Discrimination, Claims, and Fraud

Defamation (TIC 541.053)

Making a false or maliciously critical statement about an insurer’s financial condition, calculated to injure a person engaged in the business of insurance, is defamation under TIC 541.053.

Boycott, coercion, and intimidation (TIC 541.054)

Texas prohibits committing, through concerted action or an agreement, an act of boycott, coercion, or intimidation that results or tends to result in an unreasonable restraint of, or a monopoly in, the business of insurance (TIC 541.054). The classic fact pattern is a group of agents or insurers agreeing to withhold business from a competitor’s broker unless the broker stops placing certain accounts.

Commingling

Commingling occurs when an agent mixes premium funds collected from clients with the agent’s personal or business funds. Premium an agent collects is money that belongs to the insurer or the insured, not to the agent. Using premium funds for personal expenses or business overhead is commingling, often combined with conversion or theft; misappropriating, converting to the agent’s own use, or illegally withholding money belonging to an insurer or insured is a ground for license denial or discipline (TIC 4005.101(b)(4)).

Unfair discrimination (TIC 544.002, 544.003)

Insurance pricing is risk-based by design — charging different premiums for genuinely different risk profiles is essential to how the math works. What Texas law prohibits is unfair discrimination — treating people who present the same risk differently, or using prohibited characteristics that have no actuarial basis:

• Prohibited classifications. Race, color, religion, and national origin cannot be the basis for refusing, limiting, or pricing coverage; age, gender, marital status, geographic location, and disability can be only when the decision rests on sound underwriting or actuarial principles reasonably related to actual or anticipated loss experience (TIC 544.002–.003).
• Redlining. Refusing to write business — or writing only inferior coverage — in particular geographic areas based on the racial or ethnic composition of the neighborhood, rather than legitimate loss experience. Texas law never allows race, color, religion, or national origin as a basis, and allows geographic location only when the decision rests on sound underwriting or actuarial principles reasonably related to loss experience (TIC 544.002(a), 544.003(b)).
• Permissible risk classification. Age and gender (for life and health, where permitted), driving record, claims history, credit-based insurance score (subject to the safeguards of TIC Chapter 559), occupation, and similar factors are permissible when supported by actuarial data.

CORE IDEA — Discrimination isn’t a dirty word in insurance — “unfair” is

Insurance has to discriminate by risk to function. The legal question is whether the distinction is actuarially justified and applied to a permissible characteristic. A 65-year-old paying more for term life than a 35-year-old is not unfair discrimination; an applicant being declined because of their ZIP code’s racial makeup is.

Unfair claims settlement practices (TIC Chapter 542; TAC § 21.201–.205)

Texas has a robust unfair-claim-settlement statute. Insurers are required to:

• Acknowledge receipt of a claim and begin investigation promptly.
• Give the reasons in writing when a claim is rejected, and promptly provide a reasonable explanation of the basis in the policy, in relation to the facts or applicable law, for a denial or a compromise offer (TIC 542.056(c); TAC § 21.203(9)).
• Comply with statutory timing rules — including the prompt-pay deadlines that apply to health insurance claims and, in TIC 542.051–.061, to first-party claims under most kinds of insurance.
• Conduct a reasonable investigation before denying.
• Attempt in good faith to settle promptly and fairly a claim on which liability has become reasonably clear, and refrain from misrepresenting policy provisions in connection with a claim or compelling policyholders to sue by offering substantially less than they later recover (TIC 542.003(b)).

Violations expose the insurer to administrative penalties, civil damages (including statutory interest), and license discipline.

Insurance fraud (TIC Chapter 701)

Fraud crosses the line from unfair trade practice into criminal territory. Under Penal Code § 35.02, fraud in support of a claim is graded by the value of the claim, from a Class C misdemeanor under $100 to a felony at $2,500 or more, and fraud in support of an application is a state jail felony. Fraud occurs in several typical patterns:

• Application fraud. The applicant lies on the application — hides a medical condition, falsifies the garaging address, omits a driving conviction — to qualify for coverage or to get a lower premium.
• Claims fraud. The insured (or someone acting in concert) submits a false claim — a staged accident, an inflated injury, an arson loss, billing for medical services never rendered.
• Premium fraud / theft. A producer collects premiums from clients and pockets the money instead of remitting it to the insurer. Converting money that belongs to an insurer or insured to the agent’s own use is a ground for license discipline (TIC 4005.101(b)(4)) and can be a crime.
• Agent fraud. Selling policies in companies the agent does not represent, forging applications, churning books of business, or running outright Ponzi schemes dressed up as insurance arrangements.

Penalties for fraud are layered: criminal prosecution (a felony at the higher dollar amounts), restitution to the insurer the court must order on a conviction (Penal Code § 35.02(e)), license denial, suspension, or revocation by TDI for fraudulent or dishonest acts or a felony conviction (TIC 4005.101(b)(5), (8)), and civil liability to harmed parties.