By: Duncan H.B. No. 958
73R3988 PB-F
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 not
1-14 authorized to do insurance business in this state (but not
1-15 including eligible surplus lines insurers regulated under Article
1-16 1.14-2 of this code), thus presenting to such residents the often
1-17 insuperable obstacle of asserting their legal rights under such
1-18 policies in forums foreign to them under laws and rules of practice
1-19 with which they are not familiar. The Legislature declares that it
1-20 is also concerned with the protection of residents of this state
1-21 against acts by persons and insurers not authorized to do an
1-22 insurance business in this state by the maintenance of fair and
1-23 honest insurance markets, by protecting the premium tax revenues of
1-24 this state, by protecting authorized persons and insurers, which
2-1 are 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), (15 U.S.C. Sec. 1011 et seq.), and its
2-15 subsequent amendments <(Chapter 20, 1st Sess., S. 340), 59 Stats.
2-16 33, as amended>, which declares that the business of insurance and
2-17 every person engaged therein shall be subject to the laws of the
2-18 several states.
2-19 SECTION 2. Section 2(b), Article 1.14-1, Insurance Code, is
2-20 amended to read as follows:
2-21 (b) The provisions of this section do not apply to:
2-22 1. The lawful transaction of surplus lines insurance
2-23 under Article 1.14-2 of this code and its subsequent amendments.
2-24 2. The lawful transaction of reinsurance by insurers.
2-25 3. Transactions in this state involving a policy
2-26 lawfully solicited, written, and delivered outside of this state
2-27 covering only subjects of insurance not resident, located, or
3-1 expressly to be performed in this state at the time of issuance,
3-2 and which transactions are subsequent to the issuance of such
3-3 policy.
3-4 4. Transactions involving contracts of insurance
3-5 independently procured through negotiations occurring entirely
3-6 outside of this state which are reported and on which premium tax
3-7 is paid in 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 of this code, and its subsequent
3-17 amendments.
3-18 SECTION 3. Sections 8, 10, and 11, Article 1.14-1, Insurance
3-19 Code, are amended to read as follows:
3-20 Sec. 8. Validity of Insurance Contracts. Except for
3-21 <lawfully procured> surplus lines insurance procured through
3-22 eligible surplus lines insurers under Article 1.14-2 of this code
3-23 and its subsequent amendments and contracts of insurance
3-24 independently procured through negotiations occurring entirely
3-25 outside of this state which are reported and on which premium tax
3-26 is paid in accordance with this Article or Article 1.14-2 of this
3-27 code and its subsequent amendments, any contract of insurance
4-1 effective in this state and entered into by an unauthorized insurer
4-2 is unenforceable by such insurer. In event of failure of any such
4-3 unauthorized insurer to pay any claim or loss within the provisions
4-4 of such insurance contract, any person who assisted or in any
4-5 manner aided directly or indirectly in the procurement of such
4-6 insurance contract shall be liable to the insured for the full
4-7 amount thereof pursuant to the provisions of such insurance
4-8 contract.
4-9 Sec. 10. Reporting of Unauthorized Insurance. (a) Every
4-10 person investigating or adjusting any loss or claim on a subject of
4-11 insurance in this state shall immediately report to the State Board
4-12 of Insurance every insurance policy or contract which has been
4-13 entered into by any unauthorized insurer <not authorized to
4-14 transact such insurance in this state>.
4-15 (b) This section does not apply to:
4-16 (1) transactions in this state involving a policy
4-17 lawfully solicited, written, and delivered outside of this state
4-18 covering only subjects of insurance not resident, located or
4-19 expressly to be performed in this state at the time of issuance<,>
4-20 and which <transactions> are subsequent to the issuance of such
4-21 policy; or
4-22 (2) surplus lines insurance procured through an
4-23 eligible surplus lines insurer under Article 1.14-2 of this code
4-24 and its subsequent amendments.
4-25 Sec. 11. Unauthorized insurance premium tax. (a) Except as
4-26 to premiums on <lawfully procured> surplus lines insurance procured
4-27 through eligible surplus lines insurers under Article 1.14-2 of
5-1 this code and its subsequent amendments and premiums on
5-2 independently procured insurance on which a tax has been paid
5-3 pursuant to this Article or Article 1.14-2 of this code and its
5-4 subsequent amendments, every unauthorized insurer shall pay to the
5-5 State Board of Insurance before March 1 next succeeding the
5-6 calendar year in which the insurance was so effectuated, continued
5-7 or renewed a premium receipts tax of 4.85 percent of gross premiums
5-8 charged for such insurance on subjects resident, located or to be
5-9 performed in this state. Such insurance on subjects resident,
5-10 located or to be performed in this state procured through
5-11 negotiations or an application, in whole or in part occurring or
5-12 made within or from within or outside of this state, or for which
5-13 premiums in whole or in part are remitted directly or indirectly
5-14 from within or outside of this state, shall be deemed to be
5-15 insurance procured, or continued or renewed in this state. The
5-16 term "premium" includes all premiums, membership fees, assessments,
5-17 dues and any other consideration for insurance. Such tax shall be
5-18 in lieu of all other insurance taxes. On default of any such
5-19 unauthorized insurer in the payment of such tax the insured shall
5-20 pay the tax. If the tax prescribed by this subsection is not paid
5-21 within the time stated, the tax shall be increased by a penalty of
5-22 25 percent and by the amount of an additional penalty computed at
5-23 the rate of one percent per month or any part thereof from the date
5-24 such payment was due to the date paid.
5-25 (b) If a policy covers risks or exposures only partially in
5-26 this state, the tax payable shall be computed on the portions of
5-27 the premiums which are properly allocable to the risks or exposures
6-1 located in this state. In determining the amount of premiums
6-2 taxable in this state, all premiums written, procured, or received
6-3 in this state and all premiums on policies negotiated in this state
6-4 shall be deemed written on property or risks located or resident in
6-5 this state, except such premiums as are properly allocated or
6-6 apportioned and reported as taxable premiums of any other state or
6-7 states. Premiums on risks or exposures that properly are allocated
6-8 to federal or international waters, or that are under the
6-9 jurisdiction of a foreign government, are not taxable by this
6-10 state.
6-11 SECTION 4. Section 12, Article 1.14-1, Insurance Code, is
6-12 amended by amending Subsections (a)-(d) and by adding Subsection
6-13 (h) to read as follows:
6-14 (a) Every insured who procures or causes to be procured or
6-15 continues or renews insurance with any unauthorized insurer or
6-16 eligible surplus lines insurer subject to Article 1.14-2 of this
6-17 code and its subsequent amendments, or any insured or self-insurer
6-18 who so procures or continues excess loss, catastrophe or other
6-19 insurance, upon a subject of insurance resident, located or to be
6-20 performed within this state, other than insurance procured through
6-21 a surplus lines agent under Article 1.14-2 of this code and its
6-22 subsequent amendments <pursuant to the surplus lines law of this
6-23 state> shall within 60 days after the date such insurance was so
6-24 procured, continued or renewed, file a report of the same with the
6-25 State Board of Insurance in writing and upon forms designated by
6-26 the State Board of Insurance and furnished to such an insured upon
6-27 request. The report shall show the name and address of the insured
7-1 or insureds, name and address of the insurer, the subject of the
7-2 insurance, a general description of the coverage, the amount of
7-3 premium currently charged therefor, and such additional pertinent
7-4 information as is reasonably requested by the State Board of
7-5 Insurance.
7-6 (b) Any insurance in an unauthorized insurer or eligible
7-7 surplus lines insurer subject to Article 1.14-2 of this code and
7-8 its subsequent amendments of a subject of insurance resident,
7-9 located or to be performed within this state procured through
7-10 negotiations or an application, in whole or in part occurring or
7-11 made within or from within or outside of this state, or for which
7-12 premiums in whole or in part are remitted directly or indirectly
7-13 from within or outside of this state, shall be deemed to be
7-14 insurance procured, or continued or renewed in this state within
7-15 the intent of Paragraph (a).
7-16 (c) There is hereby levied upon the obligation, chose in
7-17 action, or right represented by the premium charged for such
7-18 insurance, a premium receipts tax of 4.85 <3.85> percent of gross
7-19 premiums charged for such insurance. The term "premium" shall
7-20 include all premiums, membership fees, assessments, dues and any
7-21 other consideration for insurance. Such tax shall be in lieu of
7-22 all other insurance taxes. The insured shall, before March 1 next
7-23 succeeding the calendar year in which the insurance was so
7-24 procured, continued or renewed, pay the amount of the tax to the
7-25 State Board of Insurance. In event of cancellation and rewriting
7-26 of any such insurance contract the additional premium for premium
7-27 receipts tax purposes shall be the premium in excess of the
8-1 unearned premium of the canceled insurance contract.
8-2 (d) If a policy covers risks or exposures only partially in
8-3 this state, the tax payable shall be computed on the portions of
8-4 the premium which are properly allocable to the risks or exposures
8-5 located in this state. In determining the amount of premiums
8-6 taxable in this state, all premiums written, procured or received
8-7 in this state and all premiums on policies negotiated in this state
8-8 shall be deemed written on property or risks located or resident in
8-9 this state, except such premiums as are properly allocated or
8-10 apportioned and reported as taxable premiums of any other state or
8-11 states. Premiums on risks or exposures that properly are allocated
8-12 to federal or international waters, or that are under the
8-13 jurisdiction of a foreign government, are not taxable by this
8-14 state.
8-15 (h) An insured who resides outside this state, but who is
8-16 otherwise subject to this section, may forward premium taxes owed
8-17 under this section to the State Board of Insurance through a
8-18 non-resident agent acting on the insured's behalf and licensed
8-19 under Article 21.11 of this code and its subsequent amendments.
8-20 SECTION 5. Section 1, Article 1.14-2, Insurance Code, is
8-21 amended to read as follows:
8-22 Sec. 1. Purpose. Insurance transactions which are entered
8-23 into by citizens of this state with eligible surplus lines
8-24 <unauthorized> insurers through a surplus lines agent as a result
8-25 of difficulty in obtaining coverage from licensed insurers are a
8-26 matter of public interest. The Legislature declares that such
8-27 transaction of surplus lines insurance is a subject of concern and
9-1 that it is necessary to provide for the regulation, taxation,
9-2 supervision and control of such transactions and the practices and
9-3 matters related thereto by requiring appropriate standards and
9-4 reports concerning the placement of such insurance; by imposing
9-5 requirements necessary to make such regulation and control
9-6 reasonably complete and effective; by providing orderly access to
9-7 eligible surplus lines insurers <that are not authorized to
9-8 transact the business of insurance in this state>; by insuring the
9-9 maintenance of fair and honest markets; by protecting the revenues
9-10 of this state; and by protecting licensed <authorized> insurers,
9-11 which under the laws of this state must meet strict standards as to
9-12 the regulation of the business of insurance and the taxation
9-13 thereof, from unfair competition by unauthorized insurers. In
9-14 order to properly regulate and tax <such unauthorized> insurance
9-15 placed in accordance with this Article within the meaning and
9-16 intent of P.L. 79-15 (1945), (15 U.S.C. Sec. 1011 et seq.), and its
9-17 subsequent amendments <(Chap. 20, 1st Sess., S. 340), 59 Stat. 33>,
9-18 the Legislature herein provides an orderly method for <the>
9-19 insuring the general public of this state through eligible surplus
9-20 lines <to effect insurance with unauthorized> insurers operating
9-21 through qualified, licensed, and supervised surplus line agents in
9-22 this state if coverage is not available through licensed and
9-23 regulated insurers conducting the business of insurance in this
9-24 state, and under reasonable and practical safeguards so that such
9-25 insurance coverage may be obtained by residents of this state <to
9-26 the extent that the coverage is not procurable from duly licensed,
9-27 regulated insurers conducting business in this state>.
10-1 SECTION 6. Section 2, Article 1.14-2, Insurance Code, is
10-2 amended by amending Subsection (b) and by adding Subsection (c) to
10-3 read as follows:
10-4 (b) "Surplus lines insurer" means an <unauthorized> insurer
10-5 determined to be eligible under Section 8 of this Article in which
10-6 an insurance coverage is placed or may be placed under this
10-7 Article. An eligible surplus lines insurer is not an unauthorized
10-8 insurer.
10-9 (c) The term "licensed insurer" does not include a residual
10-10 market mechanism established as a market of last resort in this
10-11 state.
10-12 SECTION 7. Section 3, Article 1.14-2, Insurance Code, is
10-13 amended to read as follows:
10-14 Sec. 3. Surplus Lines Insurance Authorized. (a) If
10-15 insurance coverages of subjects resident, located or to be
10-16 performed in this state cannot be procured from licensed insurers
10-17 after diligent effort, such coverages, hereinafter designated as
10-18 surplus line insurance, may be procured from eligible surplus lines
10-19 <unauthorized> insurers subject to the following conditions:
10-20 1. The insurance must be eligible for surplus lines
10-21 under Section 5 of this article.
10-22 2. The insurer must be <an> eligible <surplus lines
10-23 insurer> under Section 8 of this article.
10-24 3. The insurance must be placed through a licensed
10-25 Texas surplus lines agent resident in this state.
10-26 4. The other applicable provisions of this section
10-27 must be complied with.
11-1 (b) Except as provided by Subsection (c) of this section,
11-2 any <Any> insurance of subjects resident, located or to be
11-3 performed in this state, procured through negotiations or an
11-4 application, in whole or in part occurring or made within or from
11-5 within this state, or for which premiums in whole or in part are
11-6 remitted directly or indirectly from within this state, shall be
11-7 deemed to be insurance procured, or continued or renewed in this
11-8 state within the intent of Subsection <Paragraph> (a) of this
11-9 section.
11-10 (c) This article does not apply to subjects of insurance
11-11 located wholly within the jurisdiction of another state or foreign
11-12 country or located wholly within federal or international waters.
11-13 SECTION 8. Section 4(a), Article 1.14-2, Insurance Code, is
11-14 amended to read as follows:
11-15 (a) An agent licensed by the state may not issue or cause to
11-16 be issued an insurance contract with an eligible surplus lines
11-17 <unauthorized> insurer, unless the agent possesses a current
11-18 surplus lines license issued by the State Board of Insurance.
11-19 SECTION 9. Sections 5 and 6, Article 1.14-2, Insurance Code,
11-20 are amended to read as follows:
11-21 Sec. 5. Eligibility for Surplus Lines Insurance. (a) No
11-22 insurance coverage shall be eligible for surplus lines unless the
11-23 insurer is an eligible surplus lines insurer on the inception date
11-24 of the coverage and a diligent effort has been performed as
11-25 described by Subsection (c) of this section. <full amount of
11-26 insurance required is not procurable, after a diligent effort has
11-27 been made to do so, from among the insurers licensed to transact
12-1 and actually writing that kind and class of insurance in this
12-2 state, and the amount of insurance eligible for surplus lines shall
12-3 be only the amount in excess of the amount so procurable from
12-4 licensed insurers.>
12-5 (b) Responsibility for compliance with Subsection (a) of
12-6 this section lies with the insured, the surplus lines agent, and
12-7 the agent who directly solicits the coverage from the insured.
12-8 <Policy or contract forms shall not be eligible unless the use is
12-9 reasonably necessary for the principal purposes of the coverage or
12-10 unless the use would not be contrary to the purposes of this
12-11 Article with respect to the reasonable protection of authorized
12-12 insurers from unwarranted competition by unauthorized insurers.>
12-13 (c) For the purposes of this section, "diligent effort"
12-14 means an effort to procure insurance from licensed insurers that is
12-15 evidenced by a document prepared by an agent, as defined by
12-16 Subchapter A, Chapter 21, of this code, and its subsequent
12-17 amendments, who directly solicits insurance coverage from an
12-18 insured. The documentation must provide evidence that the coverage
12-19 required was not available from three licensed insurers available
12-20 to that agent who are authorized to write and actually engaged in
12-21 writing the kind or class of insurance business in this state and
12-22 that meet the insured's requirements, both as to type of coverage
12-23 and quality of security and service. If there are fewer than three
12-24 appropriate licensed insurers, the diligent effort requirement may
12-25 be met by searching a smaller market. "Type of coverage" refers to
12-26 hazards covered and limits of coverage. "Quality of security and
12-27 service" refers to a rating assigned by a recognized financial
13-1 service.
13-2 Sec. 6. Procedure for Effecting Surplus Lines Contracts.
13-3 (a) <Before any new or renewal insurance shall be procured in an
13-4 unlicensed insurer the agent shall make an affidavit, which shall
13-5 be promptly filed with the State Board of Insurance, that he is
13-6 after diligent effort unable to procure from any licensed insurer
13-7 or insurers the full amount of insurance required to protect the
13-8 interest of the insured. If the annual premiums paid by the
13-9 insured for such surplus lines coverage exceed $25,000, the insured
13-10 may execute the affidavit in lieu of the surplus lines agent.>
13-11 <(b)> Upon placing a new or renewal surplus line coverage,
13-12 the surplus lines agent shall promptly issue and deliver to the
13-13 insured or his agent, as the case may be, evidence of the insurance
13-14 consisting either of the policy as issued by the insurer or, if
13-15 such policy is not then available, a certificate, cover note or
13-16 other confirmation of insurance.
13-17 (b) <(c)> Within 60 days after the effectuation of any new
13-18 or renewal surplus lines insurance contract, the surplus lines
13-19 agent shall file with the Surplus Lines Stamping Office of Texas
13-20 evidence that a diligent effort under Section 5 of this Article has
13-21 been performed, accompanied by a true and correct <State Board of
13-22 Insurance an exact> copy of the policy issued. If a policy has not
13-23 been issued, the surplus lines agent shall so file a true and
13-24 correct <an exact> copy of the <his> certificate, cover note, or
13-25 other confirmation of insurance as delivered to the insured. The
13-26 surplus lines agent shall likewise promptly file with the Surplus
13-27 Lines Stamping Office of Texas a true and correct <State Board of
14-1 Insurance an exact> copy of any substitute certificate, cover note,
14-2 or other confirmation of insurance, and of every endorsement of an
14-3 original policy, certificate, cover note, or other confirmation of
14-4 insurance, delivered to an insured, together with such surplus
14-5 lines agent's memorandum informing that office <the State Board of
14-6 Insurance> as to the substance of any change represented by such
14-7 substitute certificate, cover note, or other confirmation, or of
14-8 any such endorsement, as compared with the coverage as originally
14-9 placed or issued. Except, however, as respects this Subsection
14-10 <(c)>, equivalent information may be filed as required by the
14-11 Board.
14-12 (c) <(d)> No surplus lines agent shall deliver any such
14-13 document, or purport to insure or represent that insurance will be
14-14 or has been granted by any eligible surplus lines <unauthorized>
14-15 insurer unless he has prior written authority from the insurer for
14-16 the insurance, or has received information from the insurer in the
14-17 regular course of business that such insurance has been granted, or
14-18 an insurance policy providing the insurance actually has been
14-19 issued by the insurer and delivered to the insured.
14-20 (d) <(e)> If after the delivery of any such document there
14-21 is any change as to the identity of the insurers, or the proportion
14-22 of the direct risk assumed by the insurer as stated in the original
14-23 certificate, cover note, or confirmation, or in any other material
14-24 respect as to the insurance coverage evidenced by such a document,
14-25 the surplus lines agent shall promptly deliver to the insured a
14-26 substitute certificate, cover note, confirmation or endorsement for
14-27 the original such document, accurately showing the current status
15-1 of the coverage and the insurers responsible thereunder. No such
15-2 change shall result in a coverage or insurance contract which would
15-3 be in violation of this Article if originally issued on such basis.
15-4 (e) <(f)> If a policy issued by the insurer is not available
15-5 upon placement of the insurance and the surplus lines agent has
15-6 delivered a certificate, cover note, or confirmation, as
15-7 hereinabove provided, upon request therefor by the insured the
15-8 surplus lines agent shall as soon as reasonably possible procure
15-9 from the insurer its policy evidencing the insurance and deliver
15-10 the policy to the insured in replacement of the certificate, cover
15-11 note, or confirmation theretofore issued.
15-12 SECTION 10. Section 6A(c), Article 1.14-2, Insurance Code,
15-13 is amended to read as follows:
15-14 (c) The stamping office shall function through a board of
15-15 directors appointed by the State Board of Insurance. The board of
15-16 directors of the stamping office shall consist of 9 members, who
15-17 serve terms as established in the plan of operation. Four of the
15-18 members of the board of directors must represent the general public
15-19 and must have at least two years of experience in the purchase of
15-20 commercial insurance to be eligible for appointment. A public
15-21 representative may not be:
15-22 (1) an officer, director, or employee of an insurance
15-23 company, insurance agency, agent, broker, solicitor, adjuster, or
15-24 any other business entity regulated by the State Board of
15-25 Insurance;
15-26 (2) a person required to register with the secretary
15-27 of state under Chapter 305, Government Code; or
16-1 (3) related to a person described by Subdivision (1)
16-2 or (2) of this subsection within the second degree of affinity or
16-3 consanguinity.
16-4 SECTION 11. Section 7, Article 1.14-2, Insurance Code, is
16-5 amended by adding Subsections (c) and (d) to read as follows:
16-6 (c) The insurer must be an eligible surplus lines insurer as
16-7 of the inception date of the insurance contract, cover note, or
16-8 other confirmation of insurance.
16-9 (d) An extension of a contract beyond the original
16-10 expiration date of that contract is subject to Subsection (a) of
16-11 this section and to Section 8 of this Article.
16-12 SECTION 12. Sections 8 and 9, Article 1.14-2, Insurance
16-13 Code, are amended to read as follows:
16-14 Sec. 8. Eligibility of surplus lines insurers. (a) A
16-15 surplus lines agent shall not knowingly place surplus lines
16-16 insurance with financially unsound insurers. The surplus lines
16-17 agent shall make a reasonable effort to ascertain the financial
16-18 condition of the eligible surplus lines <unauthorized> insurer
16-19 before placing insurance therewith.
16-20 (b) No surplus lines agent shall place any coverage with an
16-21 <unauthorized> insurer unless the insurer has met the eligibility
16-22 requirements of this section and the stamping office provides
16-23 evidence that the insurer has met the requirements to the State
16-24 Board of Insurance. An <unauthorized> insurer may not be
16-25 classified as an <shall not be> eligible surplus lines insurer
16-26 under this article unless the insurer has a minimum capital and
16-27 surplus that are not less than the following amounts for the
17-1 following dates:
17-2 (1) $4.5 million capital and surplus as of December
17-3 31, 1991; or
17-4 (2) $6 million capital and surplus as of December 31,
17-5 1992.
17-6 (c) An eligible surplus lines <unauthorized> insurer may be
17-7 exempt from the minimum capital and surplus requirements provided
17-8 by Subsection (b) of this section if the Commissioner of Insurance
17-9 finds, after public hearing, that the exemption is warranted based
17-10 on factors such as quality of management, capital and surplus of
17-11 any parent company, company underwriting profit and investment
17-12 income trends, reinsurance contracts, company record and reputation
17-13 within the industry, and other information the commissioner
17-14 requires to make a determination.
17-15 (d) In addition to meeting the minimum capital and surplus
17-16 requirements provided by this section, an alien insurer must
17-17 provide evidence that it maintains in the United States an
17-18 irrevocable trust fund in a Federal Reserve System member bank in
17-19 an amount not less than $1.5 million for the protection of all its
17-20 policyholders in the United States and that the trust fund consists
17-21 of cash, securities, letters of credit, or investments of
17-22 substantially the same character and quality as those that are
17-23 eligible investments for the capital and statutory reserves of
17-24 authorized insurers licensed to write like kinds and classes of
17-25 insurance in this state.
17-26 (e) Instead of the minimum capital and surplus requirements
17-27 provided by this section, an unincorporated group of alien
18-1 individual insurers may maintain a trust fund in an amount not less
18-2 than $50 million as security to the full amount of the trust fund
18-3 for all policyholders and creditors in the United States of each
18-4 member of the group. Except as specifically otherwise provided by
18-5 this subsection, the trust fund must comply with the terms and
18-6 conditions provided by Subsection (d) of this section for the trust
18-7 fund required by that subsection.
18-8 (f) Every insurer<, as defined by Article 1.14-1,> proposing
18-9 to transact surplus lines insurance within this state shall hold a
18-10 current license or authority from its domiciliary state or country
18-11 to conduct the business of insurance. The license or authority
18-12 from the domiciliary state or country must be for the kind or class
18-13 of insurance to be written in this state as surplus lines
18-14 insurance, and satisfactory evidence that the insurer holds the
18-15 required license or authorization must be provided to the
18-16 Commissioner of Insurance.
18-17 (g) The <unauthorized> insurer must be of good repute and
18-18 provide reasonably prompt service to its policyholders in the
18-19 payment of just losses and claims.
18-20 (h) No <unauthorized> insurer shall be eligible if the
18-21 management is incompetent or untrustworthy, or so lacking in
18-22 insurance company managerial experience as to make its proposed
18-23 operation hazardous to the insurance-buying public; or if the State
18-24 Board of Insurance has good reason to believe that it is affiliated
18-25 directly or indirectly through ownership, control, reinsurance
18-26 transactions or other insurance or business relations, with any
18-27 person whose business operations are or have been detrimental to
19-1 policyholders, stockholders, investors, creditors or to the public.
19-2 (i) No <unauthorized> insurer shall be eligible if the
19-3 insurer or its agents have failed to submit to any fine or penalty
19-4 levied pursuant to statute. No <unauthorized> insurer shall be
19-5 eligible if the insurer is obligated to pay and has failed to pay
19-6 premium taxes required by this state <under Section 11 of Article
19-7 1.14-1>. The State Board of Insurance may order revocation of
19-8 insurance contracts issued by insurers that do not conform with the
19-9 eligibility requirements of this section.
19-10 (j) No new or renewal surplus lines insurance shall be
19-11 placed with any eligible surplus lines insurer which requires as a
19-12 condition precedent to writing such new or renewal insurance that
19-13 the prospective insured or the insured place other insurance not
19-14 procurable <eligible> as surplus lines insurance with that eligible
19-15 <such> surplus lines insurer.
19-16 (k) <This section shall not be deemed to cast upon the State
19-17 Board of Insurance any duty or responsibility to determine the
19-18 actual financial condition or claims practice of any unauthorized
19-19 insurer.>
19-20 <(l)> An <unauthorized> insurer is not an eligible surplus
19-21 lines insurer unless it is authorized to write the same coverage in
19-22 the jurisdiction in which the <unauthorized> insurer is licensed or
19-23 certificated to do business.
19-24 Sec. 9. VALIDITY OF CONTRACTS; EFFECT OF FRAUD; PENALTIES.
19-25 (a) Insurance contracts procured as surplus lines <line> coverage
19-26 from eligible surplus lines <unauthorized> insurers <in accordance
19-27 with this Article> shall be fully valid and enforceable as to all
20-1 parties unless fraudulently procured, and shall be given
20-2 recognition in all matters and respects to the same effect and
20-3 extent as like contracts issued by licensed <authorized> insurers.
20-4 (b) A contract of insurance fraudulently procured from an
20-5 eligible surplus lines <placed in effect by an unauthorized>
20-6 insurer <in violation of this Article> is unenforceable <by the
20-7 insurer>.
20-8 (c) The State Board of Insurance, by rule, may establish
20-9 administrative penalties for violations other than fraud <insured
20-10 shall not be precluded from enforcing his rights in accordance with
20-11 the terms and provisions of such contract>.
20-12 SECTION 13. Sections 12(a) and (b), Article 1.14-2,
20-13 Insurance Code, are amended to read as follows:
20-14 (a) The premiums charged for surplus lines insurance are
20-15 subject to a premium receipts tax of 4.85 percent of gross premiums
20-16 charged for such insurance. The term premium includes all
20-17 premiums, membership fees, assessments, dues or any other
20-18 consideration for insurance. Such tax shall be in lieu of all
20-19 other insurance taxes. The surplus lines agent shall collect from
20-20 the insured the amount of the tax at the time of delivery of the
20-21 cover note, certificate of insurance, policy or other initial
20-22 confirmation of insurance, in addition to the full amount of the
20-23 gross premium charged by the insurer for the insurance. No agent
20-24 shall absorb such tax nor shall any agent, as an inducement for
20-25 insurance or for any other reason, rebate all or any part of such
20-26 tax or his commission. The surplus lines agent shall report, under
20-27 oath, to the State Board of Insurance within 30 days from the 1st
21-1 day of January and July of each year the amount of gross premiums
21-2 paid for such insurance placed through him in nonlicensed insurers,
21-3 and shall pay to the Board the tax provided for by this Article.
21-4 If a surplus lines policy covers risks or exposures only partially
21-5 in this state, the tax payable shall be computed on the portions of
21-6 the premium which are properly allocable to the risks or exposures
21-7 located in this state. In determining the amount of premiums
21-8 taxable in this state, all premiums written, procured, or received
21-9 in this state and all premiums on policies negotiated in this state
21-10 shall be deemed written on property or risks located or resident in
21-11 this state, except such premiums as are properly allocated or
21-12 apportioned and reported as <taxable> premiums subject to taxation
21-13 by <of> any other state or foreign jurisdiction <states>. Premiums
21-14 on risks or exposures that properly are allocated to federal or
21-15 international waters, or that are under the jurisdiction of a
21-16 foreign government, are not taxable by this state. In event of
21-17 cancellation and rewriting of any surplus lines insurance contract
21-18 the additional premium for premium receipts tax purposes shall be
21-19 the premium in excess of the unearned premium of the canceled
21-20 insurance contract.
21-21 (b) All surplus lines premium receipt taxes collected by a
21-22 surplus lines agent are trust funds in his hands and the property
21-23 of this state. Such funds shall be maintained by the surplus lines
21-24 agent in a separate account and shall not be mingled with any other
21-25 funds, either business or private. Any surplus lines agent who
21-26 fails or refuses to pay over to the state the surplus lines premium
21-27 receipts tax at the time required in this section, or who
22-1 fraudulently withholds or appropriates or otherwise uses such money
22-2 or any portions thereof belonging to the state is guilty of theft
22-3 and shall be punished as provided by law for the crime of theft,
22-4 irrespective of whether any such surplus lines agent has or claims
22-5 to have any interest in such money so received by him. A surplus
22-6 lines agent may file premium taxes on behalf of a nonresident agent
22-7 licensed under Article 21.11 of this code and its subsequent
22-8 amendments for an out-of-state insured with insurance exposures in
22-9 this state. The nonresident agent must comply with the diligent
22-10 effort requirements imposed under Section 5 of this Article.
22-11 SECTION 14. Section 16, Article 1.14-2, Insurance Code, is
22-12 repealed.
22-13 SECTION 15. (a) Except as provided by Subsection (b) of
22-14 this section, this Act takes effect September 1, 1993.
22-15 (b) A member of the board of directors of the Surplus Lines
22-16 Stamping Office of Texas appointed under Section 6A(c), Article
22-17 1.14-2, Insurance Code, as that section existed before amendment by
22-18 this Act, may continue to serve until the expiration of the term to
22-19 which that member was appointed.
22-20 (c) Articles 1.14-1 and 1.14-2, Insurance Code, as amended
22-21 by this Act, apply only to an insurance policy that is delivered,
22-22 issued for delivery, or renewed before January 1, 1994. A policy
22-23 that is delivered, issued for delivery, or renewed before January
22-24 1, 1994, is governed by the law as it existed immediately before
22-25 the effective date of this Act, and that law is continued in effect
22-26 for that purpose.
22-27 SECTION 16. The importance of this legislation and the
23-1 crowded condition of the calendars in both houses create an
23-2 emergency and an imperative public necessity that the
23-3 constitutional rule requiring bills to be read on three several
23-4 days in each house be suspended, and this rule is hereby suspended.