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