81R10246 PMO-F

By: Carona S.B. No. 1551

A BILL TO BE ENTITLED

AN ACT

relating to the operation and regulation of certain consolidated insurance programs.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Title 2, Insurance Code, is amended by adding Subtitle C to read as follows:

SUBTITLE C. PROGRAMS AFFECTING MULTIPLE LINES OF INSURANCE

CHAPTER 151. CONSOLIDATED INSURANCE PROGRAMS

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 151.001. DEFINITIONS. In this chapter:

(1) "Administrator" means a person who operates and manages a consolidated insurance program on behalf of a principal. The term includes a person who, in the regular course of business, operates and manages a consolidated insurance program as an agent of a principal.

(2) "Consolidated insurance program" means a program under which a principal provides general liability insurance coverage, workers' compensation insurance coverage, or both that are incorporated into an insurance program for a single construction project or multiple construction projects.

(3) "Construction project" means construction, remodeling, maintenance, or repair of improvements to real property, including the immediate construction location and areas incidental and necessary to the work as defined in a construction document. A construction project under this chapter does not include a single-family home, duplex, triplex, or quadruplex.

(4) "Contractor" means a person enrolled in the consolidated insurance program who has entered into a construction contract or a professional services contract.

(5) "Insurer" means an insurance company, including a mutual insurance company or a capital stock company, a reciprocal or interinsurance exchange, a Lloyd's plan, or another legal entity authorized to engage in the business of general liability insurance or workers' compensation insurance in this state. The term includes an eligible surplus lines insurer.

(6) "Principal" means the person who procures the insurance contract or policy and who is typically the first-named insured on a general liability insurance contract or policy.

Sec. 151.002. RULES. The commissioner shall adopt rules in the manner provided by Subchapter A, Chapter 36, as necessary to implement and enforce the purpose and intent of this chapter.

[Sections 151.003-151.050 reserved for expansion]

SUBCHAPTER B. GENERAL REQUIREMENTS

Sec. 151.051. COVERAGE OF CONTRACTORS. (a) Each contractor on a construction project covered by a consolidated insurance program must:

(1) be included as a named insured on each insurance policy under the program; and

(2) have equal rights under the policy with the principal and other contractors, subject to insurance industry standard differences between a first-named insured and a named insured.

(b) Subsection (a) does not apply to a policy or contract that is issued individually in the name of the contractor as the first-named insured under a consolidated insurance program.

(c) The principal or a contractor may not require, by contract or otherwise, another contractor to obtain an additional insured endorsement on the other contractor's separately maintained insurance policy with respect to a construction project covered under a consolidated insurance program that is of the same type of insurance coverage as the insurance coverage provided to the other contractor by the consolidated insurance program, other than an insurance policy covering offsite work for ongoing operations related to the project and not covered by the consolidated insurance program. Such a requirement is void and unenforceable.

(d) The coverages under the consolidated insurance program must be primary and noncontributory to any insurance policy separately maintained by a contractor covered by the consolidated insurance program that is of the same general type as the insurance coverages provided by the consolidated insurance program.

Sec. 151.052. DURATION OF GENERAL LIABILITY COVERAGE; CERTAIN COVERAGE REQUIRED. (a) Except as provided by Subsection (b), a consolidated insurance program that provides completed operations insurance coverage separate from or together with general liability coverage must continue completed operations insurance coverage until the expiration of the limitations period for bringing an action for damages under Section 16.009, Civil Practice and Remedies Code.

(b) A consolidated insurance program may not provide completed operations insurance coverage for a period shorter than the limitations period under Section 16.009, Civil Practice and Remedies Code, unless the commissioner determines that the coverage is not available in the insurance market. If the commissioner determines that the coverage is not available, the commissioner shall determine the maximum period that the coverage is available, and the consolidated insurance program must provide coverage for that period. The commissioner shall make a determination under this subsection by rule as the commissioner finds necessary or on a request of an insurer, administrator, or principal.

(c) A consolidated insurance program must include premises liability coverage, for 18 months after the date of substantial completion of the construction project, for ongoing operations for the contractor's warranty work, remedial work, or other work on a construction project covered by the consolidated insurance program.

(d) A contractor's separately maintained insurance policy must include coverage for ongoing operations of the contractor for:

(1) preconstruction services and initial construction work related to the project performed prior to the date of coverage for the contractor under the consolidated insurance program; and

(2) warranty work, remedial work, or other work on a construction project covered by a consolidated insurance program that occurs after the coverage required under Subsection (c) has ended.

(e) The consolidated insurance program must provide completed operations coverage for specially fabricated materials or equipment if the installer of the fabricated materials is covered under the program and fabricated the materials or equipment.

Sec. 151.053. NOTICE OF CERTAIN CHANGES. (a) Except as provided by Subsection (g), the insurer may not reduce coverage, nonrenew coverage, or cancel coverage, or change the limits under a consolidated insurance program except for:

(1) nonpayment of premium;

(2) failure to comply with safety standards required by the program;

(3) failure of the principal to disclose relevant and material information on the date on which the parties entered the contract for the consolidated insurance program; or

(4) the provision of materially misleading or false information to an insurer before the date on which the parties entered the contract for the consolidated insurance program.

(b) Except as provided by Subsection (c), after work covered by the consolidated insurance program has begun, the coverages or limits under the consolidated insurance program may not be reduced, nonrenewed, or canceled under Subsection (a) without written notice provided to the principal and all contractors. The notice required under this subsection must be provided by the insurer or administrator not later than the 60th day before the effective date of the reduction, nonrenewal, or cancellation.

(c) A notice to cancel coverage due to nonpayment of premium is effective only after written notice is provided to the principal and all contractors at least 10 days before the scheduled effective date of the cancellation due to nonpayment of premium.

(d) The insurer or administrator shall notify each contractor in writing if any coverage or limit is reduced, nonrenewed, or canceled. The notice under this subsection must be sent not later than the effective date of the reduction, nonrenewal, or cancellation of coverage.

(e) If an insurer fails to comply with this section, a reduction, nonrenewal, or cancellation is not effective until the insurer complies with this section.

(f) If the insurer gives notice of cancellation based on one of the grounds listed in Subdivision (a)(1) or (a)(2), the principal shall have a reasonable opportunity to pay the premium due or to fulfill the principal's obligation under the consolidated insurance program.

(g) This section does not apply to a reduction in limits due to an insurer incurring losses or expenses for a claim made under the policy.

Sec. 151.054. NOTICE REGARDING REDUCTION IN LIMIT. (a) The principal shall notify all contractors in writing not later than the 10th day after the date the total limit of liability for any type of coverage issued under the consolidated insurance program is reduced by:

(1) 50 percent; and

(2) each additional 25 percentage point reduction after the initial 50 percent reduction.

(b) The reduction in the limit under Subsection (a) shall be computed based on incurred losses and expenses.

(c) The notice under Subsection (a) must describe:

(1) the initial limit of liability coverage; and

(2) the limit of liability coverage that remains as of the notice date.

(d) If the limits of a policy have been expended, triggering the limits of another policy, the notice under Subsection (a) is required only if the combined limit of all policies providing the coverage has been reached.

Sec. 151.055. INSURER REQUIREMENTS; INSURER RATINGS. (a) All insurance coverages under a consolidated insurance program for a construction project must be provided by an insurer that has:

(1) a financial strength rating of at least A- and a financial size rating of at least Class VII, as currently reported by the A. M. Best Company; or

(2) an equivalent rating made by a similar rating organization recognized by the commissioner.

(b) Insurance policies providing coverage under the consolidated insurance program shall be delivered to the first-named insured not later than the 30th day after the date on which the coverage takes effect.

(c) The requirements of this section must be maintained for the duration of the construction project.

Sec. 151.056. DUTY AND COMPLIANCE BY PRINCIPAL. (a) A principal under a consolidated insurance program owes a duty to each contractor covered under the consolidated insurance program to comply with the requirements of this chapter.

(b) The duty includes:

(1) paying the premium for the insurance coverage; and

(2) securing replacement insurance that meets the requirements of this chapter, or reimbursing an enrolled contractor for the cost of replacement insurance that meets the requirements of this chapter, if the insurer of the consolidated insurance program fails to provide the coverage under the program.

Sec. 151.057. CONTRACTOR INSURANCE. This chapter, or a requirement of a contract entered into under this chapter, may not be construed as preventing a contractor from obtaining any insurance coverage not provided by the consolidated insurance program to protect the contractor or the construction project.

Sec. 151.058. INDEMNITY AND SUBROGATION. (a) Rights under an indemnity or hold harmless provision between a principal and contractor or between contractors for claims or events insured under a consolidated insurance program are limited to rights to recover only under the consolidated insurance program.

(b) An insurer providing coverage under the consolidated insurance program does not have subrogation rights against a contractor or against any insurance policy of the principal or contractor for losses paid under the consolidated insurance program.

Sec. 151.059. DEFENSE COVERAGE FOR CLAIM OR SUIT. (a) In a lawsuit or arbitration proceeding that is covered by the consolidated insurance program, an insurance policy under the program must provide coverage for the defense of each contractor. This coverage may be provided by a joint defense provision under the program or by separate agreement among the affected contractors.

(b) Defense costs for a contractor under Subsection (a) may not be included in the limit of liability of an insurance policy under the consolidated insurance program if the defense costs for the principal are not included in the limit of liability.

Sec. 151.060. LIMITED EXCEPTION TO RATING STANDARDS. Sections 2053.002 and 2251.052, Insurance Code, and Section 1, Chapter 50 (H.B. 32), Acts of the 53rd Legislature, Regular Session, 1953 (Article 5.77, Vernon's Texas Insurance Code), do not apply to rates used for an insurance policy issued under a consolidated insurance program under this chapter to the extent that those laws require an insurer to produce rates for individual risks.

Sec. 151.061. PAYMENT OF CERTAIN DEDUCTIBLES, LOSSES, OR PENALTIES. (a) A principal shall pay any:

(1) coverage deductible, self-insured retention, or loss in a retrospective rating plan or other loss-sensitive rating plan under a consolidated insurance program;

(2) penalty incurred under the program; and

(3) deductible or self-insured retention applicable to any policy provided under the consolidated insurance program, except as provided by Subsection (b).

(b) A principal may not assess a contractor covered under the consolidated insurance program for a deductible, self-insured retention, loss, or penalty described by Subsection (a), except for a property damage claim deductible or self-insured retention if:

(1) the action of the contractor caused the property damage claim; and

(2) the insurance carrier assesses the deductible or self-insured retention against the principal.

(c) If the principal fails to pay a deductible, self-insured retention, penalty or other item required of the principal by this section, a contractor covered under the program may not be required to pay the deductible, self-insured retention, penalty or other item required of the principal.

[Sections 151.062-151.100 reserved for expansion]

SUBCHAPTER C. COVERAGE LIMITS

Sec. 151.101. GENERAL REQUIREMENTS. Subject to Section 151.052, aggregate and per-occurrence limits of all general liability insurance and employer liability coverages under a consolidated insurance program apply collectively to all contractors under the program for the duration of each construction project covered by the program.

Sec. 151.102. LIMITS. (a) Except as provided by Subsection (b), for a construction project the general liability limit must be not less than $25 million.

(b) For a construction project covered by a rolling consolidated insurance program, the general liability limit must be not less than $50 million.

(c) For employer liability coverage under a consolidated insurance program, the per-occurrence liability limit may not be less than the applicable general liability limits. Any umbrella or excess policy limits provided under the consolidated insurance program shall extend to a principal's or contractor's employer liability coverage regardless of whether that employer liability coverage is provided under the consolidated insurance program or by the principal's or contractor's separately maintained policy.

[Sections 151.103-151.150 reserved for expansion]

SUBCHAPTER D. DISCLOSURE REQUIREMENTS FOR

ADMINISTRATION OF CONSOLIDATED INSURANCE PROGRAM

Sec. 151.151. REQUIRED DISCLOSURE AT BID SOLICITATION. (a) At the time a principal or contractor is soliciting bids for a construction project that may be covered by a consolidated insurance program, the principal or contractor must disclose prominently in the project specifications, or in any request for bids or proposals, that the project may be covered by a consolidated insurance program subject to this chapter.

(b) The disclosure must be sufficient to:

(1) allow the bidder to compare the bidder's own insurance program with the coverages, limits, and operation of the consolidated insurance program; and

(2) accurately predict the credits, deductibles, or other costs to the bidder associated with the program.

Sec. 151.152. REQUIRED PRECONTRACT DISCLOSURE. Not later than the 14th day before the date on which a principal or contractor executes a contract for a construction project covered by a consolidated insurance program, the principal or contractor that solicited the bid must make a written disclosure to the contractor that contains detailed information concerning the consolidated insurance program.

[Sections 151.153-151.200 reserved for expansion]

SUBCHAPTER E. PROGRAM ADMINISTRATION

Sec. 151.201. ADMINISTRATOR. Each principal shall appoint a qualified administrator for the consolidated insurance program whose primary duty is administration of the program.

Sec. 151.202. POWERS AND DUTIES OF ADMINISTRATOR. (a) An administrator shall comply in a timely manner with the requirements of this section.

(b) The administrator shall administer the enrollment of all contractors covered by the consolidated insurance program as necessary to ensure prompt coverage, effective on the date that the contractor begins work on the construction project.

(c) The administrator shall:

(1) maintain a current consolidated insurance program manual that contains a detailed description of the consolidated insurance program;

(2) provide all contractors with a current copy of the manual that is consistent with the insurance provided and the scope of the program:

(A) on the date of the contractor's enrollment in the program; and

(B) not later than the 10th day after any changes are made to the manual; and

(3) provide each contractor on the date of the contractor's enrollment in the program with a certificate that evidences the contractor's coverage under the program.

(d) In addition to the certificate provided under Subsection (c)(3), the administrator shall obtain from the insurer or a licensed agent of the insurer and deliver a certificate of insurance on behalf of a contractor to evidence the coverages and limits provided by the consolidated insurance program not later than the 10th day after receipt of a request from a contractor.

(e) If the insurer has issued insurance policies, the administrator shall ensure that each contractor receives insurance policies, or renewal certificates for previously issued policies, for all coverages provided by the consolidated insurance program not later than the earlier of:

(1) the 30th day after the date the contractor is enrolled in the program; or

(2) the date the contractor begins work on the project.

(f) The administrator may comply with the requirements of Subsection (e) by providing access to the documents on its Internet website or by electronic transmission to the contractor. If the contractor expressly requests that the items be provided in written form, the administrator shall provide the items in written form to the contractor.

(g) The administrator shall coordinate:

(1) any regular reporting required of a contractor and any audits required of a contractor;

(2) all meetings with the insurer, whether with the principal, a contractor, or any other party; and

(3) availability of any on-site medical facilities or other mandatory initial medical care providers and contact information for contractors.

(h) The administrator shall disseminate to all contractors clear procedures for proper filing of claims under the consolidated insurance program.

(i) The administrator shall ensure that:

(1) all insurance coverages provided by the consolidated insurance program are maintained; and

(2) all contractors are notified in writing promptly of any changes or cancellation in coverages provided by the consolidated insurance program.

(j) The administrator shall monitor the financial standing of the insurer as provided by Section 151.055 and shall provide written notice to the principal and all contractors of any significant negative change not later than the 10th day after the date of the negative change. This subsection may not be interpreted to mean that the principal or administrator is a guarantor of the insurer's obligations under an insurance policy.

(k) The administrator shall provide oversight and coordinate the filing of claims for the principal and any affected contractor until:

(1) the construction project is completed;

(2) the coverage periods have expired; and

(3) the claims are resolved.

(l) Before the date on which the operation of the consolidated insurance program and administration of the program is closed, the administrator shall provide to the principal and each contractor a written notice that contains the contact person's name, company name, mailing address, telephone number, facsimile number, and electronic mail address, and any other necessary contact information of the person and company responsible for any closed, open, or future claims under the coverages provided by the consolidated insurance program.

(m) For purposes of this chapter and insurance benefits under the consolidated insurance program, the administrator owes a duty to the principal and each contractor that participates in the program to comply with the requirements of this chapter.

Sec. 151.203. ERRORS AND OMISSIONS COVERAGE REQUIRED; PRINCIPAL RESPONSIBLE. (a) The administrator shall maintain errors and omissions insurance coverage in the minimum amount of $5 million per occurrence for any liability of the administrator under this chapter.

(b) The principal may not require the contractor to indemnify, hold harmless, or defend the principal or administrator for the acts or omissions of the administrator. Any such requirements shall be void and against public policy.

[Sections 151.204-151.250 reserved for expansion]

SUBCHAPTER F. ACCESS TO INFORMATION

Sec. 151.251. ACCESS TO RECORDS. The principal shall provide access to information, including electronic records, relating to the consolidated insurance program to all contractors covered by the program until the second anniversary of the expiration of any applicable statute of repose.

[Sections 151.252-151.300 reserved for expansion]

SUBCHAPTER G. ENFORCEMENT PROVISIONS

Sec. 151.301. GENERAL ENFORCEMENT; ADMINISTRATIVE PENALTIES. The commissioner may impose a sanction under Chapter 82, issue a cease and desist order under Chapter 83, or assess an administrative penalty under Chapter 84 on any person regulated by the department who violates this chapter or a rule or order adopted by the commissioner under this chapter.

[Sections 151.302-151.350 reserved for expansion]

SUBCHAPTER H. VENUE

Sec. 151.351. VENUE. Venue for a suit brought under this chapter is in the county in which the construction project is located.

[Sections 151.352-151.400 reserved for expansion]

SUBCHAPTER I. NONWAIVER

Sec. 151.401. NONWAIVER. A provision of this chapter may not be waived by contract or otherwise.

SECTION 2. Chapter 151, Insurance Code, as added by this Act, applies only to a new or renewed consolidated insurance program for a construction project that begins on or after January 1, 2010. A consolidated insurance program for a construction project that begins before January 1, 2010, is governed by the law as it existed immediately before the effective date of this Act, and that law is continued in effect for that purpose.

SECTION 3. This Act takes effect September 1, 2009.