1. (a) The policy.

   1. (1) Approval.

      1. (A) Initial filing in 1975. Within 10 days after the effective date of these sections, the association shall submit for the approval of the board, pursuant to the Insurance Code, Article 5.15, and initial filing, in proper form, of policy forms, classifications, rates, rating plans, and rating rules applicable to medical liability insurance.
      2. (B) Subsequent filings. When amendments or subsequent filings with respect to the association's policy forms, classifications, rates, rating plans, and rating rules applicable to medical liability insurance are proposed by the association, any such amendments or filings shall be submitted to the board for approval pursuant to the Act, §4(b)(1).
   2. (2) Duration of policies. All policies issued by the association shall be written for a period of one year to commence at 12:01 a.m. on their respective effective dates and to terminate one year thereafter. No policies may be issued by the association with an effective date after the date fixed in the Act for a plan of suspension to become effective and operative. All policies shall be written upon forms approved by the board, and shall contain a provision which requires, as a condition precedent to settlement or compromise of any claim, the consent or acquiescence of the insured. If, however, the insured refuses to consent to any settlement recommended in writing by the association and shall elect to contest or continue any legal proceedings, the liability of the association shall not exceed the amount for which the claim could have been settled plus the cost and expenses incurred up to the date of such refusal.

   3. (3) Limits of liability.

      1. (A) No individual or organization may be insured by policies issued, or caused to be issued, by the association for an amount exceeding a total of $1 million per occurrence (for all coverages combined) and $3 million aggregate per annum (for all coverages combined). As used herein, the terms "individual" and "organization" mean each physician and health care provider holding a separate license or accreditation from the appropriate licensing or accrediting agency as applicable.
      2. (B) If provided, bodily injury liability limits must be the same as medical (professional) liability limits subject to the maximum policy limits specified in subparagraph (A) of this paragraph.

   4. (4) Special provisions.

      1. (A) Policies with deductibles may be issued by the association.
      2. (B) Policies subject to retrospective rating plans may be issued by the association.

      3. (C) Policies of excess medical liability insurance written by the association shall:

         1. (i) be on a following form basis to the underlying medical (professional) liability insurance coverage over which it is written;
         2. (ii) be issued subject to review of the underlying coverage if such review is deemed necessary by the association or its representatives;
         3. (iii) not be issued in those cases where the net retention at risk by the primary carrier is less than $100,000 per occurrence or less than $300,000 aggregate per annum;
         4. (iv) be issued only when the underlying insurance coverage is underwritten by a member of the association and such underlying insurance coverage does not have a deductible in excess of $25,000; and
         5. (v) terminate automatically in the event the underlying primary policy of medical liability insurance is not maintained for any reason, except exhaustion by payment of a loss or losses. If the aggregate underlying primary medical liability insurance is exhausted by the payment of a loss or losses occurring during the policy period, the insurance provided by the excess policy shall apply in the same manner as if the underlying primary insurance was in full force and effect;
         6. (vi) not be accepted for a hospital or other institutional health care provider if the applicant does not provide evidence that all physicians, surgeons, podiatrists, dentists, pharmacists, chiropractors, or other health care professionals with staff privileges are insured for their individual medical (professional) liability with limits of liability of at least $100,000 per occurrence and $300,000 aggregate per annum; and
         7. (vii) not be accepted for physicians, surgeons, podiatrists, dentists, pharmacists, chiropractors, or other health care professionals who employ or contract with other physicians, surgeons, podiatrists, dentists, pharmacists, chiropractors, or other health care professionals if the applicant does not provide evidence that all employed physicians, surgeons, podiatrists, dentists, pharmacists, chiropractors, or other health care professionals who are eligible to obtain coverage from the association are insured for their individual medical (professional) liability with limits of liability of at least $100,000 per occurrence and $300,000 aggregate per annum.
      4. (D) No hospital or other institutional health care provider or physicians, surgeons, podiatrists, dentists, pharmacists, chiropractors, or other health care professionals that have employed or contracted physicians, surgeons, podiatrists, dentists, pharmacists, chiropractors, or other health care professionals can be accepted for coverage in the association without evidence that all physicians, surgeons, podiatrists, dentists, pharmacists, chiropractors, or other health care professionals with staff privileges or employed or contracted by the applicant are insured for their individual medical (professional) liability with limits of at least $100,000 per occurrence and $300,000 aggregate per annum.

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

         1. (i) an insurance company authorized and licensed to write and writing health care liability or medical professional liability insurance in Texas, pursuant to the authority of the Insurance Code, Article 1.14;
         2. (ii) an insurance company eligible to write and writing health care liability or medical professional liability insurance in Texas as a surplus lines carrier, pursuant to the authority of the Insurance Code, Article 1.14-2;
         3. (iii) the Texas Medical Liability Insurance Underwriting Association, established under the Insurance Code, Article 21.49-3;
         4. (iv) a self-insurance trust created to provide health care liability or medical professional liability insurance, established under the Insurance Code, Article 21.49-4;
         5. (v) a risk retention group or purchasing group writing health care liability or medical professional liability insurance in Texas registered, pursuant to the authority of the Insurance Code, Article 21.54;
         6. (vi) a plan of self-insurance of an institution of higher education that provides health care liability or medical professional liability coverage, established under the Education Code, Chapter 59; or

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

            1. (I) the plan's liabilities must be fully funded and the plan must be solvent. By no later than January 1, 1998, the plan must have a minimum net worth equal to the lesser of $1 million or that amount of net worth that results in a capitalization ratio of 5.0%. As used herein, "net worth" shall be calculated by determining the excess, if any, of the plan's total assets over the plan's total liabilities. As used herein, "capitalization ratio" shall mean the ratio of the plan's net worth (as the numerator) to the plan's total assets (as the denominator). Notwithstanding the preceding, the net worth requirements contained herein do not apply to a plan that lawfully has taxing authority over a segment of the Texas public provided that such taxing authority may be utilized to meet the plan's liabilities and other obligations; and
            2. (II) the plan must annually obtain an actuarial analysis which reflects that its operations are viable from a qualified actuary who is a member in good standing of the American Academy of Actuaries. Notwithstanding the preceding, an actuarial opinion filed with the Texas Department of Insurance pursuant to Texas Insurance Code Annotated Article 1.11 may be accepted for purposes of this subsection; and
            3. (III) Effective January 1, 1998, the financial statements of the plan must annually be audited by an independent certified public accountant who is a member in good standing of the American Institute of Certified Public Accountants (AICPA). Such audits must utilize generally accepted auditing standards and must result in a report which attests to whether the financial statements comply with generally accepted accounting principals adopted by the AICPA. Notwithstanding the preceding, an audit report filed with the Texas Department of Insurance pursuant to Texas Insurance Code Annotated Article 1.15A may be accepted for purposes of this subsection; and
            4. (IV) the plan must have competent and trustworthy management who is generally knowledgeable of insurance matters. In no event shall a plan be eligible hereunder if a plan officer or member of its board of directors or similar governing body has been convicted of a felony involving moral turpitude or breach of fiduciary duty.
   5. (5) Rates, rating plans, and rating rules applicable. The rates, rating plans, rating rules, rating classifications, and territories applicable shall be those established pursuant to the Act, §4.

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

   1. (1) Eligibility and forms. Any physician and any health care provider (as those terms are defined in the Act, §2) which falls within any of categories of such physicians and health care providers established by order of the board from time to time as being eligible to obtain coverage from the association, shall be entitled to apply to the association for a policy of medical liability insurance; provided, however, that if the applicant is a partnership, professional association, or corporation (other than a nonprofit corporation certified under Texas Civil Statutes, Article 4509a) comprised of eligible health care providers, such as physicians, dentists, or podiatrists, all of the partners, members, or shareholders thereof must also be individually insured in the association. Any category of physician or health care provider, which by order of the board has been excluded from eligibility to obtain coverage from the association, may be eligible for coverage in the association if, after at least 10 days' notice and a hearing, it is determined by the board that medical liability insurance is not available for the category of physician or health care provider. All applications for medical liability insurance shall be made on forms prescribed by the board of directors of the association and approved by the board. Such application forms shall contain a statement as to whether or not there are any unpaid premiums, assessments, or stabilization reserve fund charges due from the applicant for prior insurance. Application may be made on behalf of the applicant by an agent authorized pursuant to the Insurance Code, Article 21.14. Such agent need not be appointed by a servicing company.

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

      1. (A) the commission paid to the licensed agent shall be 10% of the first $1,000 of such policy premium, 5.0% of the next $9,000 of such policy premiums, and 2.0% of the policy premium in excess of $10,000 with respect to policies written by the association on the form approved for physicians and noninstitutional health care providers;
      2. (B) the commission paid to the licensed agent shall be 12.5% of the first $2,000 of such policy premium, 7.5% of the next $3,000 of such policy premium, 5.0% of the next $15,000 of such policy premium, and 2.0% of the policy premium in excess of $20,000 with respect to policies written by the association on the form approved for hospitals and other institutional health care providers;
      3. (C) with respect to an excess liability insurance policy written by the association for a physician or any other health care provider (as those terms are defined in the Act) the commission paid to the licensed agent shall be 10% of the policy premium, provided, however, that the commission shall not exceed $250 with respect to a policy written on the form approved for physicians and other noninstitutional health care providers, and shall not exceed $500 with respect to a policy written on the form approved for hospitals and other institutional health care providers; and
      4. (D) no commission whatsoever shall be payable in respect to any assessment payable by the policyholder by reason of a deficit incurred by the association, including charges for the policyholder's stabilization reserve fund. Upon cancellation, the agent shall refund any unearned portion of the commission to the association.
   3. (3) Submission. Application for medical liability insurance on the prescribed form shall be accompanied by tender of the amount of the deposit premium and the charge for the policyholder's stabilization reserve fund required to bind the policy.

   4. (4) Underwriting standards.

      1. (A) The following underwriting standards shall apply with respect to policies of medical liability insurance written by the association:

         1. (i) all applicants to the association shall be currently licensed, chartered, certified, or accredited to practice or provide their respective health care services in Texas;
         2. (ii) all applicants to the association shall provide evidence of inability to obtain coverage in the admitted voluntary market. Rejections by two carriers licensed and engaged in writing the coverage applied for in Texas shall be deemed adequate to show such inability and such rejections may be evidenced by letters from such carriers or by sworn affidavit of the applicant or his agent that such rejections have occurred;
         3. (iii) any material misrepresentation in the application for coverage shall be cause to decline coverage upon discovery by the association or its authorized representative;
         4. (iv) each application shall be accompanied by authorization for and consent to investigations in respect of material information bearing upon the moral character, professional reputation, and fitness to engage in the activities embraced by the applicant's license with respect to applicants who are to be to be provided coverage on the form approved for physicians and noninstitutional health care providers, or the reputation, method of operation, accident prevention programs, and fitness to engage in the activities embraced by the applicant's license, charter, certificate, or accreditation with respect to applicants who are to be provided coverage on the form approved for hospitals and other institutional health care providers, including authorization to every person or entity, public or private, to release to the association any documents, records, or other information bearing upon foregoing;
         5. (v) no coverage may be afforded either by binder or by policy issuance to any applicant whose license, charter, certificate, or accreditation has been ordered cancelled, revoked, or suspended; provided, that if such order has been probated by the appropriate regulatory body or licensing agency the probation may be reviewed by the association for a determination whether, and if so the basis upon which, coverage may be afforded in the association;
         6. (vi) with respect to policies written on the form approved for hospitals and other institutional health care providers, the applicant, to be eligible for coverage in the association, shall comply with all significant recommendations arising out of a loss control or risk management engineering report either prior to binding coverage or as soon as practicable concurrently with coverage;
         7. (vii) there shall be no unpaid, uncontested premium, assessment, or charge due from the applicant.
      2. (B) For the purpose of this section, a rejection shall have occurred if the applicant is accepted in the admitted voluntary market at a rate higher than those rates approved by the board from time to time under this plan.

   5. (5) Receipt of the application. Upon receipt of the application, the required deposit premium and the policyholders stabilization reserve fund charge, the association shall, within 30 days:

      1. (A) cause a binder or policy of medical liability insurance to be issued; or
      2. (B) advise the agent or applicant that the applicant does not meet the underwriting standards of the association, in which case the association shall indicate the reasons the applicant does not meet such underwriting standards.

3. (c) Cancellation, nonrenewal, and notice.

   1. (1) Cancellation by the association. The association may not cancel a policy of insurance issued under these sections except for:

      1. (A) nonpayment of premium; or
      2. (B) nonpayment of policyholder's stabilization reserve fund charge; or
      3. (C) nonpayment of assessment; or
      4. (D) evidence of fraud or material misrepresentation; or
      5. (E) cause which would have been grounds for nonacceptance of the risk under these sections had such cause been known to the association at the time the policy was issued; or
      6. (F) any cause arising subsequent to the issuance of the policy which would have been grounds for nonacceptance of the risk under these sections had such cause existed at the time of acceptance; or
      7. (G) noncompliance with reasonable loss control or risk management engineering recommendation in accordance with subsection (b)(4)(A)(vi) of this section. Upon cancellation of a policy of insurance by the association, the association shall refund to the insured the unearned portion of any paid premium and, if cancelled within the 90th day of coverage, the unearned portion of the paid policyholder's stabilization reserve fund charge on a pro rata basis provided all assessments and policyholder's stabilization reserve fund charges earned have been fully paid; otherwise, only that portion of unearned premium over any unpaid assessment and policyholder's stabilization reserve fund charge will be refunded. Policyholder assessments and policyholder's stabilization reserve fund charges are fully earned upon payment; therefore, except as provided in the Act, or §5.2003(c)(2) of this title (relating to Members and Policyholders Participation in the Texas Medical Liability Insurance Underwriting Association), no portion is refundable.

   2. (2) Cancellation by the insured. A policy of insurance may be cancelled at any time:

      1. (A) by the insured upon written request for cancellation of the policy:
      2. (B) by an insurance premium finance company in accordance with the provisions contained in the Insurance Code, Article 24.17, in which case the association shall refund the unearned portion of any paid premium, and if cancelled within the 90th day of coverage, the unearned portion of the paid policyholder's stabilization reserve fund charge according to the approved short rate table, provided all assessments and policyholder's stabilization reserve fund charges earned have been fully paid; otherwise, only that portion of the unearned premium over any unpaid assessment and policyholder's stabilization reserve fund charge will be refunded. Policyholder assessments and policyholder's stabilization reserve fund charges are fully earned upon payment; therefore, except as provided in the Act, or §5.2003(c)(2) of this title (relating to Members and Policyholders Participation in the Texas Medical Liability Insurance Underwriting Association), no portion is refundable.
   3. (3) Exhausted policy limits. If there is outstanding a claim or claims under any policy of insurance on which a reserve or reserves have been established, which in the aggregate or when combined with losses previously paid under such policy, equal or exceed the aggregate limits of coverage under such policy, then the association shall notify the insured and at the option of the insured the policy may be cancelled and, if cancelled, the premium shall be fully earned and the insured may apply for a new policy to be effective concurrently with the termination date of the cancelled policy.

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

      1. (A) The association may cancel a policy of medical professional liability insurance or decline to renew such policy for any reason listed in subsection (c)(1) of this section at any time within the first 90 days from the effective date of the policy by sending 90 days written notice to the insured.
      2. (B) The association may cancel a policy of medical professional liability insurance or decline to renew such policy for nonpayment of premium, assessments, or policyholder stabilization reserve fund charge or loss of license, charter, certification, or accreditation at any time during the policy period by sending 10 days' written notice to the insured.
      3. (C) Notice of cancellation or nonrenewal pursuant to subparagraph (A) and subparagraph (B) of this paragraph shall contain a statement of the reason for such cancellation or nonrenewal and a statement that the insured has the right to appeal pursuant to subsection (f) of this section and the Act.
      4. (D) The association shall give at least 90 days' written notice to an insured before increasing the premium by reason of a rate increase on the insured's medical professional liability insurance policy. The notice shall state the amount of the increase.
4. (d) Removal of risks. Any member at any time, upon written consent from the insured filed with the association 30 days in advance, or at any earlier time as may be determined by the manager of the association upon application filed with him in writing by the insured, may write any such risk as regular business, in which event the designated servicing company shall cancel its policy pro rata as of a date and time specified by the manager of the association. The association will require written confirmation from the member that the member is taking the risk out of the association before allowing pro rata cancellation.

5. (e) Payment of claims.

   1. (1) Report of loss. All losses shall be reported to the association in the manner prescribed by the board of directors.
   2. (2) Adjustment of loss. All losses shall be adjusted in the manner designated by the board of directors subject to the provisions of this plan and the insurance laws of Texas.

Source Note:The provisions of this §5.2004 adopted to be effective January 1, 1976; amended to be effective October 31, 1984, 9 TexReg 5426; amended to be effective January 19, 1988, 13 TexReg 124; amended to be effective March 18, 1993, 18 TexReg 1411; amended to be effective April 7, 1997, 22 TexReg 3039.