By: Duncan S.B. No. 1697
(In the Senate - Filed March 11, 2005; March 30, 2005, read
first time and referred to Committee on Business and Commerce;
April 25, 2005, reported favorably by the following vote: Yeas 5,
Nays 0; April 25, 2005, sent to printer.)
A BILL TO BE ENTITLED
AN ACT
relating to the distinction between surplus lines insurance and
unauthorized insurance.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subsection (a), Section 101.001, Insurance Code,
is amended to read as follows:
(a) It is a state concern that many residents of this state
hold insurance policies issued by persons or insurers who are not
authorized to do insurance business in this state and who are not
qualified as eligible surplus lines insurers under Chapter 981
[Article 1.14-2]. These residents face often insurmountable
obstacles in asserting legal rights under the policies in foreign
forums under unfamiliar laws and rules of practice.
SECTION 2. Section 101.053, Insurance Code, is amended by
amending Subsection (b) and adding Subsection (d) to read as
follows:
(b) Sections 101.051 and 101.052 do not apply to:
(1) the lawful transaction of surplus lines insurance
[under Chapter 981];
(2) the lawful transaction of reinsurance by insurers;
(3) a transaction in this state that:
(A) involves a policy that:
(i) is lawfully solicited, written, and
delivered outside this state; and
(ii) covers, at the time the policy is
issued, only subjects of insurance that are not resident, located,
or expressly to be performed in this state; and
(B) takes place after the policy is issued;
(4) a transaction:
(A) that involves an insurance contract
independently procured by the insured from an insurance company not
authorized to do insurance business in this state through
negotiations occurring entirely outside this state;
(B) that is reported; and
(C) on which premium tax is paid in accordance
with Chapter 226;
(5) a transaction in this state that:
(A) involves group life, health, or accident
insurance, other than credit insurance, and group annuities in
which the master policy for the group was lawfully issued and
delivered in a state in which the insurer or person was authorized
to do insurance business; and
(B) is authorized by a statute of this state;
(6) an activity in this state by or on the sole behalf
of a nonadmitted captive insurance company that insures solely:
(A) directors' and officers' liability insurance
for the directors and officers of the company's parent and
affiliated companies;
(B) the risks of the company's parent and
affiliated companies; or
(C) both the individuals and entities described
by Paragraphs (A) and (B);
(7) the issuance of a qualified charitable gift
annuity under Chapter 102; or
(8) a lawful transaction by a servicing company of the
Texas workers' compensation employers' rejected risk fund under
Section 4.08, Article 5.76-2, as that article existed before its
repeal.
(d) For the purposes of Subsection (b)(1), "lawful
transaction of surplus lines insurance" means an insurance
transaction where the insurance is procured from an eligible
surplus lines insurer as defined by Section 981.002.
SECTION 3. Subsection (b), Section 101.201, Insurance Code,
is amended to read as follows:
(b) This section does not apply to [insurance procured by a
licensed surplus lines agent from an eligible surplus lines insurer
as defined by Chapter 981 and] independently procured contracts of
insurance, as described in Section 101.053(b)(4), that are reported
and on which premium tax is paid in accordance with Chapter [225 or]
226.
SECTION 4. Subsection (c), Section 101.203, Insurance Code,
is amended to read as follows:
(c) This section does not apply to:
(1) a transaction in this state that:
(A) involves a policy that:
(i) is lawfully solicited, negotiated,
written, and delivered outside this state; and
(ii) covers, at the time the policy is
issued, only subjects of insurance that are not resident, located,
or expressly to be performed in this state; and
(B) takes place after the policy is issued; or
(2) surplus lines insurance procured through an
eligible surplus lines insurer [carriers] as defined by Section
981.002 [Article 1.14-2].
SECTION 5. Subsection (b), Section 101.301, Insurance Code,
is amended to read as follows:
(b) This section does not apply to:
(1) a transaction described by Section 101.053(b)(4);
or
(2) surplus lines insurance procured through an
eligible surplus lines insurer [carriers] as defined by Section
981.002 [Article 1.14-2].
SECTION 6. Section 225.002, Insurance Code, is amended to
read as follows:
Sec. 225.002. APPLICABILITY OF CHAPTER. This chapter
applies only to a surplus lines agent who collects gross premiums
for surplus lines insurance.
SECTION 7. Section 226.002, Insurance Code, is amended to
read as follows:
Sec. 226.002. APPLICABILITY OF SUBCHAPTER. This subchapter
applies only to an unauthorized insurer who charges gross premiums
for insurance on a subject resident, located, or to be performed in
this state.
SECTION 8. Subsection (g), Section 226.003, Insurance Code,
is amended to read as follows:
(g) The following premiums are not subject to the tax
imposed by this subchapter:
(1) premiums on insurance procured [by a licensed
surplus lines agent] from an eligible surplus lines insurer as
defined by Section 981.002 [Chapter 981 on which premium tax is paid
in accordance with Chapter 225]; and
(2) premiums on an independently procured contract of
insurance on which premium tax is paid in accordance with
Subchapter B.
SECTION 9. Section 226.052, Insurance Code, is amended to
read as follows:
Sec. 226.052. APPLICABILITY OF SUBCHAPTER. This subchapter
applies only to an insured who procures an insurance contract in
accordance with Section 101.053(b)(4).
SECTION 10. Subdivision (1), Section 981.002, Insurance
Code, is amended to read as follows:
(1) "Eligible surplus lines insurer" means an insurer
that is not an unauthorized [authorized] insurer, but that is
eligible under Subchapter B, in which surplus lines insurance is
placed or may be placed under this chapter.
SECTION 11. Section 981.004, Insurance Code, is amended by
adding Subsection (c) to read as follows:
(c) An eligible surplus lines insurer is not an unauthorized
insurer and is not subject to Chapter 101.
SECTION 12. Section 981.005, Insurance Code, is amended to
read as follows:
Sec. 981.005. VALIDITY OF CONTRACTS. (a) Unless a
material and intentional violation of this chapter [or Section 12,
Article 1.14-2,] exists, an insurance contract obtained from an
eligible surplus lines insurer is:
(1) valid and enforceable as to all parties; and
(2) recognized in the same manner as a comparable
contract issued by an authorized insurer.
(b) A material and intentional violation of this chapter [or
Section 12, Article 1.14-2,] does not preclude the insured from
enforcing the insured's rights under the contract.
SECTION 13. Section 981.006, Insurance Code, is amended to
read as follows:
Sec. 981.006. SANCTIONS. Chapter 82 applies to a surplus
lines agent or an eligible surplus lines insurer that violates:
(1) this chapter;
(2) Chapter 225 [Section 12, Article 1.14-2]; or
(3) a rule or order adopted under Subchapter B or
Section 981.005.
SECTION 14. Section 981.008, Insurance Code, is amended to
read as follows:
Sec. 981.008. SURPLUS LINES INSURANCE PREMIUM TAX. The
premiums charged for surplus lines insurance are subject to the
premium tax imposed under Chapter 225 [Section 12, Article 1.14-2].
SECTION 15. Subsection (b), Section 981.101, Insurance
Code, is amended to read as follows:
(b) A surplus lines document must state, in 11-point type,
the following:
This insurance contract is with an insurer not licensed to
transact insurance in this state and is issued and delivered
as surplus line coverage under the Texas insurance statutes.
The Texas Department of Insurance does not audit the finances
or review the solvency of the surplus lines insurer providing
this coverage, and the insurer is not a member of the property
and casualty insurance guaranty association created under
Article 21.28-C, Insurance Code. Chapter 225 [Section 12,
Article 1.14-2], Insurance Code, requires payment of a
__________ (insert appropriate tax rate) percent tax on gross
premium.
SECTION 16. Subsection (b), Section 981.104, Insurance
Code, is amended to read as follows:
(b) A change made under Subsection (a) may not result in
coverage or an insurance contract that would violate this chapter
or Chapter 225 [Section 12, Article 1.14-2,] if originally issued
on that basis.
SECTION 17. Section 981.160, Insurance Code, is amended to
read as follows:
Sec. 981.160. NO ENFORCEMENT AUTHORITY. This subchapter
does not give the stamping office authority to enforce this chapter
or Chapter 225 [Section 12, Article 1.14-2].
SECTION 18. Section 981.056, Insurance Code, is repealed.
SECTION 19. This Act takes effect September 1, 2005.
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