1. (a) Membership. The association is created by the Act. 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 pursuant to §3 of the Act, 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 to the member. 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 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 commissioner. All members of the association shall pay such annual expense fee on or before the first of January for each year 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 in §5.2003(d)(4) of this chapter (relating to Property and Casualty Insurance) 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 this subchapter.

3. (c) Meetings of members.

   1. (1) Notice of meetings. Written or printed notice stating the place, date, hour, subjects of the meeting, and 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 chair of the board of directors, the secretary, or other person calling the meeting, to each member entitled to vote at such meeting. Public notice of meetings shall be given as required by the Government Code, Chapter 551.

   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 is not held on the day 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 as may be convenient after the annual meeting.
      2. (B) Special meetings. The board of directors, the chair 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 the special 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 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 each annual meeting of members or as otherwise provided in subsection (c)(2) of this section, 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. Directors take office on October 1 of each year and shall hold office until the next election of directors or until a successor has been selected and qualified.

   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) a single representative from either the National Association of Independent Insurers or the Alliance of American Insurers, at the choice of the Property Casualty Insurers Association of America;
         2. (ii) American Insurance Association; and
         3. (iii) Insurance Council of Texas.

      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 commissioner.
      7. (G) No director 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 who shall represent 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 shall be nominated by any member of the association by submitting the 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 until the next election of directors or until a successor has been selected and qualified.
   4. (4) Regular meetings. A regular meeting of the board of directors shall be held with notice as provided for in this subsection, 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 with notice to the directors at least 10 days before each regular meeting as provided in this subsection.
   5. (5) Notice of regular or special meeting. Notice of any regular or special meeting shall be given at least 10 days prior to the meeting. The association shall provide notice by personal delivery, mail, electronic or other means to each director. If mailed, notice shall be deemed to be delivered when deposited in the United States mail, addressed with postage prepaid. If the notice is by other reasonable means, the association shall maintain a written record of the method of notification. Any director may waive notice of any meeting. The attendance of a director at a meeting shall constitute a waiver of notice of the 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 chair 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 that is accessible to the public as the place for holding any special meeting of the board of directors called by them.
   7. (7) Statement of purpose of meeting required. The business to be transacted at, and the purpose of, any regular or special meeting of the board of directors shall be specified in the notice, or waiver of notice, of the meeting and in the notice required by the Government Code, Chapter 551.
   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 is 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 need be given other than by announcement at the meeting which shall be 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 the director's dissent is entered in the minutes of the meeting, or unless a written dissent to such action is filed with the person acting as secretary of the meeting before the adjournment. 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 members 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 other than that provided in this paragraph except that nothing in this subchapter shall be construed as preventing any director from receiving compensation for serving the association in any other capacity.

   11. (11) General powers. The board of directors shall manage the business and affairs of the association subject to the supervision and control, at all times, of the commissioner and the department as set forth in this subchapter and in the Act. 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 the powers and duties upon any other person;
       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 this subchapter, upon the terms and for the consideration expressed. Such contracts may not become effective until the contracts have been approved by the department;
       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 commissioner; and
       13. (M) to direct the collection, administration, investment, and valuation of the stabilization reserve funds consistent with the Act and this subchapter.

   12. (12) Committees.

       1. (A) The board of directors, by resolution or resolutions passed by a majority of the 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 the 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. The 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 minutes to the board of directors when required.
       2. (B) The chair may appoint the members of the 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 director, of any responsibility imposed upon the board of directors or director by law.
   13. (13) Removal. Any person serving as a director may be removed from a position as director either with or without cause at any special meeting of members if notice of intention to remove the director has been stated as one of the purposes of the meeting. This paragraph shall not be construed to allow the removal of any member from the board of directors.

   14. (14) Vacancies.

       1. (A) A director position shall be considered vacant upon the resignation of the member serving as director.
       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, 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.
   15. (15) Executive committee. The board of directors, by resolution or resolutions passed by a majority of the board of directors, may designate an executive committee to consist of a chair, a vice chair, a secretary, a treasurer, and the immediate past chair, provided the immediate past chair is a director. The general manager shall be an ex officio member of the executive committee. To the extent provided in the 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. The executive committee shall keep regular minutes of its proceedings and report the minutes to the board of directors. The delegation authority consistent with this section shall not operate to relieve the board of directors, or any director, of any responsibility imposed by law upon the board of directors or any director.

5. (e) Officers.

   1. (1) Number. The officers of the association shall be the chair of the board of directors, the vice chair of the board of directors, the secretary, the treasurer, and other officers as the commissioner 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 or as soon as practical following the annual meeting. Each officer shall hold office until a successor has been duly elected and qualified or until the officer's resignation, death, or removal.
   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 or otherwise in accordance with this subchapter, 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) Chair of the board. The chair 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. The chair of the board shall ensure that the books, reports, statements, and certificates are properly kept, made, and filed, if necessary, and the chair of the board shall generally do and perform all acts incident to the office of chair of the board or which may be authorized or required by law, by this subchapter, or by the board of directors, not inconsistent with this subchapter.
   5. (5) Vice chair of the board. The vice chair, elected by the board of directors, shall have such powers and shall perform such duties as shall be assigned to the vice chair, not inconsistent with this subchapter.

   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) provide all notices as required by the provisions of this subchapter. In case of the secretary's absence or refusal or neglect to give the required notice, notice may be given at the direction of the chair 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 this subchapter 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 the secretary by the chair 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 stabilization reserve funds. The treasurer 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 debts. The treasurer 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, the treasurer shall keep, or cause to be kept, 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 this subchapter a waiver in writing, signed by the person or persons entitled to notice shall be deemed equivalent to the giving of such notice.

8. (h) Protection of directors and officers.

   1. (1) 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 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.
   2. (2) 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 this subchapter.
   3. (3) 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.
   4. (4) 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.
   5. (5) In each instance in which a question of indemnification arises, entitlements thereto, pursuant to the condition set forth in this subsection, 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 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 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 in this subsection shall be entitled in every instance to indemnification as authorized in this subchapter.
   6. (6) 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 not entitled to be indemnified by the association.
   7. (7) Nothing in this subsection 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.
   8. (8) Indemnification as provided in this subsection 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 with the department annually, on or before the first day of March, a statement which shall contain information on the association's transactions, condition, operations, and affairs during the preceding calendar year. Such statement shall be in the form and contain the matters and information prescribed by the department. The department may, at any time, require the association to furnish additional information with respect of its transactions, condition, or any matter considered to be material and of assistance in evaluating the scope, operation, and experience of the association.
10. (j) Examinations. The department shall make an examination into the affairs of the association in accordance with 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; amended to be effective January 23, 2005, 30 TexReg 76.