A third party administer administrator (“TPA”) based out of California recently entered into a Consent Order with the Texas Insurance Department (“Department”).  The Consent Order focused on the fact that the TPA had acted outside the scope of its TPA authority for seven years by operating as an adjusting firm handling property and casualty insurance claims on Texas risks.
Under Texas law, a TPA is defined as “a person who, in connection with annuities or life benefits, health benefits, accident benefits, pharmacy benefits or workers compensation benefits, collects premiums or contributions from or adjusts or settles claims for residents of this state.” 

Since September 1, 2011, business entities have been required to hold an adjuster’s license in Texas to perform the acts of an adjuster.

In May 2020, the Department received a complaint that the TPA was acting as an adjuster on behalf of an insurer licensed in Texas by handling a third- party automobile claim in Texas.  As a result of the complaint letter, an investigation by the Department revealed the TPA had entered into a claims administration service agreement with an insurer under which the TPA was adjusting personal automobile claims.  The Department’s investigation also revealed the TPA had adjusted property and casualty claims for five other unaffiliated insurers and two large insurer groups.

In July 2020, the TPA applied to the Department for an all-lines adjuster license.  The TPA represented to the Department that it erroneously believed a TPA license was sufficient to adjust property and casualty claims in Texas and that it also improperly relied upon third party entities to confirm licensure of the adjusters supplied to it.

As a result of the Department’s investigation, the TPA entered into a Consent Order with the Department that required the TPA to comply with the following:

• Cease and desist from using unlicensed persons to adjust claims involving Texas risks.

• Confirm the licensure status of all persons it uses to adjust Texas claims.

• Review its website to remove any misleading or deceptive assertions about its authority to operate in Texas.

• Voluntarily consent to a two-year probated suspension of its Texas TPA license.

• Pay an administrative penalty of $350,000.

This matter is a cautionary and costly reminder that TPAs must operate within the scope of their TPA licenses. TPAs may need to obtain additional licenses, such as utilization review agent, adjuster, pharmacy benefit manager or insurance producer, depending on the services provided and the licenses required in each state where services may be performed.