CHAPTER 548. INSURER INSIDER TRADING AND PROXY REGULATION
INSURANCE CODE
TITLE 5. PROTECTION OF CONSUMER INTERESTS
SUBTITLE C. DECEPTIVE, UNFAIR, AND PROHIBITED PRACTICES
CHAPTER 548. INSURER INSIDER TRADING AND PROXY REGULATION
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 548.001. PURPOSE. (a) The purpose of this chapter is to
provide for protection of the public interest, investors, and
shareholders of domestic stock insurers by:
(1) regulating proxy solicitation by domestic stock insurers;
(2) regulating transactions by officers, directors, and
principal equity security holders of domestic stock insurers; and
(3) requiring appropriate reporting of those solicitations and
transactions.
(b) To that end the misuse of information by certain insiders of
domestic stock insurers shall be prevented and a full and fair
disclosure of all material matters relevant to the exercise of
the corporate franchise of a shareholder of such an insurer will
be promoted and the free exercise of that franchise will be
assured.
(c) In exercising the authority granted by this chapter to adopt
rules, the commissioner shall promote the purposes of this
chapter to prevent misuse of information and to encourage good
faith dealing and full and fair disclosure.
Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,
2005.
Sec. 548.002. DEFINITIONS. In this chapter:
(1) "Domestic stock insurer" includes a domestic title insurance
company regulated by Title 11 and a stipulated premium company
regulated by Chapter 884.
(2) "Equity security" means:
(A) a stock or similar security;
(B) a security that:
(i) is convertible, with or without consideration, into an
equity security; or
(ii) carries a warrant or right to subscribe to or purchase an
equity security;
(C) a warrant or right to subscribe to or purchase an equity
security; or
(D) any other security defined as an equity security in
accordance with Section 548.004(a)(1).
(3) "Federal Securities Exchange Act" means the Securities
Exchange Act of 1934 (15 U.S.C. Section 77b et seq.), as amended.
(4) "Officer" means:
(A) a president, vice president, treasurer, actuary, secretary,
or controller of a domestic stock insurer; or
(B) any other person who performs for a domestic stock insurer
the functions of an officer described by Paragraph (A).
(5) "Person" means an individual, corporation, partnership,
association, joint-stock company, business trust, or
unincorporated organization.
Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,
2005.
Sec. 548.003. RULEMAKING AUTHORITY. The commissioner may:
(1) adopt rules necessary for the execution of the powers and
duties of the department or commissioner under this subchapter
and Subchapter B; and
(2) for that purpose classify domestic stock insurers,
securities, and other persons or matters under the jurisdiction
of the department or commissioner.
Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,
2005.
Sec. 548.004. RULES RELATING TO EQUITY SECURITIES AND EXEMPT
SECURITIES. (a) If the commissioner considers it necessary or
appropriate in the public interest or for the protection of
investors, the commissioner by rule may define:
(1) "equity security" to include a security that is similar in
nature to an equity security; and
(2) "exempt security" for purposes of this chapter.
(b) In adopting a rule under Subsection (a)(2), the commissioner
may define the term conditionally, on specified terms, or for a
stated period.
Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,
2005.
SUBCHAPTER B. REQUIRED ACTS; PROHIBITIONS
Sec. 548.101. DEFINITION. In this subchapter, "insider" means a
person who:
(1) is directly or indirectly the beneficial owner of more than
10 percent of any class of an equity security of a domestic stock
insurer, other than an exempt security; or
(2) is a director or officer of a domestic stock insurer.
Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,
2005.
Sec. 548.102. STATEMENT OF BENEFICIAL OWNERSHIP OF EQUITY
SECURITIES. (a) Not later than the 10th day after the date a
person becomes an insider, the insider shall file with the
department a statement of the amount of all equity securities of
the insurer of which the insider is a beneficial owner.
(b) If in any month a change occurs in the amount of the equity
securities of which the insider is a beneficial owner, the
insider shall file with the department not later than the 10th
day of the following month a statement that indicates:
(1) the amount of all equity securities of which the insider is
a beneficial owner as of the end of that month; and
(2) the changes in the insider's ownership that occurred in that
month.
(c) A statement under this section must be in the form
prescribed by the department.
Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,
2005.
Sec. 548.103. RECOVERY OF CERTAIN PROFITS. (a) The purpose of
this section is to prevent the unfair use of information that may
be obtained by an insider because of the insider's relationship
with the domestic stock insurer.
(b) Any profit realized by the insider from the purchase and
sale or from the sale and purchase of an equity security of the
domestic stock insurer within a period of less than six months
inures to and is recoverable by the insurer.
(c) A suit to recover the profit must be brought not later than
the second anniversary of the date the profit is realized. The
suit may be instituted at law or in equity by:
(1) the domestic stock insurer; or
(2) the owner of any security of the domestic stock insurer, in
the name of and in behalf of the insurer, if the insurer does
not:
(A) bring suit not later than the 60th day after the date a
request is made; or
(B) diligently prosecute a suit that is timely brought by the
insurer.
(d) Subsection (b) applies regardless of whether:
(1) the insider intended to hold the equity security purchased
for longer than six months; or
(2) the insider did not intend to repurchase the sold equity
security during the six-month period following the date the
insider sold the equity security.
(e) Subsection (b) does not apply to:
(1) a transaction in which an equity security was acquired in
good faith in connection with a previously contracted debt;
(2) a transaction in which the beneficial owner of an equity
security was not the beneficial owner at both the time of the
purchase and the time of the sale, or the sale and purchase, of
the security involved;
(3) a transaction involving an exempt security;
(4) a transaction that the commissioner by rule exempts from
this section because it is beyond the scope of the purpose of
this section; or
(5) a transaction involving an equity security of a domestic
stock insurer that is not held by a dealer in an investment
account if the transaction:
(A) is in the ordinary course of the dealer's business; and
(B) is incident to the establishment or maintenance by the
dealer of a primary or secondary market, other than on an
exchange, as defined by the federal Securities Exchange Act, for
the security.
(f) The commissioner may adopt rules the commissioner considers
necessary or appropriate in the public interest to define and
prescribe terms and conditions with respect to a security held in
an investment account and a transaction made in the ordinary
course of business and incident to the establishment or
maintenance of a primary or secondary market.
Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,
2005.
Sec. 548.104. SALE OR NONDELIVERY OF CERTAIN EQUITY SECURITIES
PROHIBITED. (a) An insider may not directly or indirectly sell
an equity security of the domestic stock insurer if the insider
selling the security or the insider's principal:
(1) does not own the security; or
(2) owns the security, but does not:
(A) deliver the security before the 21st day after the date of
the sale; or
(B) deposit the security in the mail or another usual channel of
transportation before the sixth day after the date of the sale.
(b) An insider is not considered to have violated Subsection
(a)(2) if the insider proves that:
(1) notwithstanding the exercise of good faith, the insider was
unable to make a timely delivery or deposit; or
(2) to make a timely delivery or deposit would cause undue
inconvenience or expense.
(c) Subsection (a) does not apply to the sale of:
(1) an exempt security; or
(2) an equity security of a domestic stock insurer that is not
held by a dealer in an investment account if the sale:
(A) is in the ordinary course of the dealer's business; and
(B) is incident to the establishment or maintenance by the
dealer of a primary or secondary market, other than on an
exchange, as defined by the federal Securities Exchange Act, for
the security.
(d) The commissioner may adopt rules implementing Subsection (c)
in the manner prescribed by Section 548.103(f).
Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,
2005.
Sec. 548.105. CERTAIN SOLICITATIONS PROHIBITED; DISCLOSURE BY
INSURER. (a) A person, in violation of any rule adopted by the
commissioner under this section, may not solicit or permit the
use of the person's name to solicit a proxy, consent, or
authorization with respect to an equity security, other than an
exempt security, of a domestic stock insurer that is not listed
on a national securities exchange registered as such under the
federal Securities Exchange Act.
(b) Unless before an annual or other meeting a proxy, consent,
or authorization with respect to a security of a domestic stock
insurer covered by Subsection (a) is solicited by or on behalf of
the management of the insurer from a holder of record of the
security in compliance with rules adopted by the commissioner
under this section, the insurer shall, in accordance with rules
adopted by the commissioner, file with the department information
substantially equivalent to the information that would be
required to be sent if a solicitation were made. The insurer
shall send the information to each holder of record of the
security.
(c) The commissioner may adopt rules to implement this section
that the commissioner considers necessary or appropriate in the
public interest or for the protection of investors.
Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,
2005.
Sec. 548.106. NONAPPLICABILITY OF SUBCHAPTER. (a) This
subchapter does not apply to an equity security of a domestic
stock insurer if:
(1) the security is or is required to be registered under
Section 12 of the federal Securities Exchange Act; or
(2) the insurer does not have any class of its equity securities
held of record by 100 or more persons on the last business day of
the year preceding the year in which the equity security would
otherwise be subject to this subchapter.
(b) Sections 548.101-548.104 do not apply to a foreign or
domestic arbitrage transaction unless the transaction is made in
violation of a rule adopted by the commissioner to accomplish the
purposes of this chapter.
(c) A provision of this subchapter that imposes liability does
not apply to an act or omission made in good faith in conformity
with a rule adopted by the commissioner. This subsection applies
regardless of whether the rule is subsequently amended,
rescinded, or determined by judicial or other authority to be
invalid for any reason.
Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,
2005.
SUBCHAPTER C. ENFORCEMENT
Sec. 548.201. OFFENSES; CRIMINAL PENALTY. (a) A person commits
an offense if the person intentionally:
(1) violates this chapter or a rule adopted under this chapter;
or
(2) makes or causes to be made a statement that is false or
misleading with respect to a material fact in a document required
to be filed by this chapter or a rule adopted under this chapter.
(b) Except as provided by Subsection (c), an offense under this
section is punishable by:
(1) a fine not to exceed $10,000;
(2) imprisonment for not more than two years; or
(3) both the fine and imprisonment.
(c) A person may not be punished by imprisonment for violating a
rule as prescribed by this section if the person proves that the
person had no knowledge of the rule.
Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,
2005.
Sec. 548.202. CIVIL PENALTY. (a) A person who wilfully
violates this chapter or a rule adopted under this chapter is
liable for a civil penalty of not less than $100 or more than
$1,000 for:
(1) each act of violation; and
(2) each day of violation.
(b) The attorney general, at the request of the commissioner,
shall bring a suit in the name of the state to recover the civil
penalty. The suit must be brought:
(1) in Travis County or the county in which the person resides;
(2) if more than one person commits the violation, in the county
in which any of the persons resides; or
(3) in the county in which the violation allegedly occurred.
Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,
2005.
Sec. 548.203. INJUNCTIVE ACTION. A suit to enjoin a violation
or a threatened violation of this chapter may be brought in any
district court in which an action for a civil penalty under
Section 548.202 may be brought.
Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,
2005.