whether or not such person or insurer is a member or is holding office or is employed or serving at the time of such action, suit, or proceeding, and whether or not any such liability was incurred prior to the adoption of these sections. Such indemnification shall not be exclusive of other rights such person or insurer may have, and shall pass to the successors, heirs, executors, or administrators of such person or insurer. The termination of any such action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not in itself create a presumption that such person or insurer was liable by reason of willful misconduct or that they had reasonable cause to believe that their conduct was unlawful. In each instance in which a question of indemnification arises, entitlements thereto, pursuant to the condition set forth herein, shall be determined by the board of directors by a majority vote of a quorum consisting of directors that were not parties to such action, suit, or proceeding or by the board of directors, whether interested or disinterested, if based upon a written opinion of legal counsel that the action, suit, or proceeding could qualify for indemnification because of reasonable doubt that the members of the board of directors were liable by reason of willful misconduct in the performance of duties or obligations to the association or other entity as provided in this subsection, or that there was reasonable doubt that the members of the board of directors believed or had reasonable cause to believe that the conduct was unlawful, and the board of directors shall also determine the time and manner of payment of such indemnification; provided, however, if any such action, suit, or proceeding is terminated by compromise settlement, indemnification in respect of such disposition shall be made only if such settlement had the prior approval of the board of directors, and provided further that a person or insurer who or which has been wholly successful, on the merit or otherwise, in the defense of a civil or criminal action, suit, or proceeding of the character described herein shall be entitled in every instance to indemnification as authorized herein. Expense incurred in defending a civil or criminal action, suit, or proceeding may be paid by the association in advance of the final disposition of such action, suit, or proceeding, as authorized by the board of directors in the specific case, upon receipt of an undertaking by or on behalf of the person or insurer to repay such amount, unless it shall ultimately be determined that such person or insurer is entitled to be indemnified by the association as authorized herein. Nothing herein shall be deemed to preclude a person or insurer who or which the board of directors has determined not to be entitled to indemnification from asserting the right to such indemnification by legal proceedings. Such indemnification as is herein provided shall be apportioned among all members, including any named in any such action, suit, or proceeding, in the same manner as other operating expenses of the association.
9. (i) Annual report. The treasurer shall file in the office of the board annually, on or before the first day of March, a statement which shall contain information with respect to the association's transactions, condition, operations, and affairs during the preceding calendar year. Such statement shall contain such matters and information as are prescribed by the board and shall be in such form as required by it. The board may, at any time, require the association to furnish additional information with respect of its transactions, condition, or any matter connected therewith considered to be material and of assistance in evaluating the scope, operation, and experience of the association.
10. (j) Examinations. The board shall make an examination into the affairs of the association at least annually. Such examination shall be conducted, the report thereon filed, and expenses borne and paid for, in the manner prescribed in the Insurance Code, Articles 1.15 and 1.16.

Source Note:The provisions of this §5.2002 adopted to be effective January 1, 1976; amended to be effective October 31, 1984, 9 TexReg 5426; amended to be effective August 27, 1987, 12 TexReg 2680; amended to be effective January 5, 1990, 14 TexReg 6788; amended to be effective March 2, 1992, 17 TexReg 1309; amended to be effective March 18, 1993, 18 TexReg 1411.