INSURANCE CODE
CHAPTER 548. INSURER INSIDER TRADING AND PROXY REGULATION
SUBCHAPTER A. GENERAL PROVISIONS
§ 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, § 2, eff. April 1, 2005.
§ 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, § 2, eff. April 1, 2005.
§ 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, § 2, eff. April 1, 2005.
§ 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, § 2, eff. April 1, 2005.
SUBCHAPTER B. REQUIRED ACTS; PROHIBITIONS
§ 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, § 2, eff. April 1, 2005.
§ 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, § 2, eff. April 1, 2005.
§ 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, § 2, eff. April 1, 2005.
§ 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, § 2, eff. April 1, 2005.
§ 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, § 2, eff. April 1, 2005.
§ 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, § 2, eff. April 1, 2005.
SUBCHAPTER C. ENFORCEMENT
§ 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, § 2, eff. April 1, 2005.
§ 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, § 2, eff. April 1, 2005.
§ 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, § 2, eff. April 1, 2005.
