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TX State Warns Car Insurance Providers

The state of Texas has warned car insurance providers regarding the legality of some of their practices with customers in the state trying to settle car insurance before school or buy a new policy. In a bulletin to auto insurance providers in the state, the Texas insurance commissioner's office reminded insurers selling policies in the state about TX state law regarding state laws as they pertain to insurers' ability to limit coverage for motor vehicle damages. This bulletin reminded state providers about the specific provisions of the Texas Insurance Code, the state law code for the insurance industry.

Texas Insurance Code Provisions

The Texas Insurance Code (TIC) has specific tenets that limit the control auto insurance providers have when vehicles are being repaired after a loss claim. Specifically, the code says that insurance companies cannot specify brands or types of parts or products that are used in repairs, and they can't specify the vendor or supplier used in procuring the parts. Insurers are limited by the Texas Insurance Code in another significant way as well. They cannot according to law prevent insured policy holders from choosing the repair facility to take a damaged vehicle to get it fixed after a loss [1].

This bulletin has come about because of continued concern from the Texas Department of Insurance (TDI) regarding reports that state insurance companies have been overstepping the limits of the law in these cases. According to these reports, some claimants have been getting notices and instructions from their insurance companies that may be in conflict with the Texas Insurance Code.

For example, subchapter G of chapter 1952 of the Texas Insurance Code states that an insurer, an agent or an employee or adjuster working for that insurer may not suggest either verbally or in written form that the insured policy holder must use a certain specified repair facility, or give policy holders any kind of preferred list of repair shops or list of preferred suppliers for repair parts covered by the policy [1]. The bulletin sent out to the insurers in the state reminded them of this legal provision as a way of highlighting the need for state providers to assess their own actions in the way they deal with their insured policy holders in these circumstances.

Texas Administrative Code Section 5.501

And Section 5.501 of the Texas Administrative Code (TAC) requires an auto insurance company to provide adequate notice to the insured or to a third party claimant making a Texas car insurance claim for damages to a vehicle. This notice requires that "a claimant has the right to select where a motor vehicle is repaired and parts used for repairs" [2]. This notice also specifically mentions that an insurance company is not obligated to pay more than a reasonable amount of money for these repairs and repair parts. This feature of the TAC was also shared with state auto insurers in the bulletin sent out by the commissioner's office.

According to the commissioner's office, any notice provided by an insurance company to a claimant either orally or in written form that explicitly or implicitly suggests that the claimant will be responsible for the cost of repairs and parts if the insurer's preferred facilities and products are not chosen, may be in conflict with both the TAC and the Texas Insurance Code. Limiting coverage provided under a car insurance policy or threatening to do so based on these choices of repair shop or replacement parts is in violation of state insurance laws.

This is interesting in light of the frequency with which such practices seem to occur across the state. Another closely related concern shared by the commissioner's office is that the reimbursement rates set by auto insurance companies are so low that they inevitably lead to repair shops doing shoddy or incomplete work and using substandard non OEM parts in the completion of repairs. As a result, car insurance consumers are being shortchanged in the coverage they receive for the premiums they pay, possibly more than they even realize.

Most affordable auto insurance policies require insurance companies to provide the amount of financial coverage needed to repair or replace the damaged property with other parts of like or similar value and quality. According to the commissioner's department, practices such as the ones they describe going on in the state auto insurance industry are unfair to insured policy holders in Texas because they do not provide these drivers with the coverage they think they are getting, and they do not allow cars to be restored to their previous condition after an accident.

Car insurance providers in the state of Texas do face significant challenges, including dealing with claims involving the huge number of uninsured vehicles on state roads. Consumers should keep up with Texas car insurance laws for their benefit.

[1] http://www.statutes.legis.state.tx.us/?link=I1 Retrieved 2010-08-22.
[2] http://info.sos.state.tx.us/pls/pub/readtac$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=28&pt=1&ch=5&rl=501 Retrieved 2010-08-22.

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