By Duncan, Counts H.B. No. 958
By Averitt C.S.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 <not>
1-14 neither 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 Sec., 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 Sec. 2. Insurance Business Defined. (b) The provisions of
2-21 this section do not apply to:
2-22 1. The lawful transaction of surplus lines insurance
2-23 pursuant to Article 1.14-2.
2-24 2. The lawful transaction of reinsurance by insurers.
2-25 3. Transactions in this state involving a policy lawfully
2-26 solicited, written, and delivered outside of this state covering
2-27 only subjects of insurance not resident, located, or expressly to
3-1 be performed in this state at the time of issuance, and which
3-2 transactions are subsequent to the issuance of such 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 SECTION 3. Section 8, Article 1.14-1, Insurance Code, is
3-9 amended to read as follows:
3-10 Sec. 8. Validity of Insurance Contracts. Except for
3-11 <lawfully procured surplus lines> insurance procured by a licensed
3-12 surplus lines agent from an eligible surplus lines insurer as
3-13 defined in Article 1.14-2 and contracts of insurance independently
3-14 procured <through negotiations occurring entirely outside of this
3-15 state>, as defined in Article 1.14-1 Sec. 2(b)(4), which are
3-16 reported and on which premium tax is paid in accordance with this
3-17 Article or Article 1.14-2, any contract of insurance effective in
3-18 this state and entered into by an unauthorized insurer is
3-19 unenforceable by such insurer. In event of failure of any such
3-20 unauthorized insurer to pay any claim or loss within the provisions
3-21 of such insurance contract, any person who assisted or in any
3-22 manner aided directly or indirectly in the procurement of such
3-23 insurance contract shall be liable to the insured for the full
3-24 amount thereof pursuant to the provisions of such insurance
3-25 contract.
3-26 SECTION 4. Section 9, Article 1.14-1, Insurance Code, is
3-27 amended by adding subsection (c) to read as follows:
4-1 Sec. 9. Investigation and Disclosure of Insurance Contracts.
4-2 (c) This section does not apply to transactions in this state
4-3 involving a policy lawfully solicited, negotiated, written, and
4-4 delivered outside of this state covering only subjects of insurance
4-5 not resident, located or expressly to be performed in this state at
4-6 the time of issuance, and which transactions are subsequent to the
4-7 issuance of such policy or surplus lines insurance procured through
4-8 eligible surplus lines carriers as defined in Article 1.14-2.
4-9 SECTION 5. Sec. 10, Article 1.14-1, Insurance Code, is
4-10 amended to read as follows:
4-11 Sec. 10. Reporting of Unauthorized Insurance. (a) Every
4-12 person investigating or adjusting any loss or claim on a subject of
4-13 insurance in this state shall immediately report to the State Board
4-14 of Insurance every insurance policy or contract which has been
4-15 entered into by any insurer <not> unauthorized to transact such
4-16 insurance in this state.
4-17 (b) This section does not apply to transactions in this
4-18 state involving <a policy lawfully solicited, written, and
4-19 delivered outside of this state covering only subjects of insurance
4-20 not resident, located or expressly to be performed in this state at
4-21 the time of issuance, and which transaction are subsequent to the
4-22 issuance of such policy> contracts of insurance independently
4-23 procured, as defined in Art. 1.14-1 Sec. 2(b)(4) or surplus lines
4-24 insurance procured by a licensed surplus lines agent from an
4-25 eligible surplus lines carrier as defined in Article 1.14-2.
4-26 SECTION 6. Sec. 11, Article 1.14-1, Insurance Code, is
4-27 amended to read as follows:
5-1 Sec. 11. Unauthorized insurance premium tax. Except as to
5-2 premiums on <lawfully procured surplus lines> insurance procured by
5-3 a licensed surplus lines agent from an eligible surplus lines
5-4 insurer as defined in Article 1.14-2 and premiums on independently
5-5 procured insurance on which a tax has been paid pursuant to this
5-6 Article or Article 1.14-2, every unauthorized insurer shall pay to
5-7 the State Board of Insurance before March 1 next succeeding the
5-8 calendar year in which the insurance was so effectuated, continued
5-9 or renewed a premium receipts tax of 4.85 percent of gross premiums
5-10 charged for such insurance on subjects resident, located or to be
5-11 performed in this state. Such insurance on subjects resident,
5-12 located or to be performed in this state procured through
5-13 negotiations or an application, in whole or in part occurring or
5-14 made within or from within or outside of this state, or for which
5-15 premiums in whole or in part are remitted directly or indirectly
5-16 from within or outside of this state, shall be deemed to be
5-17 insurance procured, or continued or renewed in this state. The
5-18 term "premium" includes all premiums, membership fees, assessments,
5-19 dues and any other consideration for insurance. Such tax shall be
5-20 in lieu of all other insurance taxes. On default of any such
5-21 unauthorized insurer in the payment of such tax the insured shall
5-22 pay the tax. If the tax prescribed by this subsection is not paid
5-23 within the time stated, the tax shall be increased by a penalty of
5-24 25 percent and by the amount of an additional penalty computed at
5-25 the rate of one percent per month or any part thereof from the date
5-26 such payment was due to the date paid.
5-27 (b) If a policy covers risks or exposures only partially in
6-1 this state, the tax payable shall be computed on the portions of
6-2 the premiums which are properly allocable to the risks or exposures
6-3 located in this state. In determining the amount of premiums
6-4 taxable in this state, all premiums written, procured, or received
6-5 in this state and all premiums on policies negotiated in this state
6-6 shall be deemed written on property or risks located or resident in
6-7 this state, except such premiums as are properly allocated or
6-8 apportioned and reported as taxable premiums of any other state or
6-9 states. Premiums on risks or exposures which are properly
6-10 allocated to federal waters, international waters or under the
6-11 jurisdiction of a foreign government shall not be considered
6-12 taxable by this state.
6-13 SECTION 7. Sec. 12, Article 1.14-1, Insurance Code, is
6-14 amended to read as follows:
6-15 Sec. 12. Independently procured insurance Tax. (a) Every
6-16 insured who procures insurance in accordance with Article 1.14-1
6-17 Sec. 2 (b)(4) must file a report with the State Board of Insurance
6-18 and pay an independently procured insurance tax of 4.85 percent.
6-19 (b) A report must be filed with the State Board of insurance
6-20 within 60 days after the date the insurance was independently
6-21 procured. The report must be made in writing on forms provided by
6-22 the State Board of Insurance. The report must contain the name and
6-23 address of the insured or insureds, the name and address of the
6-24 insurer, the subject of the insurance, a general description of the
6-25 coverage, the amount of premium charged, and any additional
6-26 information which the State Board of Insurance requests.
6-27 (c) The report shall be filed and any tax due shall be paid
7-1 by the insured or by any other person designated by the insured.
7-2 <Sec. 12. (a) Every insured who procures or causes to be
7-3 procured or continues or renews insurance with any unauthorized
7-4 insurer, or any insured or self-insurer who so procures or
7-5 continues excess loss, catastrophe or other insurance, upon a
7-6 subject of insurance resident, located or to be performed within
7-7 this state, other than insurance procured through a surplus lines
7-8 agent pursuant to the surplus lines law of this state shall within
7-9 60 days after the date such insurance was so procured, continued or
7-10 renewed, file a report of the same with the State Board of
7-11 Insurance in writing and upon forms designated by the State Board
7-12 of Insurance and furnished to such an insured upon request. The
7-13 report shall show the name and address of the insured or insureds,
7-14 name and address of the insurer, the subject of the insurance, a
7-15 general description of the coverage, the amount of premium
7-16 currently charged therefor, and such additional pertinent
7-17 information as is reasonably requested by the State Board of
7-18 Insurance.>
7-19 <(b) Any insurance in an unauthorized insurer of a subject
7-20 of insurance resident, located or to be performed within this state
7-21 procured through negotiations or an application, in whole or in
7-22 part occurring or made within or from within or outside of this
7-23 state, or for which premiums in whole or in part are remitted
7-24 directly or indirectly from within or outside of this state, shall
7-25 be deemed to be insurance procured, or continued or renewed in this
7-26 state within the intent of Paragraph (a).>
7-27 <(c) There is hereby levied upon the obligation, chose in
8-1 action, or right represented by the premium charged for such
8-2 insurance, a premium receipts tax of 3.85 percent of gross premiums
8-3 charged for such insurance. The term "premium" shall include all
8-4 premiums, membership fees, assessments, dues and any other
8-5 consideration for insurance. Such tax shall be in lieu of all
8-6 other insurance taxes. The insured shall, before March 1, next
8-7 succeeding the calendar year in which the insurance was so
8-8 procured, continued or renewed, pay the amount of the tax to the
8-9 State Board of Insurance. In event of cancellation and rewriting
8-10 of any such insurance contract the additional premium for premium
8-11 receipts tax purposed shall be the premium in excess of the
8-12 unearned premium of the canceled insurance contract.>
8-13 (d) If a policy covers risks or exposures only partially in
8-14 this state, the tax payable shall be computed on the portions of
8-15 the premium which are properly allocable to the risks or exposures
8-16 located in this state. In determining the amount of premiums
8-17 taxable in this state, all premiums written, procured or received
8-18 in this state and all premiums on policies negotiated in this state
8-19 shall be deemed written on property or risks located or resident in
8-20 this state, except such premiums as are properly allocated or
8-21 apportioned and reported as taxable premiums of any other state or
8-22 states. Premiums on risks or exposures which are properly
8-23 allocated to federal waters, international waters or under the
8-24 jurisdiction of a foreign government shall not be taxable.
8-25 (e) If the insured fails to withhold from the premium the
8-26 amount of tax herein levied, the insured shall be liable for the
8-27 amount thereof and shall pay the same to the State Board of
9-1 Insurance within the time stated in Paragraph (c). If the tax
9-2 prescribed by this subsection is not paid within the time stated in
9-3 Paragraph (c), the tax shall be increased by a penalty of 25
9-4 percent and by the amount of an additional penalty computed at the
9-5 rate of one percent per month or any part thereof from the date
9-6 such payment was due to the date paid.
9-7 (f) The Attorney General, upon request of the State Board of
9-8 Insurance, shall proceed in the courts of this or any other state
9-9 or in any federal court or agency to recover such tax not paid
9-10 within the time prescribed in this section.
9-11 (g) This section shall not be construed or deemed to
9-12 abrogate or modify any provision of this Article. This section
9-13 does not apply as to individual life or individual disability
9-14 insurance.
9-15 (h) Expired.
9-16 SECTION 8. Section 1, Article 1.14-2, Insurance Code, is
9-17 amended to read as follows:
9-18 Sec. 1. Purpose. Insurance transactions which are entered
9-19 into by citizens of this state with <unauthorized> eligible surplus
9-20 lines insurers through a surplus lines agent as a result of
9-21 difficulty in obtaining coverage from licensed insurers are a
9-22 matter of public interest. The Legislature declares that such
9-23 transaction of surplus lines insurance is a subject of concern and
9-24 that it is necessary to provide for the regulation, taxation,
9-25 supervision and control of such transactions and the practices and
9-26 matters related thereto by requiring appropriate standards and
9-27 reports concerning the placement of such insurance; by imposing
10-1 requirements necessary to make such regulation and control
10-2 reasonably complete and effective; by providing orderly access to
10-3 eligible surplus lines insurers <that are not authorized to
10-4 transact the business of insurance in this state>; by insuring the
10-5 maintenance of fair and honest markets; by protecting the revenues
10-6 of this state; and by protecting <authorized> licensed insurers,
10-7 which under the laws of this state must meet strict standards as to
10-8 the regulation of the business of insurance and the taxation
10-9 thereof, from unfair competition by unauthorized insurers. In
10-10 order to properly regulate and tax such <unauthorized> insurance
10-11 placed in accordance with this Article within the meaning and
10-12 intent of P.L. 79-15 (1945), (Chap. 20, 1st Sess., S. 340), 59
10-13 Stat. 33, the Legislature herein provides an orderly method for the
10-14 <insuring> public of this state to effect insurance with
10-15 <unauthorized insurers> eligible surplus lines insurers through
10-16 qualified, licensed and supervised surplus line agents in this
10-17 state if coverage is not available from duly licensed, regulated
10-18 insurers conducting business in this state and under reasonable and
10-19 practical safeguards so that such insurance coverage may be
10-20 obtained by residents of this state. <to the extent that the
10-21 coverage is not procurable from duly licensed, regulated insurers
10-22 conducting business in this state.>
10-23 SECTION 9. Section 2(b), Article 1.14-2, Insurance Code is
10-24 amended to read as follows:
10-25 Sec. 2. Definitions, Classification, and Qualification.
10-26 (b) "Surplus lines insurer" means an <unauthorized> unlicensed
10-27 insurer deemed eligible pursuant to Section 8 of this Article in
11-1 which an insurance coverage is placed or may be placed under this
11-2 Article.
11-3 SECTION 10. Section 3, Article 1.14-2, Insurance Code, is
11-4 amended to read as follows:
11-5 Sec. 3. Surplus Lines Insurance Authorized. (a) If
11-6 insurance coverages of subjects resident, located or to be
11-7 performed in this state cannot be procured from licensed insurers
11-8 after diligent effort, such coverages, hereinafter designated as
11-9 surplus line insurance, may be procured from <unauthorized>
11-10 eligible surplus lines insurers subject to the following
11-11 conditions:
11-12 1. The insurance must be eligible for surplus lines under
11-13 Section 5.
11-14 2. The insurer must be an eligible surplus lines insurer
11-15 under Section 8.
11-16 3. The insurance must be placed through a licensed Texas
11-17 surplus lines agent resident in this state.
11-18 4. The other applicable provisions of this section must be
11-19 complied with.
11-20 (b) Any insurance of subjects resident, located or to be
11-21 performed in this state, procured through negotiations or an
11-22 application, in whole or in part occurring or made within or from
11-23 within this state, or for which premiums in whole or in part are
11-24 remitted directly or indirectly from within this state, shall be
11-25 deemed to be insurance procured, or continued or renewed in this
11-26 state within the intent of Paragraph (a).
11-27 SECTION 11. Section 4(a), Article 1.14-2, Insurance Code, is
12-1 amended to read as follows:
12-2 Sec. 4. Surplus Lines Agent's License. (a) An agent
12-3 licensed by the state may not issue or cause to be issued an
12-4 insurance contract with an <unauthorized> eligible surplus lines
12-5 insurer, unless the agent possesses a current surplus lines license
12-6 issued by the State Board of Insurance.
12-7 SECTION 12. Section 6, Article 1.14-2, Insurance Code, is
12-8 amended to read as follows:
12-9 Sec. 6. Procedure for Effecting Surplus Lines Contracts.
12-10 <(a) Before any new or renewal insurance shall be procured in an
12-11 unlicensed insurer the agent shall make an affidavit, which shall
12-12 be promptly filed with the State Board of Insurance that his is
12-13 after diligent effort unable to procure from any licensed insurer
12-14 or insurers the full amount of insurance required to protect the
12-15 interest of the insured. If the annual premiums paid by the
12-16 insured for such surplus lines coverage exceed $25,000, the insured
12-17 may execute the affidavit in lieu of the surplus lines agent.>
12-18 Sec. 6. (a) <(b)> Upon placing a new or renewal surplus
12-19 line coverage, the surplus lines agent shall promptly issue and
12-20 deliver to the insured or his agent, as the case may be, evidence
12-21 of the insurance consisting either of the policy as issued by the
12-22 insurer or, if such policy is not then available, a certificate,
12-23 cover note or other confirmation of insurance.
12-24 (b) <(c)> Within 60 days after the <effectuation> effective
12-25 date or issue date, whichever is later, of any new or renewal
12-26 surplus lines insurance contract, the surplus lines agent shall
12-27 file with the <State Board of Insurance> Surplus Lines Stamping
13-1 Office of Texas evidence that a diligent effort as defined in
13-2 Section 5 of this Article has been performed and a true and correct
13-3 <an exact> copy of the <policy> contract issued. If a <policy>
13-4 contract has not been issued, the surplus lines agent shall so file
13-5 a true and correct <an exact> copy of his certificate, cover note
13-6 or other confirmation of insurance as delivered to the insured.
13-7 The surplus lines agent shall likewise promptly file with the
13-8 <State Board of Insurance an exact> Surplus Lines Stamping Office a
13-9 true and correct copy of any substitute certificate, cover note or
13-10 other confirmation of insurance, and of every endorsement of an
13-11 original policy, certificate, cover note or other confirmation of
13-12 insurance, delivered to an insured, together with such surplus
13-13 lines agent's memorandum informing the <State Board of Insurance>
13-14 Surplus Lines Stamping Office as to the substance of any change
13-15 represented by such substitute certificate, cover note or other
13-16 confirmation, or of any such endorsement, as compared with the
13-17 coverage as originally placed or issued. Except, however, as
13-18 respects this Subsection <(c)> (b), equivalent information may be
13-19 filed as required by the Board.
13-20 (c)<(d)> No surplus lines agent shall deliver any such
13-21 document, or purport to insure or represent that insurance will be
13-22 or has been granted by any <unauthorized> eligible surplus lines
13-23 insurer unless he has prior written authority from the insurer for
13-24 the insurance, or has received information from the insurer in the
13-25 regular course of business that such insurance has been granted, or
13-26 an insurance policy providing the insurance actually has been
13-27 issued by the insurer and delivered to the insured.
14-1 (d)<(e)> If after the delivery of any such document there is
14-2 any change as to the identity of the insurers, or the proportion of
14-3 the direct risk assumed by the insurer as stated in the original
14-4 certificate, cover note or confirmation, or in any other material
14-5 respect as to the insurance coverage evidenced by such a document,
14-6 the surplus lines agent shall promptly deliver to the insured a
14-7 substitute certificate, cover note, confirmation or endorsement for
14-8 the original such document, accurately showing the current status
14-9 of the coverage and the insurers responsible thereunder. No such
14-10 change shall result in a coverage or insurance contract which would
14-11 be in violation of this Article if originally issued on such basis.
14-12 (e)<(f)> If a policy issued by the insurer is not available
14-13 upon placement of the insurance and the surplus lines agent has
14-14 delivered a certificate, cover note or confirmation, as hereinabove
14-15 provided, upon request therefor by the insured the surplus lines
14-16 agent shall as soon as reasonably possible procure from the insurer
14-17 its policy evidencing the insurance and deliver the policy to the
14-18 insured in replacement of the certificate, cover note or
14-19 confirmation theretofore issued.
14-20 SECTION 13. Section 6(A), Article 1.14-2, Insurance Code, is
14-21 amended to read as follows:
14-22 Sec. 6A. Surplus Lines Stamping Office. (a) There is
14-23 hereby created a nonprofit association to be known as the Surplus
14-24 Lines Stamping Office of Texas. All surplus lines agents shall as
14-25 a condition of their holding a license as a surplus lines agent in
14-26 this state report to and file with the stamping office a copy of
14-27 each surplus lines insurance contract as provided in the plan of
15-1 operation adopted under Subsection (d) of this section. The board
15-2 may accept such filing in lieu of the filings required under
15-3 Subsection<s (a) and (c)> (b) of Section 6 of this article.
15-4 (b) The stamping office shall perform its functions under
15-5 the plan of operation established and approved under Subsection (d)
15-6 of this section. It shall exercise its powers through a board of
15-7 directors established under Subsection (c) of this section. The
15-8 stamping office shall be supervised by the commissioner and is
15-9 subject to the applicable provisions of this code and the rules of
15-10 the State Board of Insurance. The stamping office shall conduct
15-11 the following activities provided in the plan of operation adopted
15-12 under Subsection (d) of this section: (1) receive, record, and
15-13 review all surplus lines insurance contracts which surplus lines
15-14 agents are required to file with the stamping office; (2) provide
15-15 to the commissioner an evaluation of the eligibility of all surplus
15-16 lines insurance contracts and surplus lines insurers; (3) prepare
15-17 monthly reports for the commissioner on surplus lines insurance
15-18 procured during the preceding month in such form the commissioner
15-19 may prescribe; prepare and deliver to the commissioner reports of
15-20 surplus lines business; (4) collect from each surplus lines agent a
15-21 stamping fee for the costs of operations to be paid by the insured
15-22 and determined by the State Board of Insurance in an amount not to
15-23 exceed three-quarters of one percent of gross premium resulting
15-24 from surplus lines contracts; (5) employ and retain such persons as
15-25 are necessary to carry out the duties of the stamping office; (6)
15-26 borrow money as necessary to effect the purposes of the stamping
15-27 office; (7) enter contracts as necessary to effect the purposes of
16-1 the stamping office; perform such other acts as will facilitate and
16-2 encourage compliance with the surplus lines law of this state and
16-3 rules promulgated thereunder; and (8) provide such other services
16-4 as are incidental or related to the purposes of the stamping
16-5 office. Nothing in this section shall be construed as giving the
16-6 stamping office any authority to enforce this article.
16-7 (c) The stamping office shall function through a board of
16-8 directors appointed by the State Board of Insurance. The board of
16-9 directors of the stamping office shall consist of 9 members, who
16-10 serve terms as established in the plan of operation. Four of the
16-11 members of the board of directors must represent the general public
16-12 and shall have a minimum of three years of experience in the
16-13 purchase of commercial insurance. A public representative may not
16-14 be:
16-15 (1) an officer, director, or employee of an insurance
16-16 company, insurance agency, agent, broker, solicitor, adjuster, or
16-17 any other business entity regulated by the State Board of
16-18 Insurance;
16-19 (2) a person required to register with the secretary of
16-20 state under Chapter 305, Government Code; or
16-21 (3) related to a person described by Subdivision (1) or (2)
16-22 of this subsection within the second degree of affinity or
16-23 consanguinity.
16-24 (d) The stamping office shall submit to the State Board of
16-25 Insurance a plan of operation and any amendments thereto to provide
16-26 operating procedures for the administration of the stamping office.
16-27 The plan of operation and any amendments thereto shall become
17-1 effective upon approval by order of the State Board of Insurance.
17-2 If the stamping office fails to submit a suitable plan of operation
17-3 within 180 days following the effective date of this Act or if at
17-4 any time thereafter the stamping office fails to submit suitable
17-5 amendments to the plan of operation, the State Board of Insurance
17-6 shall, after notice and hearing, adopt a plan of operation or
17-7 amendments to a plan of operation and promulgate such rules as are
17-8 necessary or advisable to effectuate the provisions of this
17-9 section. Such rules shall continue in force until modified by the
17-10 State Board of Insurance or superseded by a plan of operation
17-11 submitted by the stamping office and approved by the State Board of
17-12 Insurance. All surplus lines agents shall comply with the plan of
17-13 operation.
17-14 (e) The commissioner shall, at such times as he deems
17-15 necessary, make or cause to be made an examination of the stamping
17-16 office. The cost of any such examination shall be paid by the
17-17 stamping office. During the course of such examination, the
17-18 directors, officers, agents, and employees of the stamping office
17-19 may be examined under oath regarding the operation of the stamping
17-20 office and shall make available all books, records, accounts,
17-21 documents, and agreements pertaining thereto.
17-22 (f) There shall be no liability on the part of and no cause
17-23 of action of any nature shall arise against the stamping office,
17-24 its directors, officers, agents, or employees, or the State Board
17-25 of Insurance, the commissioner of insurance, or employees or
17-26 representatives of the State Board of Insurance for any action
17-27 taken or omitted by them in the performance of their powers and
18-1 duties under this section.
18-2 SECTION 14. Section 7, Article 1.14-2, Insurance Code, is
18-3 amended to read as follows:
18-4 Sec. 7. Requirements for surplus lines contracts.
18-5 (a) Every new or renewal insurance contract, certificate, cover
18-6 note or other confirmation of insurance procured and delivered as a
18-7 surplus line coverage pursuant to this Article shall bear the name
18-8 and address of the insurance agent who procured it and shall have
18-9 stamped or affixed upon it in 11-point type the following: "This
18-10 insurance contract is with an insurer not licensed to transact
18-11 insurance in this state and is issued and delivered as a surplus
18-12 line coverage pursuant to the Texas insurance statutes. The State
18-13 Board of Insurance does not audit the finances or review the
18-14 solvency of the surplus lines insurer providing this coverage, and
18-15 this insurer is not a member of the property and casualty insurance
18-16 guaranty association created under Article 21.28-C, Insurance Code.
18-17 Article 1.14-2, Insurance Code, requires payment of ______ (insert
18-18 appropriate tax rate) percent tax on gross premium."
18-19 (b) Such document shall show the description and location of
18-20 the subject of the insurance, coverage, conditions and term of the
18-21 insurance, the premium and rate charged and premium taxes to be
18-22 collected from the insured, and the name and address of the insured
18-23 and insurer. If the direct risk is assumed by more than one
18-24 insurer, the document shall state the name and address and
18-25 proportion of the entire direct risk assumed by each insurer.
18-26 (c) The insurer must be an eligible surplus lines insurer as
18-27 of the inception date and annual anniversary date of every
19-1 insurance contract, cover note, or other confirmation of insurance.
19-2 (d) An extension of a contract beyond its original
19-3 expiration date shall be subject to Section 7(a) and Section 8 of
19-4 this Article.
19-5 SECTION 15. Section 8, Article 1.14-2, Insurance Code, is
19-6 amended to read as follows:
19-7 Sec. 8. Eligibility of surplus lines insurers. (a) A
19-8 surplus lines agent shall not knowingly place surplus lines
19-9 insurance with financially unsound insurers. The surplus lines
19-10 agent shall make a reasonable effort to ascertain the financial
19-11 condition of the <unauthorized> eligible surplus lines insurer
19-12 before placing insurance therewith.
19-13 (b) No surplus lines agent shall place any coverage with an
19-14 <unauthorized> insurer unless the insurer has met the eligibility
19-15 requirements of this section and the stamping office provides
19-16 evidence that the insurer has met the requirements to the State
19-17 Board of Insurance. An <unauthorized> insurer shall not be
19-18 <eligible> an eligible surplus lines insurer unless the insurer has
19-19 a minimum capital and surplus that are not less than the following
19-20 amounts for the following dates:
19-21 (1) $4.5 million capital and surplus as of December 31,
19-22 1991; or
19-23 (2) $6 million capital and surplus as of December 31, 1992.
19-24 (c) An <unauthorized> insurer may be exempt from the minimum
19-25 capital and surplus requirements provided by Subsection (b) of this
19-26 section if the Commissioner of Insurance finds, after public
19-27 hearing, that the exemption is warranted based on factors such as
20-1 quality of management, capital and surplus of any parent company,
20-2 company underwriting profit and investment income trends,
20-3 reinsurance contracts, company record and reputation within the
20-4 industry, and other information the commissioner requires to make a
20-5 determination.
20-6 (d) In addition to meeting the minimum capital and surplus
20-7 requirements provided by this section, an alien insurer must
20-8 provide evidence that it maintains in the United States an
20-9 irrevocable trust fund in a Federal Reserve System member bank in
20-10 an amount not less than $1.5 million for the protection of all its
20-11 policyholders in the United States and that the trust fund consists
20-12 of cash, securities, letters of credit, or investments of
20-13 substantially the same character and quality as those that are
20-14 eligible investments for the capital and statutory reserves of
20-15 authorized insurers licensed to write like kinds and classes of
20-16 insurance in this state.
20-17 (e) Instead of the minimum capital and surplus requirements
20-18 provided by this section, an unincorporated group of alien
20-19 individual insurers may maintain a trust fund in an amount not less
20-20 than $50 million as security to the full amount of the trust fund
20-21 for all policyholders and creditors in the United States of each
20-22 member of the group. Except as specifically otherwise provided by
20-23 this subsection, the trust fund must comply with the terms and
20-24 conditions provided by Subsection (d) of this section for the trust
20-25 fund required by that subsection.
20-26 (f) Every insurer<, as defined by Article 1.14-1,> proposing
20-27 to transact surplus lines insurance within this state shall hold a
21-1 current license or authority from its domiciliary state or country
21-2 to conduct the business of insurance. The license or authority
21-3 from the domiciliary state or country must be for the kind or class
21-4 of insurance to be written in this state as surplus lines
21-5 insurance, and satisfactory evidence that the insurer holds the
21-6 required license or authorization must be provided to the
21-7 Commissioner of Insurance.
21-8 (g) The <unauthorized> insurer must be of good repute and
21-9 provide reasonably prompt service to its policyholders in the
21-10 payment of just losses and claims.
21-11 (h) No <unauthorized> insurer shall be eligible if the
21-12 management is incompetent or untrustworthy, or so lacking in
21-13 insurance company managerial experience as to make its proposed
21-14 operation hazardous to the insurance-buying public; or if the State
21-15 Board of Insurance has good reason to believe it is affiliated
21-16 directly or indirectly through ownership, control, reinsurance
21-17 transaction or other insurance or business relations, with any
21-18 person whose business operations are or have been detrimental to
21-19 policyholders, stockholders, investors, creditors or to the public.
21-20 (i) No <unauthorized> insurer shall be eligible if the
21-21 insurer or its agents have failed to submit to any fine or penalty
21-22 levied pursuant to statute. No <unauthorized> insurer shall be
21-23 eligible if the insurer is obligated to pay and has failed to pay
21-24 premium taxes <required under Section 11 of Article 1.14-1.> in the
21-25 state. The State Board of Insurance may order revocation of
21-26 insurance contracts issued by insurers that do not conform with the
21-27 eligibility requirements of this section.
22-1 (j) No new or renewal surplus lines insurance shall be
22-2 placed with any eligible surplus lines insurer which requires as a
22-3 condition precedent to writing such new or renewal insurance that
22-4 the prospective insured or the insured place other insurance not
22-5 <eligible> procurable as surplus lines insurance with such eligible
22-6 surplus lines insurer.
22-7 (k) This section shall not be deemed to cast upon the State
22-8 Board of Insurance any duty or responsibility to determine the
22-9 actual financial condition or claims practice of any unlicensed
22-10 insurer or any unauthorized insurer as defined in Article 1.14-1 of
22-11 this Code.
22-12 (l) An <unauthorized> insurer is not an eligible surplus
22-13 lines insurer unless it is authorized to write the same coverage in
22-14 the jurisdiction in which the <unauthorized> insurer is licensed or
22-15 certificated to do business.
22-16 SECTION 16. Section 9, Article 1.14-2, Insurance Code, is
22-17 amended to read as follows:
22-18 Sec. 9. Validity of Contracts. (a) Insurance contracts
22-19 procured from an eligible surplus lines insurer <as surplus line
22-20 coverage from unauthorized insurers in accordance with this
22-21 Article> shall be fully valid and enforceable as to all parties,
22-22 and shall be given recognition in all matters and respects to the
22-23 same effect and extent as like contracts issued by <authorized>
22-24 licensed insurers unless there was a material and intentional
22-25 violation of this Article.
22-26 (b) <A contract of insurance placed in effect by an
22-27 unauthorized insurer in violation of this Article is unenforceable
23-1 by the insurer.> In the event of a material and intentional
23-2 violation of this Article, the <The> insured shall not be precluded
23-3 from enforcing his rights in accordance with the terms and
23-4 provisions of such contract.
23-5 SECTION 17. Section 12(a), Article 1.14-2, Insurance Code,
23-6 is amended to read as follows:
23-7 Sec. 12. Surplus lines insurance premium tax. (a) The
23-8 premiums charged for surplus lines insurance are subject to a
23-9 premium receipts tax of 4.85 percent of gross premiums charged for
23-10 such insurance. The term premium includes all premiums, membership
23-11 fees, assessments, dues or any other consideration for insurance.
23-12 Such tax shall be in lieu of all other insurance taxes. The
23-13 surplus lines agent shall collect from the insured the amount of
23-14 the tax at the time of delivery of the cover note, certificate of
23-15 insurance, policy or other initial confirmation of insurance, in
23-16 addition to the full amount of the gross premium charged by the
23-17 insurer for the insurance. No agent shall absorb such tax nor
23-18 shall any agent, as an inducement for insurance or for any other
23-19 reason, rebate all or any part of such tax or his commission. The
23-20 surplus lines agent shall report, under oath, to the State Board of
23-21 Insurance within 30 days from the 1st day of January and July of
23-22 each year the amount of gross premiums paid for such insurance
23-23 placed through him in nonlicensed insurers, and shall pay to the
23-24 Board the tax provided for by this Article. If a surplus lines
23-25 policy covers risks or exposures only partially in this state, the
23-26 tax payable shall be computed on the portions of the premium which
23-27 are properly allocable to the risks or exposures located in this
24-1 state. In determining the amount of premiums taxable in this
24-2 state, all premiums written, procured, or received in this state
24-3 and all premiums on policies negotiated in this state shall be
24-4 deemed written on property or risks located or resident in this
24-5 state, except such premiums as are properly allocated or
24-6 apportioned and reported as <taxable> premiums which may be subject
24-7 to taxation by <of> any other state or states or by a foreign
24-8 jurisdiction. Premiums on risks or exposures which are properly
24-9 allocated to federal waters, international waters or under the
24-10 jurisdiction of a foreign government shall not be taxable by this
24-11 state. In event of cancellation and rewriting of any surplus lines
24-12 insurance contract the additional premium for premium receipts tax
24-13 purposes shall be the premium in excess of the unearned premium of
24-14 the canceled insurance contract.
24-15 SECTION 18. Section 16, Article 1.14-2, Insurance Code, is
24-16 amended as follows:
24-17 Sec. 16. Annual Report of Surplus Lines Agent. Each surplus
24-18 lines agent shall, before March 1 in each year, make a report to
24-19 the <State Board> Texas Department of Insurance for the preceding
24-20 calendar year, on the form prescribed by it, of such facts as it
24-21 requires and including a showing that the amount of insurance
24-22 procured from such <unauthorized> eligible surplus lines insurer or
24-23 insurers is only the amount in excess of the amount procurable from
24-24 licensed insurers.
24-25 SECTION 19. Section 17, Article 1.14-2, Insurance Code is
24-26 amended as follows:
24-27 Sec. 17. Penalty. Any violation of this Article shall
25-1 subject the surplus lines agent or eligible surplus lines insurer
25-2 to all of the provisions and sanctions contained in Section 7,
25-3 Article 1.10, of this Code.
25-4 SECTION 20. Section 17A, Article 1.14-2, Insurance Code, is
25-5 amended to read as follows:
25-6 Sec. 17A. Administrative penalty. (a) If a surplus lines
25-7 agent or eligible surplus lines insurer violates Sections 8 or 9 of
25-8 this article or a rule, regulation, or order adopted under that
25-9 provision, the State Board of Insurance may assess a penalty
25-10 against that agent or insurer as provided by Section 7, Article
25-11 1.10, of this code.
25-12 (b) In determining the amount of the penalty, the State
25-13 Board of Insurance shall consider.
25-14 (1) the nature, circumstances, extent, and gravity of the
25-15 violation;
25-16 (2) any economic benefit gained through the violation;
25-17 (3) the amount necessary to deter future violations; and
25-18 (4) any other matters that justice may require.
25-19 SECTION 21. Section 7(c), Article 1.36, Insurance Code, is
25-20 amended to read as follows:
25-21 Sec. 7(c). Service of process on commissioner on behalf of
25-22 unauthorized persons or insurers. (c) In addition to service
25-23 under Section 3 of this article and Subsection (a) of this section,
25-24 service of process, notice, or demand on an unauthorized person or
25-25 insurer is valid if served on any person in this state who on
25-26 behalf of that unauthorized person or insurer is doing any act of
25-27 an insurance business as provided by Section 2 of Article 1.14-1 of
26-1 this code. This section does not apply to surplus lines insurers
26-2 which were deemed eligible surplus lines insurers pursuant to
26-3 Article 1.14-2 of this Code at the date the applicable coverage was
26-4 issued.
26-5 SECTION 22. Section 8(b), Article 1.36, Insurance Code, is
26-6 amended to read as follows:
26-7 Sec. 8.(b) Service of process, notice, order or pleading on
26-8 secretary of state on behalf of unauthorized persons and insurers.
26-9 (b) Any act of doing an insurance business as provided by Section
26-10 2 of Article 1.14-1 of this code by any unauthorized person or
26-11 insurer is equivalent to and constitutes an irrevocable appointment
26-12 of the secretary of state by that person or insurer, binding on
26-13 him, his executor, administrator, or personal representative or, if
26-14 a corporation, successor in interest to be the lawful attorney for
26-15 service of that person or insurer. The secretary of state may be
26-16 served legal notice, order, pleading, or other process in any
26-17 proceeding described by Subsection (a) of this section that arises
26-18 out of doing an insurance business in this state by that person or
26-19 insurer. This section does not apply to surplus lines insurers
26-20 which were deemed eligible surplus lines insurers pursuant to
26-21 Article 1.14-2 of this Code at the date applicable coverage was
26-22 issued.
26-23 SECTION 23. Sections 11(d), Article 1.36, Insurance Code, is
26-24 amended to read as follows:
26-25 Sec. 11(d). Unauthorized person's or insurer's defense of
26-26 action. (d) This section does not apply to surplus lines insurers
26-27 which were deemed eligible surplus lines insurers pursuant to
27-1 Article 1.14-2 of this Code at the date applicable coverage was
27-2 issued.
27-3 SECTION 24. Sections 12(a), (b), and (c), Article 1.36,
27-4 Insurance Code are amended to read as follows:
27-5 Sec. 12. SERVICE OF PROCESS ON ELIGIBLE SURPLUS LINES
27-6 INSURERS. (a) <A surplus lines insurer may be sued on any cause
27-7 of action arising in this state under any surplus lines insurance
27-8 contract issued by it or under any certificate, cover note, or
27-9 other confirmation of that insurance issued by the surplus lines
27-10 agent, under the same procedure provided for unauthorized insurers
27-11 in Sections 3, 7, and 8 of this article.> Any act of doing an
27-12 insurance business by an eligible surplus lines insurance company
27-13 constitutes an irrevocable appointment of the Secretary of State by
27-14 that insurer binding on it and its successors in interest to be the
27-15 lawful attorney for service of that insurer. The Secretary of
27-16 State may be served with any process, notice, or demand arising out
27-17 of doing an insurance business in this state by that insurer,
27-18 except in an action, suit, or proceeding by the State Board of
27-19 Insurance or by the state.
27-20 (b) Any act of doing an insurance business by an eligible
27-21 surplus lines insurance company signifies the insurer's agreement
27-22 that legal process served under this section has the same legal
27-23 force and validity as personal service of process in this state on
27-24 that insurer or its successor in interest.
27-25 (<b>c) Any policy issued by the surplus lines insurer or any
27-26 certificate of insurance issued by the surplus lines agent must
27-27 contain a provision stating the substance of this section and
28-1 designating the Person to whom the commissioner is to mail process.
28-2 This address must be supplied by the plaintiff in the citation that
28-3 is served.
28-4 (<c>d) Each surplus lines insurer assuming a surplus lines
28-5 risk under this article is considered to have made itself subject
28-6 to the terms of this section.
28-7 (<d>e) This section is cumulative of any other methods that
28-8 may be provided by law for service of process on a surplus lines
28-9 insurer, including Section 3 of this article.
28-10 SECTION 25. This Act takes effect on September 1, 1993.
28-11 SECTION 26. The importance of this legislation and the
28-12 crowded condition of the calendars in both houses create an
28-13 emergency and an imperative public necessity that the
28-14 constitutional rule requiring bills to be read on three several
28-15 days in each house be suspended, and this rule is hereby suspended.