By Duncan, Counts H.B. No. 958
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the issuance of insurance through eligible surplus
1-3 lines insurers.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Section 1, Article 1.14-1, Insurance Code, is
1-6 amended to read as follows:
1-7 Sec. 1. Purpose. The purpose of this Article is to subject
1-8 certain persons and insurers to the jurisdiction of the State Board
1-9 of Insurance, of proceedings before the Board, and of the courts of
1-10 this state in suits by or on behalf of the state and insureds or
1-11 beneficiaries under insurance contracts. The Legislature declares
1-12 that it is a subject of concern that many residents of this state
1-13 hold policies of insurance issued by persons and insurers neither
1-14 <not> authorized to do insurance business in this state nor
1-15 qualified as eligible surplus lines insurers as defined in Article
1-16 1.14-2, thus presenting to such residents the often insuperable
1-17 obstacle of asserting their legal rights under such policies in
1-18 forums foreign to them under laws and rules of practice with which
1-19 they are not familiar. The Legislature declares that it is also
1-20 concerned with the protection of residents of this state against
1-21 acts by persons and insurers not authorized to do an insurance
1-22 business in this state by the maintenance of fair and honest
1-23 insurance markets, by protecting the premium tax revenues of this
1-24 state, by protecting authorized persons and insurers, which are
2-1 subject to strict regulation, from unfair competition by
2-2 unauthorized persons and insurers and by protecting against the
2-3 evasion of the insurance regulatory laws of this state. In
2-4 furtherance of such state interest, the Legislature herein provides
2-5 methods for substituted service of process upon such persons or
2-6 insurers in any proceeding, suit or action in any court and
2-7 substitute service of any notice, order, pleading or process upon
2-8 such persons or insurers in any proceeding before the State Board
2-9 of Insurance to enforce or effect full compliance with the
2-10 insurance and tax statutes of this state, and declares in so doing
2-11 it exercises its power to protect residents of this state and to
2-12 define what constitutes doing an insurance business in this state,
2-13 and also exercises powers and privileges available to this state by
2-14 virtue of P.L. 79-15 (1945), (Chapter 20, 1st Sess., S. 340), 59
2-15 Stats. 33, as amended, which declares that the business of
2-16 insurance and every person engaged therein shall be subject to the
2-17 laws of the several states.
2-18 SECTION 2. Section 2(b), Article 1.14-1, Insurance Code, is
2-19 amended to read as follows:
2-20 (b) The provisions of this section do not apply to:
2-21 1. The lawful transaction of surplus lines insurance
2-22 pursuant to Article 1.14-2.
2-23 2. The lawful transaction of reinsurance by insurers.
2-24 3. Transactions in this state involving a policy
2-25 lawfully solicited, written, and delivered outside of this state
2-26 covering only subjects of insurance not resident, located, or
2-27 expressly to be performed in this state at the time of issuance,
3-1 and which transactions are subsequent to the issuance of such
3-2 policy.
3-3 4. Transactions involving contracts of insurance
3-4 independently procured through negotiations occurring entirely
3-5 outside of this state for out-of-state insureds with Texas
3-6 exposures which are reported and on which premium tax is paid in
3-7 accordance with this Article.
3-8 5. Transactions in this state involving group life,
3-9 health or accident insurance (other than credit insurance) and
3-10 group annuities where the master policy of such groups was lawfully
3-11 issued and delivered in a state in which the company was authorized
3-12 to do an insurance business and such transactions are authorized by
3-13 other statutes of this state.
3-14 6. Lawful transactions by servicing companies of the
3-15 Texas workers' compensation employers' rejected risk fund pursuant
3-16 to Section 4.08, Article 5.76-2.
3-17 SECTION 3. Section 8, Article 1.14-1, Insurance Code, is
3-18 amended to read as follows:
3-19 Sec. 8. Validity of Insurance Contracts. Except for
3-20 <lawfully procured surplus lines> insurance procured by a licensed
3-21 surplus lines agent from an eligible surplus lines insurer as
3-22 defined in Article 1.14-2 and contracts of insurance independently
3-23 procured, as defined in Section 2(b)4 of this Article, <through
3-24 negotiations occurring entirely outside of this state> which are
3-25 reported and on which premium tax is paid in accordance with this
3-26 Article or Article 1.14-2, any contract of insurance effective in
3-27 this state and entered into by an unauthorized insurer is
4-1 unenforceable by such insurer. In event of failure of any such
4-2 unauthorized insurer to pay any claim or loss within the provisions
4-3 of such insurance contract, any person who assisted or in any
4-4 manner aided directly or indirectly in the procurement of such
4-5 insurance contract shall be liable to the insured for the full
4-6 amount thereof pursuant to the provisions of such insurance
4-7 contract.
4-8 SECTION 4. Section 9, Article 1.14-1, Insurance Code, is
4-9 amended by adding Subsection (c) to read as follows:
4-10 (c) This section does not apply to transactions in this
4-11 state involving a policy lawfully solicited, negotiated, written,
4-12 and delivered outside of this state covering only subjects of
4-13 insurance not resident, located or expressly to be performed in
4-14 this state at the time of issuance, and which transactions are
4-15 subsequent to the issuance of such policy or surplus lines
4-16 insurance procured through eligible surplus lines carriers as
4-17 defined in Article 1.14-2.
4-18 SECTION 5. Section 10, Article 1.14-1, Insurance Code, is
4-19 amended to read as follows:
4-20 Sec. 10. Reporting of Unauthorized Insurance. (a) Every
4-21 person investigating or adjusting any loss or claim on a subject of
4-22 insurance in this state shall immediately report to the State Board
4-23 of Insurance every insurance policy or contract which has been
4-24 entered into by any insurer unauthorized <not authorized> to
4-25 transact such insurance in this state.
4-26 (b) This section does not apply to transactions in this
4-27 state involving contracts of insurance independently procured, as
5-1 defined in Section 2(b)4 of this Article or surplus lines insurance
5-2 procured by a licensed surplus lines agent from an eligible surplus
5-3 lines carrier as defined in Article 1.14-2 <a policy lawfully
5-4 solicited, written, and delivered outside of this state covering
5-5 only subjects of insurance not resident, located or expressly to be
5-6 performed in this state at the time of issuance, and which
5-7 transactions are subsequent to the issuance of such policy>.
5-8 SECTION 6. Section 11, Article 1.14-1, Insurance Code, is
5-9 amended to read as follows:
5-10 Sec. 11. Unauthorized insurance premium tax. (a) Except as
5-11 to premiums on <lawfully procured surplus lines> insurance procured
5-12 by a licensed surplus lines agent from an eligible surplus lines
5-13 insurer as defined in Article 1.14-2 and premiums on independently
5-14 procured insurance on which a tax has been paid pursuant to this
5-15 Article or Article 1.14-2, every unauthorized insurer shall pay to
5-16 the State Board of Insurance before March 1 next succeeding the
5-17 calendar year in which the insurance was so effectuated, continued
5-18 or renewed a premium receipts tax of 4.85 percent of gross premiums
5-19 charged for such insurance on subjects resident, located or to be
5-20 performed in this state. Such insurance on subjects resident,
5-21 located or to be performed in this state procured through
5-22 negotiations or an application, in whole or in part occurring or
5-23 made within or from within or outside of this state, or for which
5-24 premiums in whole or in part are remitted directly or indirectly
5-25 from within or outside of this state, shall be deemed to be
5-26 insurance procured, or continued or renewed in this state. The
5-27 term "premium" includes all premiums, membership fees, assessments,
6-1 dues and any other consideration for insurance. Such tax shall be
6-2 in lieu of all other insurance taxes. On default of any such
6-3 unauthorized insurer in the payment of such tax the insured shall
6-4 pay the tax. If the tax prescribed by this subsection is not paid
6-5 within the time stated, the tax shall be increased by a penalty of
6-6 25 percent and by the amount of an additional penalty computed at
6-7 the rate of one percent per month or any part thereof from the date
6-8 such payment was due to the date paid.
6-9 (b) If a policy covers risks or exposures only partially in
6-10 this state, the tax payable shall be computed on the portions of
6-11 the premiums which are properly allocable to the risks or exposures
6-12 located in this state. In determining the amount of premiums
6-13 taxable in this state, all premiums written, procured, or received
6-14 in this state and all premiums on policies negotiated in this state
6-15 shall be deemed written on property or risks located or resident in
6-16 this state, except such premiums as are properly allocated or
6-17 apportioned and reported as taxable premiums of any other state or
6-18 states. Premiums on risks or exposures which are properly
6-19 allocated to federal waters, international waters or under the
6-20 jurisdiction of a foreign government shall not be considered
6-21 taxable by this state.
6-22 SECTION 7. Section 12, Article 1.14-1, Insurance Code, is
6-23 amended to read as follows:
6-24 Sec. 12. Independently procured insurance Tax. (a) Every
6-25 insured who procures insurance in accordance with Section 2(b)4 of
6-26 this Article must file a report with the State Board of Insurance
6-27 and pay an independently procured insurance tax of 4.85 percent.
7-1 (b) A report must be filed with the State Board of Insurance
7-2 within 60 days after the date the insurance was independently
7-3 procured. The report must be made in writing on forms provided by
7-4 the State Board of Insurance. The report must contain the name and
7-5 address of the insured or insureds, the name and address of the
7-6 insurer, the subject of the insurance, a general description of the
7-7 coverage, the amount of premium charged, and any additional
7-8 information which the State Board of Insurance requests.
7-9 (c) The report shall be filed and any tax due shall be paid
7-10 by the insured or by any other person designated by the insured.
7-11 <Every insured who procures or causes to be procured or continues
7-12 or renews insurance with any unauthorized insurer, or any insured
7-13 or self-insurer who so procures or continues excess loss,
7-14 catastrophe or other insurance, upon a subject of insurance
7-15 resident, located or to be performed within this state, other than
7-16 insurance procured through a surplus lines agent pursuant to the
7-17 surplus lines law of this state shall within 60 days after the date
7-18 such insurance was so procured, continued or renewed, file a report
7-19 of the same with the State Board of Insurance in writing and upon
7-20 forms designated by the State Board of Insurance and furnished to
7-21 such an insured upon request. The report shall show the name and
7-22 address of the insured or insureds, name and address of the
7-23 insurer, the subject of the insurance, a general description of the
7-24 coverage, the amount of premium currently charged therefor, and
7-25 such additional pertinent information as is reasonably requested by
7-26 the State Board of Insurance.>
7-27 <(b) Any insurance in an unauthorized insurer of a subject
8-1 of insurance resident, located or to be performed within this state
8-2 procured through negotiations or an application, in whole or in
8-3 part occurring or made within or from within or outside of this
8-4 state, or for which premiums in whole or in part are remitted
8-5 directly or indirectly from within or outside of this state, shall
8-6 be deemed to be insurance procured, or continued or renewed in this
8-7 state within the intent of Paragraph (a).>
8-8 <(c) There is hereby levied upon the obligation, chose in
8-9 action, or right represented by the premium charged for such
8-10 insurance, a premium receipts tax of 3.85 percent of gross premiums
8-11 charged for such insurance. The term "premium" shall include all
8-12 premiums, membership fees, assessments, dues and any other
8-13 consideration for insurance. Such tax shall be in lieu of all
8-14 other insurance taxes. The insured shall, before March 1 next
8-15 succeeding the calendar year in which the insurance was so
8-16 procured, continued or renewed, pay the amount of the tax to the
8-17 State Board of Insurance. In event of cancellation and rewriting
8-18 of any such insurance contract the additional premium for premium
8-19 receipts tax purposes shall be the premium in excess of the
8-20 unearned premium of the canceled insurance contract.>
8-21 (d) If a policy covers risks or exposures only partially in
8-22 this state, the tax payable shall be computed on the portions of
8-23 the premium which are properly allocable to the risks or exposures
8-24 located in this state. In determining the amount of premiums
8-25 taxable in this state, all premiums written, procured or received
8-26 in this state and all premiums on policies negotiated in this state
8-27 shall be deemed written on property or risks located or resident in
9-1 this state, except such premiums as are properly allocated or
9-2 apportioned and reported as taxable premiums of any other state or
9-3 states. Premiums on risks or exposures which are properly
9-4 allocated to federal waters, international waters or under the
9-5 jurisdiction of a foreign government shall not be taxable.
9-6 (e) If the insured fails to withhold from the premium the
9-7 amount of tax herein levied, the insured shall be liable for the
9-8 amount thereof and shall pay the same to the State Board of
9-9 Insurance within the time stated in Paragraph (c). If the tax
9-10 prescribed by this subsection is not paid within the time stated in
9-11 Paragraph (c), the tax shall be increased by a penalty of 25
9-12 percent and by the amount of an additional penalty computed at the
9-13 rate of one percent per month or any part thereof from the date
9-14 such payment was due to the date paid.
9-15 (f) The Attorney General, upon request of the State Board of
9-16 Insurance, shall proceed in the courts of this or any other state
9-17 or in any federal court or agency to recover such tax not paid
9-18 within the time prescribed in this section.
9-19 (g) This section shall not be construed or deemed to
9-20 abrogate or modify any provision of this Article. This section
9-21 does not apply as to individual life or individual disability
9-22 insurance.
9-23 SECTION 8. Section 1, Article 1.14-2, Insurance Code, is
9-24 amended to read as follows:
9-25 Sec. 1. Purpose. Insurance transactions which are entered
9-26 into by citizens of this state with eligible surplus lines
9-27 <unauthorized> insurers through a surplus lines agent as a result
10-1 of difficulty in obtaining coverage from licensed insurers are a
10-2 matter of public interest. The Legislature declares that such
10-3 transaction of surplus lines insurance is a subject of concern and
10-4 that it is necessary to provide for the regulation, taxation,
10-5 supervision and control of such transactions and the practices and
10-6 matters related thereto by requiring appropriate standards and
10-7 reports concerning the placement of such insurance; by imposing
10-8 requirements necessary to make such regulation and control
10-9 reasonably complete and effective; by providing orderly access to
10-10 eligible surplus lines insurers <that are not authorized to
10-11 transact the business of insurance in this state>; by insuring the
10-12 maintenance of fair and honest markets; by protecting the revenues
10-13 of this state; and by protecting licensed <authorized> insurers,
10-14 which under the laws of this state must meet strict standards as to
10-15 the regulation of the business of insurance and the taxation
10-16 thereof, from unfair competition by unauthorized insurers. In
10-17 order to properly regulate and tax such <unauthorized> insurance
10-18 placed in accordance with this Article within the meaning and
10-19 intent of P.L. 79-15 (1945), (Chap. 20, 1st Sess., S. 340), 59
10-20 Stat. 33, the Legislature herein provides an orderly method for the
10-21 <insuring> public of this state to effect insurance with eligible
10-22 surplus lines <unauthorized> insurers through qualified, licensed
10-23 and supervised surplus line agents in this state if coverage is not
10-24 available from duly licensed, regulated insurers conducting
10-25 business in this state and under reasonable and practical
10-26 safeguards so that such insurance coverage may be obtained by
10-27 residents of this state <to the extent that the coverage is not
11-1 procurable from duly licensed, regulated insurers conducting
11-2 business in this state>.
11-3 SECTION 9. Section 2(b), Article 1.14-2, Insurance Code, is
11-4 amended to read as follows:
11-5 (b) "Surplus lines insurer" means an unlicensed
11-6 <unauthorized> insurer deemed eligible pursuant to Section 8 of
11-7 this Article in which an insurance coverage is placed or may be
11-8 placed under this Article.
11-9 SECTION 10. Section 3(a), Article 1.14-2, Insurance Code, is
11-10 amended to read as follows:
11-11 (a) If insurance coverages of subjects resident, located or
11-12 to be performed in this state cannot be procured from licensed
11-13 insurers after diligent effort, such coverages, hereinafter
11-14 designated as surplus line insurance, may be procured from eligible
11-15 surplus lines <unauthorized> insurers subject to the following
11-16 conditions:
11-17 1. The insurance must be eligible for surplus lines
11-18 under Section 5.
11-19 2. The insurer must be an eligible surplus lines
11-20 insurer under Section 8.
11-21 3. The insurance must be placed through a licensed
11-22 Texas surplus lines agent resident in this state.
11-23 4. The other applicable provisions of this section
11-24 must be complied with.
11-25 SECTION 11. Section 4(a), Article 1.14-2, Insurance Code, is
11-26 amended to read as follows:
11-27 (a) An agent licensed by the state may not issue or cause to
12-1 be issued an insurance contract with an eligible surplus lines
12-2 <unauthorized> insurer, unless the agent possesses a current
12-3 surplus lines license issued by the State Board of Insurance.
12-4 SECTION 12. Section 6, Article 1.14-2, Insurance Code, is
12-5 amended to read as follows:
12-6 Sec. 6. Procedure for Effecting Surplus Lines Contracts.
12-7 (a) <Before any new or renewal insurance shall be procured in an
12-8 unlicensed insurer the agent shall make an affidavit, which shall
12-9 be promptly filed with the State Board of Insurance, that he is
12-10 after diligent effort unable to procure from any licensed insurer
12-11 or insurers the full amount of insurance required to protect the
12-12 interest of the insured. If the annual premiums paid by the
12-13 insured for such surplus lines coverage exceed $25,000, the insured
12-14 may execute the affidavit in lieu of the surplus lines agent.>
12-15 <(b)> Upon placing a new or renewal surplus line coverage,
12-16 the surplus lines agent shall promptly issue and deliver to the
12-17 insured or his agent, as the case may be, evidence of the insurance
12-18 consisting either of the policy as issued by the insurer or, if
12-19 such policy is not then available, a certificate, cover note or
12-20 other confirmation of insurance.
12-21 (b) <(c)> Within 60 days after the effective date or issue
12-22 date, whichever is later, <effectuation> of any new or renewal
12-23 surplus lines insurance contract, the surplus lines agent shall
12-24 file with the Surplus Lines Stamping Office of Texas evidence that
12-25 a diligent effort as defined in Section 5 of this Article has been
12-26 performed and a true and correct <State Board of Insurance an
12-27 exact> copy of the contract <policy> issued. If a contract
13-1 <policy> has not been issued, the surplus lines agent shall so file
13-2 a true and correct <an exact> copy of his certificate, cover note
13-3 or other confirmation of insurance as delivered to the insured.
13-4 The surplus lines agent shall likewise promptly file with the
13-5 Surplus Lines Stamping Office of Texas a true and correct <State
13-6 Board of Insurance an exact> copy of any substitute certificate,
13-7 cover note or other confirmation of insurance, and of every
13-8 endorsement of an original policy, certificate, cover note or other
13-9 confirmation of insurance, delivered to an insured, together with
13-10 such surplus lines agent's memorandum informing the Surplus Lines
13-11 Stamping Office of Texas <State Board of Insurance> as to the
13-12 substance of any change represented by such substitute certificate,
13-13 cover note or other confirmation, or of any such endorsement, as
13-14 compared with the coverage as originally placed or issued. Except,
13-15 however, as respects this Subsection (b) <(c)>, equivalent
13-16 information may be filed as required by the Board.
13-17 (c) <(d)> No surplus lines agent shall deliver any such
13-18 document, or purport to insure or represent that insurance will be
13-19 or has been granted by any eligible surplus lines <unauthorized>
13-20 insurer unless he has prior written authority from the insurer for
13-21 the insurance, or has received information from the insurer in the
13-22 regular course of business that such insurance has been granted, or
13-23 an insurance policy providing the insurance actually has been
13-24 issued by the insurer and delivered to the insured.
13-25 (d) <(e)> If after the delivery of any such document there
13-26 is any change as to the identity of the insurers, or the proportion
13-27 of the direct risk assumed by the insurer as stated in the original
14-1 certificate, cover note or confirmation, or in any other material
14-2 respect as to the insurance coverage evidenced by such a document,
14-3 the surplus lines agent shall promptly deliver to the insured a
14-4 substitute certificate, cover note, confirmation or endorsement for
14-5 the original such document, accurately showing the current status
14-6 of the coverage and the insurers responsible thereunder. No such
14-7 change shall result in a coverage or insurance contract which would
14-8 be in violation of this Article if originally issued on such basis.
14-9 (e) <(f)> If a policy issued by the insurer is not available
14-10 upon placement of the insurance and the surplus lines agent has
14-11 delivered a certificate, cover note or confirmation, as hereinabove
14-12 provided, upon request therefor by the insured the surplus lines
14-13 agent shall as soon as reasonably possible procure from the insurer
14-14 its policy evidencing the insurance and deliver the policy to the
14-15 insured in replacement of the certificate, cover note or
14-16 confirmation theretofore issued.
14-17 SECTION 13. Sections 6A(a) and (c), Article 1.14-2,
14-18 Insurance Code, are amended to read as follows:
14-19 (a) There is hereby created a nonprofit association to be
14-20 known as the Surplus Lines Stamping Office of Texas. All surplus
14-21 lines agents shall as a condition of their holding a license as a
14-22 surplus lines agent in this state report to and file with the
14-23 stamping office a copy of each surplus lines insurance contract as
14-24 provided in the plan of operation adopted under Subsection (d) of
14-25 this section. The board may accept such filing in lieu of the
14-26 filings required under Subsection (b) <Subsections (a) and (c)> of
14-27 Section 6 of this article.
15-1 (c) The stamping office shall function through a board of
15-2 directors appointed by the State Board of Insurance. The board of
15-3 directors of the stamping office shall consist of 9 members, who
15-4 serve terms as established in the plan of operation. Four of the
15-5 members of the board of directors must represent the general public
15-6 and shall have a minimum of three years of experience in the
15-7 purchase of commercial insurance. A public representative may not
15-8 be:
15-9 (1) an officer, director, or employee of an insurance
15-10 company, insurance agency, agent, broker, solicitor, adjuster, or
15-11 any other business entity regulated by the State Board of
15-12 Insurance;
15-13 (2) a person required to register with the secretary
15-14 of state under Chapter 305, Government Code; or
15-15 (3) related to a person described by Subdivision (1)
15-16 or (2) of this subsection within the second degree of affinity or
15-17 consanguinity.
15-18 SECTION 14. Section 7, Article 1.14-2, Insurance Code, is
15-19 amended to read as follows:
15-20 Sec. 7. Requirements for surplus lines contracts.
15-21 (a) Every new or renewal insurance contract, certificate, cover
15-22 note or other confirmation of insurance procured and delivered as a
15-23 surplus line coverage pursuant to this Article shall bear the name
15-24 and address of the insurance agent who procured it and shall have
15-25 stamped or affixed upon it in 11-point type the following: "This
15-26 insurance contract is with an insurer not licensed to transact
15-27 insurance in this state and is issued and delivered as a surplus
16-1 line coverage pursuant to the Texas insurance statutes. The State
16-2 Board of Insurance does not audit the finances or review the
16-3 solvency of the surplus lines insurer providing this coverage, and
16-4 this insurer is not a member of the property and casualty insurance
16-5 guaranty association created under Article 21.28-C, Insurance Code.
16-6 Article 1.14-2, Insurance Code, requires payment of ______ (insert
16-7 appropriate tax rate) percent tax on gross premium."
16-8 (b) Such document shall show the description and location of
16-9 the subject of the insurance, coverage, conditions and term of the
16-10 insurance, the premium and rate charged and premium taxes to be
16-11 collected from the insured, and the name and address of the insured
16-12 and insurer. If the direct risk is assumed by more than one
16-13 insurer, the document shall state the name and address and
16-14 proportion of the entire direct risk assumed by each insurer.
16-15 (c) The insurer must be an eligible surplus lines insurer as
16-16 of the inception date and annual anniversary date of every
16-17 insurance contract, cover note, or other confirmation of insurance.
16-18 (d) An extension of a contract beyond its original
16-19 expiration date shall be subject to Section 7(a) and Section 8 of
16-20 this Article.
16-21 SECTION 15. Section 8, Article 1.14-2, Insurance Code, is
16-22 amended to read as follows:
16-23 Sec. 8. Eligibility of surplus lines insurers. (a) A
16-24 surplus lines agent shall not knowingly place surplus lines
16-25 insurance with financially unsound insurers. The surplus lines
16-26 agent shall make a reasonable effort to ascertain the financial
16-27 condition of the eligible surplus lines <unauthorized> insurer
17-1 before placing insurance therewith.
17-2 (b) No surplus lines agent shall place any coverage with an
17-3 <unauthorized> insurer unless the insurer has met the eligibility
17-4 requirements of this section and the stamping office provides
17-5 evidence that the insurer has met the requirements to the State
17-6 Board of Insurance. An <unauthorized> insurer shall not be an
17-7 eligible surplus lines insurer unless the insurer has a minimum
17-8 capital and surplus that are not less than the following amounts
17-9 for the following dates:
17-10 (1) $4.5 million capital and surplus as of December
17-11 31, 1991; or
17-12 (2) $6 million capital and surplus as of December 31,
17-13 1992.
17-14 (c) An <unauthorized> insurer may be exempt from the minimum
17-15 capital and surplus requirements provided by Subsection (b) of this
17-16 section if the Commissioner of Insurance finds, after public
17-17 hearing, that the exemption is warranted based on factors such as
17-18 quality of management, capital and surplus of any parent company,
17-19 company underwriting profit and investment income trends,
17-20 reinsurance contracts, company record and reputation within the
17-21 industry, and other information the commissioner requires to make a
17-22 determination.
17-23 (d) In addition to meeting the minimum capital and surplus
17-24 requirements provided by this section, an alien insurer must
17-25 provide evidence that it maintains in the United States an
17-26 irrevocable trust fund in a Federal Reserve System member bank in
17-27 an amount not less than $1.5 million for the protection of all its
18-1 policyholders in the United States and that the trust fund consists
18-2 of cash, securities, letters of credit, or investments of
18-3 substantially the same character and quality as those that are
18-4 eligible investments for the capital and statutory reserves of
18-5 authorized insurers licensed to write like kinds and classes of
18-6 insurance in this state.
18-7 (e) Instead of the minimum capital and surplus requirements
18-8 provided by this section, an unincorporated group of alien
18-9 individual insurers may maintain a trust fund in an amount not less
18-10 than $50 million as security to the full amount of the trust fund
18-11 for all policyholders and creditors in the United States of each
18-12 member of the group. Except as specifically otherwise provided by
18-13 this subsection, the trust fund must comply with the terms and
18-14 conditions provided by Subsection (d) of this section for the trust
18-15 fund required by that subsection.
18-16 (f) Every insurer<, as defined by Article 1.14-1,> proposing
18-17 to transact surplus lines insurance within this state shall hold a
18-18 current license or authority from its domiciliary state or country
18-19 to conduct the business of insurance. The license or authority
18-20 from the domiciliary state or country must be for the kind or class
18-21 of insurance to be written in this state as surplus lines
18-22 insurance, and satisfactory evidence that the insurer holds the
18-23 required license or authorization must be provided to the
18-24 Commissioner of Insurance.
18-25 (g) The <unauthorized> insurer must be of good repute and
18-26 provide reasonably prompt service to its policyholders in the
18-27 payment of just losses and claims.
19-1 (h) No <unauthorized> insurer shall be eligible if the
19-2 management is incompetent or untrustworthy, or so lacking in
19-3 insurance company managerial experience as to make its proposed
19-4 operation hazardous to the insurance-buying public; or if the State
19-5 Board of Insurance has good reason to believe that it is affiliated
19-6 directly or indirectly through ownership, control, reinsurance
19-7 transactions or other insurance or business relations, with any
19-8 person whose business operations are or have been detrimental to
19-9 policyholders, stockholders, investors, creditors or to the public.
19-10 (i) No <unauthorized> insurer shall be eligible if the
19-11 insurer or its agents have failed to submit to any fine or penalty
19-12 levied pursuant to statute. No <unauthorized> insurer shall be
19-13 eligible if the insurer is obligated to pay and has failed to pay
19-14 premium taxes in the state <required under Section 11 of Article
19-15 1.14-1>. The State Board of Insurance may order revocation of
19-16 insurance contracts issued by insurers that do not conform with the
19-17 eligibility requirements of this section.
19-18 (j) No new or renewal surplus lines insurance shall be
19-19 placed with any eligible surplus lines insurer which requires as a
19-20 condition precedent to writing such new or renewal insurance that
19-21 the prospective insured or the insured place other insurance not
19-22 procurable <eligible> as surplus lines insurance with such eligible
19-23 surplus lines insurer.
19-24 (k) This section shall not be deemed to cast upon the State
19-25 Board of Insurance any duty or responsibility to determine the
19-26 actual financial condition or claims practice of any unlicensed
19-27 insurer or any unauthorized insurer as defined in Article 1.14-1 of
20-1 this code.
20-2 (l) An <unauthorized> insurer is not an eligible surplus
20-3 lines insurer unless it is authorized to write the same coverage in
20-4 the jurisdiction in which the <unauthorized> insurer is licensed or
20-5 certificated to do business.
20-6 SECTION 16. Section 9, Article 1.14-2, Insurance Code, is
20-7 amended to read as follows:
20-8 Sec. 9. Validity of Contracts. (a) Insurance contracts
20-9 procured from an eligible surplus lines insurer <as surplus line
20-10 coverage from unauthorized insurers in accordance with this
20-11 Article> shall be fully valid and enforceable as to all parties,
20-12 and shall be given recognition in all matters and respects to the
20-13 same effect and extent as like contracts issued by licensed
20-14 <authorized> insurers unless there was a material and intentional
20-15 violation of this Article.
20-16 (b) In the event of a material and intentional violation of
20-17 this Article, the <A contract of insurance placed in effect by an
20-18 unauthorized insurer in violation of this Article is unenforceable
20-19 by the insurer. The> insured shall not be precluded from enforcing
20-20 his rights in accordance with the terms and provisions of such
20-21 contract.
20-22 SECTION 17. Section 12(a), Article 1.14-2, Insurance Code,
20-23 is amended to read as follows:
20-24 (a) The premiums charged for surplus lines insurance are
20-25 subject to a premium receipts tax of 4.85 percent of gross premiums
20-26 charged for such insurance. The term premium includes all
20-27 premiums, membership fees, assessments, dues or any other
21-1 consideration for insurance. Such tax shall be in lieu of all
21-2 other insurance taxes. The surplus lines agent shall collect from
21-3 the insured the amount of the tax at the time of delivery of the
21-4 cover note, certificate of insurance, policy or other initial
21-5 confirmation of insurance, in addition to the full amount of the
21-6 gross premium charged by the insurer for the insurance. No agent
21-7 shall absorb such tax nor shall any agent, as an inducement for
21-8 insurance or for any other reason, rebate all or any part of such
21-9 tax or his commission. The surplus lines agent shall report, under
21-10 oath, to the State Board of Insurance within 30 days from the 1st
21-11 day of January and July of each year the amount of gross premiums
21-12 paid for such insurance placed through him in nonlicensed insurers,
21-13 and shall pay to the Board the tax provided for by this Article.
21-14 If a surplus lines policy covers risks or exposures only partially
21-15 in this state, the tax payable shall be computed on the portions of
21-16 the premium which are properly allocable to the risks or exposures
21-17 located in this state. In determining the amount of premiums
21-18 taxable in this state, all premiums written, procured, or received
21-19 in this state and all premiums on policies negotiated in this state
21-20 shall be deemed written on property or risks located or resident in
21-21 this state, except such premiums as are properly allocated or
21-22 apportioned and reported as <taxable> premiums which may be subject
21-23 to taxation by <of> any other state or states or by a foreign
21-24 jurisdiction. Premiums on risks or exposures which are properly
21-25 allocated to federal waters, international waters or under the
21-26 jurisdiction of a foreign government shall not be taxable by this
21-27 state. In event of cancellation and rewriting of any surplus lines
22-1 insurance contract the additional premium for premium receipts tax
22-2 purposes shall be the premium in excess of the unearned premium of
22-3 the canceled insurance contract.
22-4 SECTION 18. Section 16, Article 1.14-2, Insurance Code, is
22-5 amended to read as follows:
22-6 Sec. 16. Annual Report of Surplus Lines Agent. Each surplus
22-7 lines agent shall, before March 1 in each year, make a report to
22-8 the Texas Department <State Board> of Insurance for the preceding
22-9 calendar year, on the form prescribed by it, of such facts as it
22-10 requires and including a showing that the amount of insurance
22-11 procured from such eligible surplus lines <unauthorized> insurer or
22-12 insurers is only the amount in excess of the amount procurable from
22-13 licensed insurers.
22-14 SECTION 19. Section 17, Article 1.14-2, Insurance Code, is
22-15 amended to read as follows:
22-16 Sec. 17. Penalty. Any violation of this Article shall
22-17 subject the surplus lines agent or eligible surplus lines insurer
22-18 to all of the provisions and sanctions contained in Section 7,
22-19 Article 1.10, of this Code.
22-20 SECTION 20. Section 17A(a), Article 1.14-2, Insurance Code,
22-21 is amended to read as follows:
22-22 (a) If a surplus lines agent or eligible surplus lines
22-23 insurer violates Section 8 or 9 of this article or a rule,
22-24 regulation, or order adopted under that provision, the State Board
22-25 of Insurance may assess a penalty against that agent or insurer as
22-26 provided by Section 7, Article 1.10, of this code.
22-27 SECTION 21. Section 7(c), Article 1.36, Insurance Code, is
23-1 amended to read as follows:
23-2 (c) In addition to service under Section 3 of this article
23-3 and Subsection (a) of this section, service of process, notice, or
23-4 demand on an unauthorized person or insurer is valid if served on
23-5 any person in this state who on behalf of that unauthorized person
23-6 or insurer is doing any act of an insurance business as provided by
23-7 Section 2 of Article 1.14-1 of this code. This section does not
23-8 apply to surplus lines insurers which were deemed eligible surplus
23-9 lines insurers pursuant to Article 1.14-2 of this code at the date
23-10 the applicable coverage was issued.
23-11 SECTION 22. Section 8(b), Article 1.36, Insurance Code, is
23-12 amended to read as follows:
23-13 (b) Any act of doing an insurance business as provided by
23-14 Section 2 of Article 1.14-1 of this code by any unauthorized person
23-15 or insurer is equivalent to and constitutes an irrevocable
23-16 appointment of the secretary of state by that person or insurer,
23-17 binding on him, his executor, administrator, or personal
23-18 representative or, if a corporation, successor in interest to be
23-19 the lawful attorney for service of that person or insurer. The
23-20 secretary of state may be served legal notice, order, pleading, or
23-21 other process in any proceeding described by Subsection (a) of this
23-22 section that arises out of doing an insurance business in this
23-23 state by that person or insurer. This section does not apply to
23-24 surplus lines insurers which were deemed eligible surplus lines
23-25 insurers pursuant to Article 1.14-2 of this code at the date
23-26 applicable coverage was issued.
23-27 SECTION 23. Section 11, Article 1.36, Insurance Code, is
24-1 amended by adding Subsection (d) to read as follows:
24-2 (d) This section does not apply to surplus lines insurers
24-3 which were deemed eligible surplus lines insurers pursuant to
24-4 Article 1.14-2 of this code at the date applicable coverage was
24-5 issued.
24-6 SECTION 24. Section 12, Article 1.36, Insurance Code, is
24-7 amended to read as follows:
24-8 Sec. 12. SERVICE OF PROCESS ON ELIGIBLE SURPLUS LINES
24-9 INSURERS. (a) <A surplus lines insurer may be sued on any cause
24-10 of action arising in this state under any surplus lines insurance
24-11 contract issued by it or under any certificate, cover note, or
24-12 other confirmation of that insurance issued by the surplus lines
24-13 agent, under the same procedure provided for unauthorized insurers
24-14 in Sections 3, 7, and 8 of this article.> Any act of doing an
24-15 insurance business by an eligible surplus lines insurance company
24-16 constitutes an irrevocable appointment of the Secretary of State by
24-17 that insurer binding on it and its successors in interest to be the
24-18 lawful attorney for service of that insurer. The Secretary of
24-19 State may be served with any process, notice, or demand arising out
24-20 of doing an insurance business in this state by that insurer,
24-21 except in an action, suit, or proceeding by the State Board of
24-22 Insurance or by the state.
24-23 (b) Any act of doing an insurance business by an eligible
24-24 surplus lines insurance company signifies the insurer's agreement
24-25 that legal process served under this section has the same legal
24-26 force and validity as personal service of process in this state on
24-27 that insurer or its successor in interest.
25-1 (c) <(b)> Any policy issued by the surplus lines insurer or
25-2 any certificate of insurance issued by the surplus lines agent must
25-3 contain a provision stating the substance of this section and
25-4 designating the Person to whom the commissioner is to mail process.
25-5 This address must be supplied by the plaintiff in the citation that
25-6 is served.
25-7 (d) <(c)> Each surplus lines insurer assuming a surplus
25-8 lines risk under this article is considered to have made itself
25-9 subject to the terms of this section.
25-10 (e) <(d)> This section is cumulative of any other methods
25-11 that may be provided by law for service of process on a surplus
25-12 lines insurer, including Section 3 of this article.
25-13 SECTION 25. This Act takes effect on September 1, 1993.
25-14 SECTION 26. The importance of this legislation and the
25-15 crowded condition of the calendars in both houses create an
25-16 emergency and an imperative public necessity that the
25-17 constitutional rule requiring bills to be read on three several
25-18 days in each house be suspended, and this rule is hereby suspended.