1-1 By: Duncan, Counts (Senate Sponsor - Parker) H.B. No. 958
1-2 (In the Senate - Received from the House May 17, 1993;
1-3 May 18, 1993, read first time and referred to Committee on Economic
1-4 Development; May 22, 1993, reported adversely, with favorable
1-5 Committee Substitute by the following vote: Yeas 8, Nays 0;
1-6 May 22, 1993, sent to printer.)
1-7 COMMITTEE VOTE
1-8 Yea Nay PNV Absent
1-9 Parker x
1-10 Lucio x
1-11 Ellis x
1-12 Haley x
1-13 Harris of Dallas x
1-14 Harris of Tarrant x
1-15 Leedom x
1-16 Madla x
1-17 Rosson x
1-18 Shapiro x
1-19 Wentworth x
1-20 COMMITTEE SUBSTITUTE FOR H.B. No. 958 By: Parker
1-21 A BILL TO BE ENTITLED
1-22 AN ACT
1-23 relating to the issuance of insurance through eligible surplus
1-24 lines insurers.
1-25 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-26 SECTION 1. Section 1, Article 1.14-1, Insurance Code, is
1-27 amended to read as follows:
1-28 Sec. 1. Purpose. The purpose of this Article is to subject
1-29 certain persons and insurers to the jurisdiction of the State Board
1-30 of Insurance, of proceedings before the Board, and of the courts of
1-31 this state in suits by or on behalf of the state and insureds or
1-32 beneficiaries under insurance contracts. The Legislature declares
1-33 that it is a subject of concern that many residents of this state
1-34 hold policies of insurance issued by persons and insurers neither
1-35 <not> authorized to do insurance business in this state nor
1-36 qualified as eligible surplus lines insurers as defined in Article
1-37 1.14-2, thus presenting to such residents the often insuperable
1-38 obstacle of asserting their legal rights under such policies in
1-39 forums foreign to them under laws and rules of practice with which
1-40 they are not familiar. The Legislature declares that it is also
1-41 concerned with the protection of residents of this state against
1-42 acts by persons and insurers not authorized to do an insurance
1-43 business in this state by the maintenance of fair and honest
1-44 insurance markets, by protecting the premium tax revenues of this
1-45 state, by protecting authorized persons and insurers, which are
1-46 subject to strict regulation, from unfair competition by
1-47 unauthorized persons and insurers and by protecting against the
1-48 evasion of the insurance regulatory laws of this state. In
1-49 furtherance of such state interest, the Legislature herein provides
1-50 methods for substituted service of process upon such persons or
1-51 insurers in any proceeding, suit or action in any court and
1-52 substitute service of any notice, order, pleading or process upon
1-53 such persons or insurers in any proceeding before the State Board
1-54 of Insurance to enforce or effect full compliance with the
1-55 insurance and tax statutes of this state, and declares in so doing
1-56 it exercises its power to protect residents of this state and to
1-57 define what constitutes doing an insurance business in this state,
1-58 and also exercises powers and privileges available to this state by
1-59 virtue of P.L. 79-15 (1945), (Chapter 20, 1st Sess., S. 340), 59
1-60 Stats. 33, as amended, which declares that the business of
1-61 insurance and every person engaged therein shall be subject to the
1-62 laws of the several states.
1-63 SECTION 2. Section 2(b), Article 1.14-1, Insurance Code, is
1-64 amended to read as follows:
1-65 (b) The provisions of this section do not apply to:
1-66 1. The lawful transaction of surplus lines insurance
1-67 pursuant to Article 1.14-2.
1-68 2. The lawful transaction of reinsurance by insurers.
2-1 3. Transactions in this state involving a policy
2-2 lawfully solicited, written, and delivered outside of this state
2-3 covering only subjects of insurance not resident, located, or
2-4 expressly to be performed in this state at the time of issuance,
2-5 and which transactions are subsequent to the issuance of such
2-6 policy.
2-7 4. Transactions involving contracts of insurance
2-8 independently procured through negotiations occurring entirely
2-9 outside of this state which are reported and on which premium tax
2-10 is paid in accordance with this Article.
2-11 5. Transactions in this state involving group life,
2-12 health or accident insurance (other than credit insurance) and
2-13 group annuities where the master policy of such groups was lawfully
2-14 issued and delivered in a state in which the company was authorized
2-15 to do an insurance business and such transactions are authorized by
2-16 other statutes of this state.
2-17 6. Lawful transactions by servicing companies of the
2-18 Texas workers' compensation employers' rejected risk fund pursuant
2-19 to Section 4.08, Article 5.76-2.
2-20 SECTION 3. Section 8, Article 1.14-1, Insurance Code, is
2-21 amended to read as follows:
2-22 Sec. 8. Validity of Insurance Contracts. Except for
2-23 <lawfully procured surplus lines> insurance procured by a licensed
2-24 surplus lines agent from an eligible surplus lines insurer as
2-25 defined in Article 1.14-2 and contracts of insurance independently
2-26 procured, as defined in Section 2(b)4 of this Article, <through
2-27 negotiations occurring entirely outside of this state> which are
2-28 reported and on which premium tax is paid in accordance with this
2-29 Article or Article 1.14-2, any contract of insurance effective in
2-30 this state and entered into by an unauthorized insurer is
2-31 unenforceable by such insurer. In event of failure of any such
2-32 unauthorized insurer to pay any claim or loss within the provisions
2-33 of such insurance contract, any person who assisted or in any
2-34 manner aided directly or indirectly in the procurement of such
2-35 insurance contract shall be liable to the insured for the full
2-36 amount thereof pursuant to the provisions of such insurance
2-37 contract.
2-38 SECTION 4. Section 9, Article 1.14-1, Insurance Code, is
2-39 amended by adding Subsection (c) to read as follows:
2-40 (c) This section does not apply to transactions in this
2-41 state involving a policy lawfully solicited, negotiated, written,
2-42 and delivered outside of this state covering only subjects of
2-43 insurance not resident, located or expressly to be performed in
2-44 this state at the time of issuance, and which transactions are
2-45 subsequent to the issuance of such policy or surplus lines
2-46 insurance procured through eligible surplus lines carriers as
2-47 defined in Article 1.14-2.
2-48 SECTION 5. Section 10, Article 1.14-1, Insurance Code, is
2-49 amended to read as follows:
2-50 Sec. 10. Reporting of Unauthorized Insurance. (a) Every
2-51 person investigating or adjusting any loss or claim on a subject of
2-52 insurance in this state shall immediately report to the State Board
2-53 of Insurance every insurance policy or contract which has been
2-54 entered into by any insurer unauthorized <not authorized> to
2-55 transact such insurance in this state.
2-56 (b) This section does not apply to transactions in this
2-57 state involving contracts of insurance independently procured, as
2-58 defined in Section 2(b)4 of this Article or surplus lines insurance
2-59 procured by a licensed surplus lines agent from an eligible surplus
2-60 lines carrier as defined in Article 1.14-2 <a policy lawfully
2-61 solicited, written, and delivered outside of this state covering
2-62 only subjects of insurance not resident, located or expressly to be
2-63 performed in this state at the time of issuance, and which
2-64 transactions are subsequent to the issuance of such policy>.
2-65 SECTION 6. Section 11, Article 1.14-1, Insurance Code, is
2-66 amended to read as follows:
2-67 Sec. 11. Unauthorized insurance premium tax. (a) Except as
2-68 to premiums on <lawfully procured surplus lines> insurance procured
2-69 by a licensed surplus lines agent from an eligible surplus lines
2-70 insurer as defined in Article 1.14-2 and premiums on independently
3-1 procured insurance on which a tax has been paid pursuant to this
3-2 Article or Article 1.14-2, every unauthorized insurer shall pay to
3-3 the State Board of Insurance before March 1 next succeeding the
3-4 calendar year in which the insurance was so effectuated, continued
3-5 or renewed a premium receipts tax of 4.85 percent of gross premiums
3-6 charged for such insurance on subjects resident, located or to be
3-7 performed in this state. Such insurance on subjects resident,
3-8 located or to be performed in this state procured through
3-9 negotiations or an application, in whole or in part occurring or
3-10 made within or from within or outside of this state, or for which
3-11 premiums in whole or in part are remitted directly or indirectly
3-12 from within or outside of this state, shall be deemed to be
3-13 insurance procured, or continued or renewed in this state. The
3-14 term "premium" includes all premiums, membership fees, assessments,
3-15 dues and any other consideration for insurance. Such tax shall be
3-16 in lieu of all other insurance taxes. On default of any such
3-17 unauthorized insurer in the payment of such tax the insured shall
3-18 pay the tax. If the tax prescribed by this subsection is not paid
3-19 within the time stated, the tax shall be increased by a penalty of
3-20 25 percent and by the amount of an additional penalty computed at
3-21 the rate of one percent per month or any part thereof from the date
3-22 such payment was due to the date paid.
3-23 (b) If a policy covers risks or exposures only partially in
3-24 this state, the tax payable shall be computed on the portions of
3-25 the premiums which are properly allocable to the risks or exposures
3-26 located in this state. In determining the amount of premiums
3-27 taxable in this state, all premiums written, procured, or received
3-28 in this state and all premiums on policies negotiated in this state
3-29 shall be deemed written on property or risks located or resident in
3-30 this state, except such premiums as are properly allocated or
3-31 apportioned and reported as taxable premiums of any other state or
3-32 states. Premiums on risks or exposures which are properly
3-33 allocated to federal waters, international waters or under the
3-34 jurisdiction of a foreign government shall not be considered
3-35 taxable by this state.
3-36 SECTION 7. Section 12, Article 1.14-1, Insurance Code, is
3-37 amended to read as follows:
3-38 Sec. 12. Independently procured insurance Tax. (a) Every
3-39 insured who procures insurance in accordance with Section 2(b)4 of
3-40 this Article must file a report with the State Board of Insurance
3-41 and pay an independently procured insurance tax of 4.85 percent.
3-42 (b) A report must be filed with the State Board of Insurance
3-43 within 60 days after the date the insurance was independently
3-44 procured. The report must be made in writing on forms provided by
3-45 the State Board of Insurance. The report must contain the name and
3-46 address of the insured or insureds, the name and address of the
3-47 insurer, the subject of the insurance, a general description of the
3-48 coverage, the amount of premium charged, and any additional
3-49 information which the State Board of Insurance requests.
3-50 (c) The report shall be filed and any tax due shall be paid
3-51 by the insured or by any other person designated by the insured.
3-52 <Every insured who procures or causes to be procured or continues
3-53 or renews insurance with any unauthorized insurer, or any insured
3-54 or self-insurer who so procures or continues excess loss,
3-55 catastrophe or other insurance, upon a subject of insurance
3-56 resident, located or to be performed within this state, other than
3-57 insurance procured through a surplus lines agent pursuant to the
3-58 surplus lines law of this state shall within 60 days after the date
3-59 such insurance was so procured, continued or renewed, file a report
3-60 of the same with the State Board of Insurance in writing and upon
3-61 forms designated by the State Board of Insurance and furnished to
3-62 such an insured upon request. The report shall show the name and
3-63 address of the insured or insureds, name and address of the
3-64 insurer, the subject of the insurance, a general description of the
3-65 coverage, the amount of premium currently charged therefor, and
3-66 such additional pertinent information as is reasonably requested by
3-67 the State Board of Insurance.>
3-68 <(b) Any insurance in an unauthorized insurer of a subject
3-69 of insurance resident, located or to be performed within this state
3-70 procured through negotiations or an application, in whole or in
4-1 part occurring or made within or from within or outside of this
4-2 state, or for which premiums in whole or in part are remitted
4-3 directly or indirectly from within or outside of this state, shall
4-4 be deemed to be insurance procured, or continued or renewed in this
4-5 state within the intent of Paragraph (a).>
4-6 <(c) There is hereby levied upon the obligation, chose in
4-7 action, or right represented by the premium charged for such
4-8 insurance, a premium receipts tax of 3.85 percent of gross premiums
4-9 charged for such insurance. The term "premium" shall include all
4-10 premiums, membership fees, assessments, dues and any other
4-11 consideration for insurance. Such tax shall be in lieu of all
4-12 other insurance taxes. The insured shall, before March 1 next
4-13 succeeding the calendar year in which the insurance was so
4-14 procured, continued or renewed, pay the amount of the tax to the
4-15 State Board of Insurance. In event of cancellation and rewriting
4-16 of any such insurance contract the additional premium for premium
4-17 receipts tax purposes shall be the premium in excess of the
4-18 unearned premium of the canceled insurance contract.>
4-19 (d) If a policy covers risks or exposures only partially in
4-20 this state, the tax payable shall be computed on the portions of
4-21 the premium which are properly allocable to the risks or exposures
4-22 located in this state. In determining the amount of premiums
4-23 taxable in this state, all premiums written, procured or received
4-24 in this state and all premiums on policies negotiated in this state
4-25 shall be deemed written on property or risks located or resident in
4-26 this state, except such premiums as are properly allocated or
4-27 apportioned and reported as taxable premiums of any other state or
4-28 states. Premiums on risks or exposures which are properly
4-29 allocated to federal waters, international waters or under the
4-30 jurisdiction of a foreign government shall not be taxable.
4-31 (e) If the insured fails to withhold from the premium the
4-32 amount of tax herein levied, the insured shall be liable for the
4-33 amount thereof and shall pay the same to the State Board of
4-34 Insurance within the time stated in Paragraph (c). If the tax
4-35 prescribed by this subsection is not paid within the time stated in
4-36 Paragraph (c), the tax shall be increased by a penalty of 25
4-37 percent and by the amount of an additional penalty computed at the
4-38 rate of one percent per month or any part thereof from the date
4-39 such payment was due to the date paid.
4-40 (f) The Attorney General, upon request of the State Board of
4-41 Insurance, shall proceed in the courts of this or any other state
4-42 or in any federal court or agency to recover such tax not paid
4-43 within the time prescribed in this section.
4-44 (g) This section shall not be construed or deemed to
4-45 abrogate or modify any provision of this Article. This section
4-46 does not apply as to individual life or individual disability
4-47 insurance.
4-48 SECTION 8. Section 1, Article 1.14-2, Insurance Code, is
4-49 amended to read as follows:
4-50 Sec. 1. Purpose. Insurance transactions which are entered
4-51 into by citizens of this state with eligible surplus lines
4-52 <unauthorized> insurers through a surplus lines agent as a result
4-53 of difficulty in obtaining coverage from licensed insurers are a
4-54 matter of public interest. The Legislature declares that such
4-55 transaction of surplus lines insurance is a subject of concern and
4-56 that it is necessary to provide for the regulation, taxation,
4-57 supervision and control of such transactions and the practices and
4-58 matters related thereto by requiring appropriate standards and
4-59 reports concerning the placement of such insurance; by imposing
4-60 requirements necessary to make such regulation and control
4-61 reasonably complete and effective; by providing orderly access to
4-62 eligible surplus lines insurers <that are not authorized to
4-63 transact the business of insurance in this state>; by insuring the
4-64 maintenance of fair and honest markets; by protecting the revenues
4-65 of this state; and by protecting licensed <authorized> insurers,
4-66 which under the laws of this state must meet strict standards as to
4-67 the regulation of the business of insurance and the taxation
4-68 thereof, from unfair competition by unauthorized insurers. In
4-69 order to properly regulate and tax such <unauthorized> insurance
4-70 placed in accordance with this Article within the meaning and
5-1 intent of P.L. 79-15 (1945), (Chap. 20, 1st Sess., S. 340), 59
5-2 Stat. 33, the Legislature herein provides an orderly method for the
5-3 <insuring> public of this state to effect insurance with eligible
5-4 surplus lines <unauthorized> insurers through qualified, licensed
5-5 and supervised surplus line agents in this state if coverage is not
5-6 available from duly licensed, regulated insurers conducting
5-7 business in this state and under reasonable and practical
5-8 safeguards so that such insurance coverage may be obtained by
5-9 residents of this state <to the extent that the coverage is not
5-10 procurable from duly licensed, regulated insurers conducting
5-11 business in this state>.
5-12 SECTION 9. Section 2(b), Article 1.14-2, Insurance Code, is
5-13 amended to read as follows:
5-14 (b) "Surplus lines insurer" means an unlicensed
5-15 <unauthorized> insurer deemed eligible pursuant to Section 8 of
5-16 this Article in which an insurance coverage is placed or may be
5-17 placed under this Article.
5-18 SECTION 10. Section 3(a), Article 1.14-2, Insurance Code, is
5-19 amended to read as follows:
5-20 (a) If insurance coverages of subjects resident, located or
5-21 to be performed in this state cannot be procured from licensed
5-22 insurers after diligent effort, such coverages, hereinafter
5-23 designated as surplus line insurance, may be procured from eligible
5-24 surplus lines <unauthorized> insurers subject to the following
5-25 conditions:
5-26 1. The insurance must be eligible for surplus lines
5-27 under Section 5.
5-28 2. The insurer must be an eligible surplus lines
5-29 insurer under Section 8.
5-30 3. The insurance must be placed through a licensed
5-31 Texas surplus lines agent resident in this state.
5-32 4. The other applicable provisions of this section
5-33 must be complied with.
5-34 SECTION 11. Section 4(a), Article 1.14-2, Insurance Code, is
5-35 amended to read as follows:
5-36 (a) An agent licensed by the state may not issue or cause to
5-37 be issued an insurance contract with an eligible surplus lines
5-38 <unauthorized> insurer, unless the agent possesses a current
5-39 surplus lines license issued by the State Board of Insurance.
5-40 SECTION 12. Sections 6(c) and (d), Article 1.14-2, Insurance
5-41 Code, are amended to read as follows:
5-42 (c) Within 60 days after the effective date or issue date,
5-43 whichever is later, <effectuation> of any new or renewal surplus
5-44 lines insurance contract, the surplus lines agent shall file with
5-45 the Surplus Lines Stamping Office of Texas evidence that a diligent
5-46 effort as defined in Section 5 of this Article has been performed
5-47 and a true and correct <State Board of Insurance an exact> copy of
5-48 the contract <policy> issued. If a contract <policy> has not been
5-49 issued, the surplus lines agent shall so file a true and correct
5-50 <an exact> copy of his certificate, cover note or other
5-51 confirmation of insurance as delivered to the insured. The surplus
5-52 lines agent shall likewise promptly file with the Surplus Lines
5-53 Stamping Office of Texas a true and correct <State Board of
5-54 Insurance an exact> copy of any substitute certificate, cover note
5-55 or other confirmation of insurance, and of every endorsement of an
5-56 original policy, certificate, cover note or other confirmation of
5-57 insurance, delivered to an insured, together with such surplus
5-58 lines agent's memorandum informing the Surplus Lines Stamping
5-59 Office of Texas <State Board of Insurance> as to the substance of
5-60 any change represented by such substitute certificate, cover note
5-61 or other confirmation, or of any such endorsement, as compared with
5-62 the coverage as originally placed or issued. Except, however, as
5-63 respects this Subsection (c), equivalent information may be filed
5-64 as required by the Board.
5-65 (d) No surplus lines agent shall deliver any such document,
5-66 or purport to insure or represent that insurance will be or has
5-67 been granted by any eligible surplus lines <unauthorized> insurer
5-68 unless he has prior written authority from the insurer for the
5-69 insurance, or has received information from the insurer in the
5-70 regular course of business that such insurance has been granted, or
6-1 an insurance policy providing the insurance actually has been
6-2 issued by the insurer and delivered to the insured.
6-3 SECTION 13. Sections 6A(a) and (c), Article 1.14-2,
6-4 Insurance Code, are amended to read as follows:
6-5 (a) There is hereby created a nonprofit association to be
6-6 known as the Surplus Lines Stamping Office of Texas. All surplus
6-7 lines agents shall as a condition of their holding a license as a
6-8 surplus lines agent in this state report to and file with the
6-9 stamping office a copy of each surplus lines insurance contract as
6-10 provided in the plan of operation adopted under Subsection (d) of
6-11 this section. The board may accept such filing in lieu of the
6-12 filings required under Subsection (b) <Subsections (a) and (c)> of
6-13 Section 6 of this article.
6-14 (c) The stamping office shall function through a board of
6-15 directors appointed by the State Board of Insurance. The board of
6-16 directors of the stamping office shall consist of 9 members, who
6-17 serve terms as established in the plan of operation. Four of the
6-18 members of the board of directors must represent the general public
6-19 and shall have a minimum of three years of experience in the
6-20 purchase of commercial insurance. A public representative may not
6-21 be:
6-22 (1) an officer, director, or employee of an insurance
6-23 company, insurance agency, agent, broker, solicitor, adjuster, or
6-24 any other business entity regulated by the State Board of
6-25 Insurance;
6-26 (2) a person required to register with the secretary
6-27 of state under Chapter 305, Government Code; or
6-28 (3) related to a person described by Subdivision (1)
6-29 or (2) of this subsection within the second degree of affinity or
6-30 consanguinity.
6-31 SECTION 14. Section 7, Article 1.14-2, Insurance Code, is
6-32 amended to read as follows:
6-33 Sec. 7. Requirements for surplus lines contracts.
6-34 (a) Every new or renewal insurance contract, certificate, cover
6-35 note or other confirmation of insurance procured and delivered as a
6-36 surplus line coverage pursuant to this Article shall bear the name
6-37 and address of the insurance agent who procured it and shall have
6-38 stamped or affixed upon it in 11-point type the following: "This
6-39 insurance contract is with an insurer not licensed to transact
6-40 insurance in this state and is issued and delivered as a surplus
6-41 line coverage pursuant to the Texas insurance statutes. The State
6-42 Board of Insurance does not audit the finances or review the
6-43 solvency of the surplus lines insurer providing this coverage, and
6-44 this insurer is not a member of the property and casualty insurance
6-45 guaranty association created under Article 21.28-C, Insurance Code.
6-46 Article 1.14-2, Insurance Code, requires payment of ______ (insert
6-47 appropriate tax rate) percent tax on gross premium."
6-48 (b) Such document shall show the description and location of
6-49 the subject of the insurance, coverage, conditions and term of the
6-50 insurance, the premium and rate charged and premium taxes to be
6-51 collected from the insured, and the name and address of the insured
6-52 and insurer. If the direct risk is assumed by more than one
6-53 insurer, the document shall state the name and address and
6-54 proportion of the entire direct risk assumed by each insurer.
6-55 (c) The insurer must be an eligible surplus lines insurer as
6-56 of the inception date and annual anniversary date of every
6-57 insurance contract, cover note, or other confirmation of insurance.
6-58 (d) An extension of a contract beyond its original
6-59 expiration date shall be subject to Section 7(a) and Section 8 of
6-60 this Article.
6-61 SECTION 15. Section 8, Article 1.14-2, Insurance Code, is
6-62 amended to read as follows:
6-63 Sec. 8. Eligibility of surplus lines insurers. (a) A
6-64 surplus lines agent shall not knowingly place surplus lines
6-65 insurance with financially unsound insurers. The surplus lines
6-66 agent shall make a reasonable effort to ascertain the financial
6-67 condition of the eligible surplus lines <unauthorized> insurer
6-68 before placing insurance therewith.
6-69 (b) No surplus lines agent shall place any coverage with an
6-70 <unauthorized> insurer unless the insurer has met the eligibility
7-1 requirements of this section and the stamping office provides
7-2 evidence that the insurer has met the requirements to the State
7-3 Board of Insurance. An <unauthorized> insurer shall not be an
7-4 eligible surplus lines insurer unless the insurer has a minimum
7-5 capital and surplus that are not less than the following amounts
7-6 for the following dates:
7-7 (1) $4.5 million capital and surplus as of December
7-8 31, 1991; or
7-9 (2) $6 million capital and surplus as of December 31,
7-10 1992.
7-11 (c) An <unauthorized> insurer may be exempt from the minimum
7-12 capital and surplus requirements provided by Subsection (b) of this
7-13 section if the Commissioner of Insurance finds, after public
7-14 hearing, that the exemption is warranted based on factors such as
7-15 quality of management, capital and surplus of any parent company,
7-16 company underwriting profit and investment income trends,
7-17 reinsurance contracts, company record and reputation within the
7-18 industry, and other information the commissioner requires to make a
7-19 determination.
7-20 (d) In addition to meeting the minimum capital and surplus
7-21 requirements provided by this section, an alien insurer must
7-22 provide evidence that it maintains in the United States an
7-23 irrevocable trust fund in a Federal Reserve System member bank in
7-24 an amount not less than $1.5 million for the protection of all its
7-25 policyholders in the United States and that the trust fund consists
7-26 of cash, securities, letters of credit, or investments of
7-27 substantially the same character and quality as those that are
7-28 eligible investments for the capital and statutory reserves of
7-29 authorized insurers licensed to write like kinds and classes of
7-30 insurance in this state.
7-31 (e) Instead of the minimum capital and surplus requirements
7-32 provided by this section, an unincorporated group of alien
7-33 individual insurers may maintain a trust fund in an amount not less
7-34 than $50 million as security to the full amount of the trust fund
7-35 for all policyholders and creditors in the United States of each
7-36 member of the group. Except as specifically otherwise provided by
7-37 this subsection, the trust fund must comply with the terms and
7-38 conditions provided by Subsection (d) of this section for the trust
7-39 fund required by that subsection.
7-40 (f) Every insurer<, as defined by Article 1.14-1,> proposing
7-41 to transact surplus lines insurance within this state shall hold a
7-42 current license or authority from its domiciliary state or country
7-43 to conduct the business of insurance. The license or authority
7-44 from the domiciliary state or country must be for the kind or class
7-45 of insurance to be written in this state as surplus lines
7-46 insurance, and satisfactory evidence that the insurer holds the
7-47 required license or authorization must be provided to the
7-48 Commissioner of Insurance.
7-49 (g) The <unauthorized> insurer must be of good repute and
7-50 provide reasonably prompt service to its policyholders in the
7-51 payment of just losses and claims.
7-52 (h) No <unauthorized> insurer shall be eligible if the
7-53 management is incompetent or untrustworthy, or so lacking in
7-54 insurance company managerial experience as to make its proposed
7-55 operation hazardous to the insurance-buying public; or if the State
7-56 Board of Insurance has good reason to believe that it is affiliated
7-57 directly or indirectly through ownership, control, reinsurance
7-58 transactions or other insurance or business relations, with any
7-59 person whose business operations are or have been detrimental to
7-60 policyholders, stockholders, investors, creditors or to the public.
7-61 (i) No <unauthorized> insurer shall be eligible if the
7-62 insurer or its agents have failed to submit to any fine or penalty
7-63 levied pursuant to statute. No <unauthorized> insurer shall be
7-64 eligible if the insurer is obligated to pay and has failed to pay
7-65 premium taxes in the state <required under Section 11 of Article
7-66 1.14-1>. The State Board of Insurance may order revocation of
7-67 insurance contracts issued by insurers that do not conform with the
7-68 eligibility requirements of this section.
7-69 (j) No new or renewal surplus lines insurance shall be
7-70 placed with any eligible surplus lines insurer which requires as a
8-1 condition precedent to writing such new or renewal insurance that
8-2 the prospective insured or the insured place other insurance not
8-3 procurable <eligible> as surplus lines insurance with such eligible
8-4 surplus lines insurer.
8-5 (k) This section shall not be deemed to cast upon the State
8-6 Board of Insurance any duty or responsibility to determine the
8-7 actual financial condition or claims practice of any unlicensed
8-8 insurer or any unauthorized insurer as defined in Article 1.14-1 of
8-9 this code.
8-10 (l) An <unauthorized> insurer is not an eligible surplus
8-11 lines insurer unless it is authorized to write the same coverage in
8-12 the jurisdiction in which the <unauthorized> insurer is licensed or
8-13 certificated to do business.
8-14 SECTION 16. Section 9, Article 1.14-2, Insurance Code, is
8-15 amended to read as follows:
8-16 Sec. 9. Validity of Contracts. (a) Insurance contracts
8-17 procured from an eligible surplus lines insurer <as surplus line
8-18 coverage from unauthorized insurers in accordance with this
8-19 Article> shall be fully valid and enforceable as to all parties,
8-20 and shall be given recognition in all matters and respects to the
8-21 same effect and extent as like contracts issued by licensed
8-22 <authorized> insurers unless there was a material and intentional
8-23 violation of this Article.
8-24 (b) In the event of a material and intentional violation of
8-25 this Article, the <A contract of insurance placed in effect by an
8-26 unauthorized insurer in violation of this Article is unenforceable
8-27 by the insurer. The> insured shall not be precluded from enforcing
8-28 his rights in accordance with the terms and provisions of such
8-29 contract.
8-30 SECTION 17. Section 12(a), Article 1.14-2, Insurance Code,
8-31 is amended to read as follows:
8-32 (a) The premiums charged for surplus lines insurance are
8-33 subject to a premium receipts tax of 4.85 percent of gross premiums
8-34 charged for such insurance. The term premium includes all
8-35 premiums, membership fees, assessments, dues or any other
8-36 consideration for insurance. Such tax shall be in lieu of all
8-37 other insurance taxes. The surplus lines agent shall collect from
8-38 the insured the amount of the tax at the time of delivery of the
8-39 cover note, certificate of insurance, policy or other initial
8-40 confirmation of insurance, in addition to the full amount of the
8-41 gross premium charged by the insurer for the insurance. No agent
8-42 shall absorb such tax nor shall any agent, as an inducement for
8-43 insurance or for any other reason, rebate all or any part of such
8-44 tax or his commission. The surplus lines agent shall report, under
8-45 oath, to the State Board of Insurance within 30 days from the 1st
8-46 day of January and July of each year the amount of gross premiums
8-47 paid for such insurance placed through him in nonlicensed insurers,
8-48 and shall pay to the Board the tax provided for by this Article.
8-49 If a surplus lines policy covers risks or exposures only partially
8-50 in this state, the tax payable shall be computed on the portions of
8-51 the premium which are properly allocable to the risks or exposures
8-52 located in this state. In determining the amount of premiums
8-53 taxable in this state, all premiums written, procured, or received
8-54 in this state and all premiums on policies negotiated in this state
8-55 shall be deemed written on property or risks located or resident in
8-56 this state, except such premiums as are properly allocated or
8-57 apportioned and reported as <taxable> premiums which may be subject
8-58 to taxation by <of> any other state or states or by a foreign
8-59 jurisdiction. Premiums on risks or exposures which are properly
8-60 allocated to federal waters, international waters or under the
8-61 jurisdiction of a foreign government shall not be taxable by this
8-62 state. In event of cancellation and rewriting of any surplus lines
8-63 insurance contract the additional premium for premium receipts tax
8-64 purposes shall be the premium in excess of the unearned premium of
8-65 the canceled insurance contract.
8-66 SECTION 18. Section 16, Article 1.14-2, Insurance Code, is
8-67 amended to read as follows:
8-68 Sec. 16. Annual Report of Surplus Lines Agent. Each surplus
8-69 lines agent shall, before March 1 in each year, make a report to
8-70 the Texas Department <State Board> of Insurance for the preceding
9-1 calendar year, on the form prescribed by it, of such facts as it
9-2 requires and including a showing that the amount of insurance
9-3 procured from such eligible surplus lines <unauthorized> insurer or
9-4 insurers is only the amount in excess of the amount procurable from
9-5 licensed insurers.
9-6 SECTION 19. Section 17, Article 1.14-2, Insurance Code, is
9-7 amended to read as follows:
9-8 Sec. 17. Penalty. Any violation of this Article shall
9-9 subject the surplus lines agent or eligible surplus lines insurer
9-10 to all of the provisions and sanctions contained in Section 7,
9-11 Article 1.10, of this Code.
9-12 SECTION 20. Section 17A(a), Article 1.14-2, Insurance Code,
9-13 is amended to read as follows:
9-14 (a) If a surplus lines agent or eligible surplus lines
9-15 insurer violates Section 8 or 9 of this article or a rule,
9-16 regulation, or order adopted under that provision, the State Board
9-17 of Insurance may assess a penalty against that agent or insurer as
9-18 provided by Section 7, Article 1.10, of this code.
9-19 SECTION 21. Section 7(c), Article 1.36, Insurance Code, is
9-20 amended to read as follows:
9-21 (c) In addition to service under Section 3 of this article
9-22 and Subsection (a) of this section, service of process, notice, or
9-23 demand on an unauthorized person or insurer is valid if served on
9-24 any person in this state who on behalf of that unauthorized person
9-25 or insurer is doing any act of an insurance business as provided by
9-26 Section 2 of Article 1.14-1 of this code. This section does not
9-27 apply to surplus lines insurers which were deemed eligible surplus
9-28 lines insurers pursuant to Article 1.14-2 of this code at the date
9-29 the applicable coverage was issued.
9-30 SECTION 22. Section 8(b), Article 1.36, Insurance Code, is
9-31 amended to read as follows:
9-32 (b) Any act of doing an insurance business as provided by
9-33 Section 2 of Article 1.14-1 of this code by any unauthorized person
9-34 or insurer is equivalent to and constitutes an irrevocable
9-35 appointment of the secretary of state by that person or insurer,
9-36 binding on him, his executor, administrator, or personal
9-37 representative or, if a corporation, successor in interest to be
9-38 the lawful attorney for service of that person or insurer. The
9-39 secretary of state may be served legal notice, order, pleading, or
9-40 other process in any proceeding described by Subsection (a) of this
9-41 section that arises out of doing an insurance business in this
9-42 state by that person or insurer. This section does not apply to
9-43 surplus lines insurers which were deemed eligible surplus lines
9-44 insurers pursuant to Article 1.14-2 of this code at the date
9-45 applicable coverage was issued.
9-46 SECTION 23. Section 11, Article 1.36, Insurance Code, is
9-47 amended by adding Subsection (d) to read as follows:
9-48 (d) This section does not apply to surplus lines insurers
9-49 which were deemed eligible surplus lines insurers pursuant to
9-50 Article 1.14-2 of this code at the date applicable coverage was
9-51 issued.
9-52 SECTION 24. Section 12, Article 1.36, Insurance Code, is
9-53 amended to read as follows:
9-54 Sec. 12. SERVICE OF PROCESS ON ELIGIBLE SURPLUS LINES
9-55 INSURERS. (a) <A surplus lines insurer may be sued on any cause
9-56 of action arising in this state under any surplus lines insurance
9-57 contract issued by it or under any certificate, cover note, or
9-58 other confirmation of that insurance issued by the surplus lines
9-59 agent, under the same procedure provided for unauthorized insurers
9-60 in Sections 3, 7, and 8 of this article.> Any act of doing an
9-61 insurance business by an eligible surplus lines insurance company
9-62 constitutes an irrevocable appointment of the Secretary of State by
9-63 that insurer binding on it and its successors in interest to be the
9-64 lawful attorney for service of that insurer. The Secretary of
9-65 State may be served with any process, notice, or demand arising out
9-66 of doing an insurance business in this state by that insurer,
9-67 except in an action, suit, or proceeding by the State Board of
9-68 Insurance or by the state.
9-69 (b) Any act of doing an insurance business by an eligible
9-70 surplus lines insurance company signifies the insurer's agreement
10-1 that legal process served under this section has the same legal
10-2 force and validity as personal service of process in this state on
10-3 that insurer or its successor in interest.
10-4 (c) <(b)> Any policy issued by the surplus lines insurer or
10-5 any certificate of insurance issued by the surplus lines agent must
10-6 contain a provision stating the substance of this section and
10-7 designating the Person to whom the commissioner is to mail process.
10-8 This address must be supplied by the plaintiff in the citation that
10-9 is served.
10-10 (d) <(c)> Each surplus lines insurer assuming a surplus
10-11 lines risk under this article is considered to have made itself
10-12 subject to the terms of this section.
10-13 (e) <(d)> This section is cumulative of any other methods
10-14 that may be provided by law for service of process on a surplus
10-15 lines insurer, including Section 3 of this article.
10-16 SECTION 25. This Act takes effect on September 1, 1993.
10-17 SECTION 26. The importance of this legislation and the
10-18 crowded condition of the calendars in both houses create an
10-19 emergency and an imperative public necessity that the
10-20 constitutional rule requiring bills to be read on three several
10-21 days in each house be suspended, and this rule is hereby suspended.
10-22 * * * * *
10-23 Austin,
10-24 Texas
10-25 May 22, 1993
10-26 Hon. Bob Bullock
10-27 President of the Senate
10-28 Sir:
10-29 We, your Committee on Economic Development to which was referred
10-30 H.B. No. 958, have had the same under consideration, and I am
10-31 instructed to report it back to the Senate with the recommendation
10-32 that it do not pass, but that the Committee Substitute adopted in
10-33 lieu thereof do pass and be printed.
10-34 Parker,
10-35 Chairman
10-36 * * * * *
10-37 WITNESSES
10-38 FOR AGAINST ON
10-39 ___________________________________________________________________
10-40 Name: Ted Hosterman x
10-41 Representing: Texas Surplus Lines Assn
10-42 City: Austin
10-43 -------------------------------------------------------------------
10-44 Name: Burnie Burner x
10-45 Representing:
10-46 City: Austin
10-47 -------------------------------------------------------------------
10-48 Name: Bob Huxel x
10-49 Representing: Ind. Insurance Agents of TX
10-50 City: Austin
10-51 -------------------------------------------------------------------
10-52 Name: William C. Marcoux x
10-53 Representing: Lloyds of London
10-54 City: Washington, D.C.
10-55 -------------------------------------------------------------------