Law:Title 6. Organization Of Insurers And Related Entities. Subtitle I. Companies That Are Not Organized In Texas (Texas)

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Subtitle I. Companies That Are Not Organized In Texas

Contents

Chapter 981. Surplus Lines Insurance

Subchapter A. General Provisions

Section  981.001.  Purpose.

(a) An insurance transaction that is entered into by a resident of this state with an eligible surplus lines insurer through a surplus lines agent because of difficulty in obtaining coverage from an authorized insurer is a matter of public interest.

(b)  The transaction of surplus lines insurance is a subject of concern and it is necessary to provide for the regulation, taxation, supervision, and control of these transactions and the practices and matters related to these transactions by:

(1)  requiring appropriate standards and reports concerning the placement of surplus lines insurance;

(2)  imposing requirements necessary to make regulation and control of surplus lines insurance reasonably complete and effective;

(3)  providing orderly access to eligible surplus lines insurers;

(4)  ensuring the maintenance of fair and honest markets;

(5)  protecting the revenues of this state; and

(6)  protecting authorized insurers, which under the laws of this state must meet strict standards relating to the regulation and taxation of the business of insurance, from unfair competition by unauthorized insurers.

(c)  To regulate and tax surplus lines insurance placed in accordance with this chapter within the meaning and intent of 15 U.S.C. Section 1011, this chapter provides an orderly method for the residents of this state to effect insurance with eligible surplus lines insurers through qualified, licensed, and supervised surplus lines agents in this state, if coverage is not available from authorized and regulated insurers engaged in business in this state, under reasonable and practical safeguards.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.002.  Definitions.

In this chapter:

(1)  "Eligible surplus lines insurer" means an insurer that is not an authorized insurer, but that is eligible under Subchapter B, in which surplus lines insurance is placed or may be placed under this chapter.

(2)  "Stamping office" means the Surplus Lines Stamping Office of Texas.

(3)  "Surplus lines agent" means an agent licensed under Subchapter E to procure an insurance contract from a surplus lines insurer.

(4)  "Surplus lines insurance" means insurance coverage:

(A)  for a subject that is resident, located, or to be performed in this state; and

(B)  that may be placed, in accordance with this chapter, with an eligible surplus lines insurer.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.003.  Applicability Of Chapter.

This chapter applies to insurance:

(1)  of a subject that is resident, located, or to be performed in this state; and

(2)  that is obtained, continued, or renewed through:

(A)  negotiations or an application wholly or partly occurring or made within or from within this state; or

(B)  premiums wholly or partly remitted directly or indirectly from within this state.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.004.  Surplus Lines Insurance Authorized.

(a) An eligible surplus lines insurer may provide surplus lines insurance only if:

(1)  the full amount of required insurance cannot be obtained, after a diligent effort, from an insurer authorized to write and actually writing that kind and class of insurance in this state;

(2)  the insurance is placed through a surplus lines agent; and

(3)  the insurer meets the eligibility requirements of Subchapter B as of the inception date and annual anniversary date of each insurance contract, cover note, or other confirmation of insurance.

(b)  An eligible surplus lines insurer may provide surplus lines insurance only in the amount that exceeds the amount of insurance obtainable from authorized insurers.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section 981.005.  Validity Of Contracts.

(a) Unless a material and intentional violation of this chapter or Chapter 225 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 Chapter 225 does not preclude the insured from enforcing the insured's rights under the contract.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch. 730, Sec. 2E.125, eff. April 1, 2009.



Section 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; or

(3)  a rule or order adopted under Subchapter B or Section 981.005.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch. 730, Sec. 2E.126, eff. April 1, 2009.



Section  981.007.  Liability Of Surplus Lines Insurer For Losses And Unearned Premiums.

(a) This section applies if:

(1)  an eligible surplus lines insurer has assumed a risk under this chapter; and

(2)  the surplus lines agent who placed the insurance has received the premium for that risk.

(b)  If a coverage question between the eligible surplus lines insurer and the insured arises regarding the assumed risk, the insurer is considered to have received the premium due for that coverage.

(c)  The eligible surplus lines insurer is liable to the insured for any:

(1)  loss covered by the insurance; and

(2)  unearned premium payable to the insured on cancellation of the insurance.

(d)  This section applies without regard to whether the surplus lines agent is indebted to the insurer regarding the insurance or for any other cause.

(e)  An eligible surplus lines insurer that assumes a risk under this chapter subjects itself to this section.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section 981.008.  Surplus Lines Insurance Premium Tax.

The premiums charged for surplus lines insurance are subject to the premium tax imposed under Chapter 225.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch. 730, Sec. 2E.127, eff. April 1, 2009.



Section  981.009.  Rules.

The commissioner may adopt rules to implement this chapter or satisfy requirements under federal law or regulations.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003. Amended by Acts 2003, 78th Leg., ch. 1276, Sec. 10A.228(a), eff. Sept. 1, 2003.



Subchapter B. Eligibility Requirements For Surplus Lines Insurers

Section  981.051.  Authorization Required.

(a) Before an insurer may issue surplus lines insurance, the insurer must hold an authorization to engage in the business of insurance from its domiciliary state or country.

(b)  The authorization from the domiciliary state or country must be for the same kind or class of insurance to be written in this state as surplus lines insurance.

(c)  The surplus lines insurer must provide to the commissioner satisfactory evidence that the insurer holds the authorization.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.052.  Good Reputation And Prompt Service Required.

To issue surplus lines insurance, an insurer must have a good reputation and provide reasonably prompt service to its policyholders in the payment of just losses and claims.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.053.  Competence, Trustworthiness, And Experience Required.

An insurer may not issue surplus lines insurance if:

(1)  the insurer's management is:

(A)  incompetent or untrustworthy; or

(B)  so lacking in insurance company managerial experience as to make the insurer's proposed operation hazardous to the insurance-buying public; or

(2)  the commissioner has good reason to believe that the insurer is affiliated directly or indirectly, through ownership, control, reinsurance transactions, or other insurance or business relations, with a person whose business operations are or have been detrimental to policyholders, shareholders, investors, creditors, or the public.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.054.  Certain Preconditions Not Allowed.

An eligible surplus lines insurer may not require as a condition precedent to writing new or renewal surplus lines insurance that the insured or prospective insured place with the insurer other insurance that is not obtainable as surplus lines insurance.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.055.  Failure To Pay Penalty.

An insurer may not issue surplus lines insurance if the insurer or its agents have failed to pay a statutory penalty imposed on the insurer or its agents.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.056.  Failure To Pay Premium Taxes.

An insurer may not issue surplus lines insurance if the insurer is obligated to pay a premium tax in this state and has not paid the tax.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.057.  Minimum Capital And Surplus Requirements.

(a) Except as provided by Subsection (b), an eligible surplus lines insurer must maintain capital and surplus in an amount of at least $15 million.

(b)  If an eligible surplus lines insurer is an insurance exchange created by the laws of another state:

(1)  the syndicates of the exchange must maintain under terms acceptable to the commissioner capital and surplus, or the equivalent under the laws of the exchange's domiciliary jurisdiction, in an amount of at least $75 million in the aggregate;

(2)  the exchange must maintain under terms acceptable to the commissioner at least 50 percent of the policyholder surplus of each individual syndicate in a custodial account accessible to the exchange or the exchange's domiciliary commissioner in the event of insolvency or impairment of the individual syndicate; and

(3)  an individual syndicate, to be eligible to accept surplus lines insurance placements from this state as an exchange member, must maintain under terms acceptable to the commissioner capital and surplus, or the equivalent under the laws of the exchange's domiciliary jurisdiction, in the amount of at least:

(A)  $5 million, if the syndicate is a member of an insurance exchange that maintains at least $15 million for the protection of all exchange policyholders; or

(B)  the greater of:

(i)  the minimum capital and surplus of the exchange's domiciliary jurisdiction; or

(ii)  $15 million.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.058.  Alien Insurers: Trust Fund Requirement.

In addition to meeting the minimum capital and surplus requirements prescribed by Section 981.057, an alien surplus lines insurer must provide evidence that:

(1)  the insurer maintains in the United States an irrevocable trust fund in a Federal Reserve System member bank in an amount of at least $5.4 million for the protection of all its policyholders in the United States; and

(2)  the trust fund consists of:

(A)  cash;

(B)  securities;

(C)  letters of credit; or

(D)  investments of substantially the same character and quality as those that are eligible investments for the capital and statutory reserves of an insurer authorized to write similar kinds and classes of insurance in this state.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.059.  Alternative For Certain Insurer Groups.

(a) This section applies only to an insurer group that includes unincorporated individual insurers.

(b)  Instead of the minimum capital and surplus requirements prescribed by Section 981.057, an insurer group may maintain a trust fund in an amount of at least $50 million as security to the full amount of the trust fund for all policyholders and creditors in the United States of each group member.

(c)  Except as provided by this section, the trust fund must comply with the terms specified by Section 981.058 for the trust fund required by that section.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.060.  Exemption Due To Minimum Premium Level.

(a) The commissioner by rule shall exempt an eligible surplus lines insurer from the minimum capital and surplus requirements prescribed by Section 981.057 if the insurer writes less than a minimum level of insurance premium in this state.

(b)  The rules must specify the minimum level of insurance premium.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.061.  Exemption Due To Certain Insurer Characteristics.

The commissioner may exempt an eligible surplus lines insurer from the minimum capital and surplus requirements prescribed by Section 981.057 if the commissioner determines, after a hearing, that the exemption is warranted based on factors such as:

(1)  the insurer's quality of management;

(2)  the capital and surplus of a parent company;

(3)  the insurer's underwriting profit and investment income trends;

(4)  the insurer's reinsurance contracts;

(5)  the insurer's record and reputation in the industry; and

(6)  any other information the commissioner requires to make a determination.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.062.  Exemption Due To Size Of Insurer And Other Factors.

(a) The commissioner may exempt an eligible surplus lines insurer from the minimum capital and surplus requirements prescribed by Section 981.057 if the commissioner determines, after a hearing, that the insurer complies with the following requirements:

(1)  the insurer has capital and surplus in an amount of at least $6 million;

(2)  the amount of net risk retained by the insurer after ceding to a reinsurer is reasonable and does not exceed 10 percent of the insurer's capital and surplus;

(3)  the annual ratio of net written premiums to surplus of the insurer does not exceed 2.5 to 1;

(4)  the insurer's reinsurance company is rated at least "B+" by the A. M. Best Company;

(5)  the ownership interest in the insurer of an agent who places insurance with the insurer does not exceed 10 percent;

(6)  the insurer's managing head, officers, or directors have sufficient insurance ability, standing, and good record to make probable the continued success of the insurer;

(7)  the composition, quality, duration, and liquidity of the insurer's investment portfolio are prudent;

(8)  the insurer is audited annually by an independent certified public accountant who is in good standing with the American Institute of Certified Public Accountants and is licensed to practice by the Texas State Board of Public Accountancy, and a copy of the audit is filed with the commissioner;

(9)  the number and type of complaints against the insurer are not excessive in relation to the number of insurance policies written by the insurer; and

(10)  the insurer is acting in good faith in requesting an exemption.

(b)  The commissioner may waive any of the requirements applicable to an insurer under Subsection (a) if, in the commissioner's judgment, a waiver would not adversely affect the insurer's policyholders.

(c)  The commissioner may annually renew the exemption if the eligible surplus lines insurer certifies each year that the insurer continues to comply with the requirements under Subsection (a).

(d)  The commissioner may hold a hearing at any time to determine if the continued exemption is warranted.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.063.  Commissioner Or Department Not Responsible For Determining Unauthorized Insurer's Financial Condition Or Claims Practices.

This subchapter does not impose on the commissioner or department a responsibility to determine the actual financial condition or claims practices of an unauthorized insurer as described by Chapter 101.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.064.  Commissioner May Order Revocation Of Contracts.

The commissioner may order the revocation of an insurance contract issued by an eligible surplus lines insurer that does not meet the eligibility requirements of this subchapter.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.065.  Applicability To Contract Extension.

This subchapter and Sections 981.101(b), 981.210, and 981.211 apply to an extension of an insurance contract beyond its original expiration date.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Subchapter C. Requirements And Procedures For Issuance Of Surplus Lines Documents

Section  981.101.  Requirements For Surplus Lines Documents.

(a) In this section, "surplus lines document" means each new or renewal insurance contract, certificate, cover note, or other confirmation of insurance obtained and delivered as surplus line coverage under this chapter.

(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 Chapter 462, Insurance Code.  Chapter 225, Insurance Code, requires payment of a __________ (insert appropriate tax rate) percent tax on gross premium.

(c)  A surplus lines document must show:

(1)  the description and location of the subject of the insurance;

(2)  the coverage, conditions, and term of the insurance;

(3)  the premium and rate charged, and premium taxes to be collected from the insured;

(4)  the name and address of:

(A)  the insured;

(B)  the insurer; and

(C)  the insurance agent who obtained the surplus line coverage; and

(5)  if the direct risk is assumed by more than one insurer:

(A)  the name and address of each insurer; and

(B)  the proportion of the entire direct risk assumed by each insurer.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch. 730, Sec. 2E.128, eff. April 1, 2009.



Section  981.102.  Limit On Use Of Surplus Lines Policy Or Contract Forms.

A surplus lines insurance policy or contract form may not be used unless use of the form is:

(1)  reasonably necessary for the principal purposes of the insurance coverage; or

(2)  not contrary to the purposes of this chapter regarding the reasonable protection of authorized insurers from unwarranted competition by unauthorized insurers.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.103.  Delivery To Insured Of Surplus Lines Documents.

(a) On placing new or renewal surplus lines coverage, a surplus lines agent shall promptly issue and deliver to the insured or to the insured's agent the following evidence of insurance:

(1)  the policy issued by the insurer; or

(2)  if the policy is not available, a certificate, cover note, or other confirmation of insurance.

(b)  If the policy is not available at the time of placement of the insurance, the surplus lines agent shall, on the insured's request and as soon as reasonably possible:

(1)  obtain the policy from the insurer; and

(2)  deliver the policy to the insured to replace the certificate, cover note, or other confirmation of insurance previously issued.

(c)  A surplus lines agent may not deliver the evidence of insurance described by Subsection (a), or purport to insure or represent that insurance will be or has been granted by an eligible surplus lines insurer, unless the agent:

(1)  has prior written authority from the insurer for the insurance; or

(2)  has received information from the insurer in the regular course of business that:

(A)  the insurance has been granted; or

(B)  an insurance policy providing the insurance actually has been issued by the insurer and delivered to the insured.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.104.  Delivery To Insured Of Revised Surplus Lines Documents.

(a) A surplus lines agent shall promptly deliver to the insured a substitute certificate, cover note, confirmation, or endorsement for the original document showing the current status of the coverage and the insurers responsible for that coverage if, after the delivery of the original document, a change is made:

(1)  to the identity of the insurers;

(2)  to the proportion of the direct risk assumed by the insurer as stated in the original document; or

(3)  in any other material respect as to the insurance coverage evidenced by the document.

(b)  A change made under Subsection (a) may not result in coverage or an insurance contract that would violate this chapter or Chapter 225, if originally issued on that basis.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch. 730, Sec. 2E.129, eff. April 1, 2009.



Section  981.105.  Filing With Stamping Office.

(a) Not later than the 60th day after the later of the effective date or the issue date of new or renewal surplus lines insurance, a surplus lines agent shall file with the stamping office:

(1)  a copy of the policy issued; or

(2)  if the policy has not been issued, a copy of the certificate, cover note, or other confirmation of insurance delivered to the insured.

(b)  A surplus lines agent shall also promptly file with the stamping office:

(1)  a copy of each substitute certificate, cover note, or other confirmation of insurance delivered to an insured;

(2)  a copy of each endorsement of an original policy, certificate, cover note, or other confirmation of insurance delivered to an insured; and

(3)  a memorandum from the agent informing the stamping office of the substance of any change represented by a document described by Subdivision (1) or (2), as compared with the original coverage.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Subchapter D. Surplus Lines Stamping Office

Section  981.151.  Status As Nonprofit Association.

The Surplus Lines Stamping Office of Texas is a nonprofit association.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.152.  Board Of Directors.

(a) The board of directors of the stamping office exercises the powers of the office.

(b)  The board consists of nine members appointed by the commissioner. Four members must represent the public and have a minimum of three years of experience in purchasing commercial insurance. A public representative may not:

(1)  be an officer, director, or employee of an insurer, insurance agency, agent, broker, solicitor, or adjuster or any other business entity regulated by the department;

(2)  be a person required to register under Chapter 305, Government Code; or

(3)  be related to a person described by Subdivision (1) or (2) within the second degree by affinity or consanguinity.

(c)  A board member serves a term as established in the plan of operation.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.153.  Plan Of Operation.

(a) The procedures to administer the stamping office are established by a plan of operation approved by the commissioner. The plan of operation establishes the terms of the members of the board of directors of the office.

(b)  The stamping office shall submit any amendment to the plan of operation to the commissioner. An amendment to the plan of operation is effective on approval by commissioner order.

(c)  If the stamping office fails to submit a suitable amendment to the plan of operation, the commissioner may, after notice and hearing, adopt:

(1)  an amendment to the plan of operation; and

(2)  any rules necessary or advisable to implement this subchapter.

(d)  A rule adopted under Subsection (c) continues until:

(1)  modified by the commissioner; or

(2)  superseded by an amendment to the plan of operation submitted by the stamping office and approved by the commissioner.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.154.  Powers And Duties.

(a) The stamping office shall perform its functions under the plan of operation.

(b)  The stamping office shall conduct the following activities as provided in the plan of operation:

(1)  receive, record, and review each surplus lines insurance contract that a surplus lines agent is required to file with the office;

(2)  provide to the commissioner an evaluation of the eligibility of each surplus lines insurance contract and surplus lines insurer;

(3)  prepare monthly reports for the commissioner relating to surplus lines insurance obtained during the preceding month in a form prescribed by the commissioner;

(4)  prepare reports for the commissioner relating to surplus lines business;

(5)  collect from each surplus lines agent a stamping fee for the costs of operations to be paid by the insured and determined by the department in an amount not to exceed three-fourths of one percent of gross premium resulting from surplus lines insurance contracts;

(6)  employ persons;

(7)  borrow money;

(8)  enter into contracts;

(9)  perform any other acts to facilitate or encourage compliance with this chapter and rules adopted under this chapter; and

(10)  provide any other service incidental or related to an office purpose.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.155.  Supervision By Commissioner.

The commissioner shall supervise the stamping office. The stamping office is subject to the applicable provisions of this code and rules of the commissioner.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.156.  Examination By Commissioner.

(a) The commissioner shall examine the stamping office at any time the commissioner considers an examination necessary.

(b)  The stamping office shall pay the cost of the examination.

(c)  During an examination, a stamping office board member, officer, agent, or employee:

(1)  may be examined under oath regarding the operation of the office; and

(2)  shall make available any book, record, account, document, or agreement relating to the operation of the office.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.157.  Immunity From Liability.

A person or entity is not liable for, and a cause of action does not arise out of, an act or omission in performing a power or duty under this subchapter if the person or entity is:

(1)  the stamping office or a board member, officer, agent, or employee of the stamping office; or

(2)  the department or an employee or representative of the department, including the commissioner.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.158.  Exemption From Public Information Law.

(a) An individual surplus lines insurance contract filed with the stamping office is:

(1)  confidential; and

(2)  not public information under Chapter 552, Government Code.

(b)  This section does not prevent access by a state agency to an individual surplus lines insurance contract filed with the stamping office.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.159.  Exemption From Library And Archives Law.

Chapter 441, Government Code, does not apply to the stamping office or its records.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section 981.160.  No Enforcement Authority.

This subchapter does not give the stamping office authority to enforce this chapter or Chapter 225.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch. 730, Sec. 2E.130, eff. April 1, 2009.



Subchapter E. Surplus Lines Agents

Section 981.201.  Definition.

In this subchapter, "managing general agent" means an agent licensed under Chapter 4053.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch. 730, Sec. 2E.131, eff. April 1, 2009.



Section  981.202.  Surplus Lines License Required.

An agent licensed by this state may not issue or cause to be issued an insurance contract with an eligible surplus lines insurer unless the agent possesses a surplus lines license issued by the department.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section 981.203.  Qualifications For Surplus Lines License.

(a) The department may issue a surplus lines license to an applicant who the department determines complies with Subsection (b) and is:

(1)  an individual who:

(A)  has passed an examination under Chapter 4002 and department rules; and

(B)  holds a current license as:

(i)  a general property and casualty agent authorized under Subchapter B, Chapter 4051; or

(ii)  a managing general agent; or

(2)  a corporation, limited liability company, or partnership that:

(A)  has at least one officer or director or at least one active partner who has passed the required surplus lines license examination;

(B)  holds a current license as:

(i)  a general property and casualty agent authorized under Subchapter B, Chapter 4051; or

(ii)  a managing general agent; and

(C)  conducts insurance activities under this chapter only through an individual licensed under this section.

(b)  The agent must:

(1)  pay an application fee as determined by the department; and

(2)  submit a properly completed license application.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003. Amended by Acts 2003, 78th Leg., ch. 1276, Sec. 10A.229(a), eff. Sept. 1, 2003.

Amended by:

Acts 2005, 79th Leg., Ch. 402, Sec. 1, eff. January 1, 2006.

Acts 2007, 80th Leg., R.S., Ch. 548, Sec. 2.09, eff. September 1, 2007.

Acts 2007, 80th Leg., R.S., Ch. 730, Sec. 2E.132, eff. April 1, 2009.

Acts 2009, 81st Leg., R.S., Ch. 87, Sec. 14.012, eff. September 1, 2009.



Section  981.204.  Classification Of Surplus Lines Agents.

The department may classify surplus lines agents and issue a surplus lines license to an agent in accordance with:

(1)  a classification created under this section; and

(2)  reasonable rules of the commissioner.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.210.  Placement Of Coverage.

A surplus lines agent may not place surplus lines coverage with an insurer unless:

(1)  the insurer meets the eligibility requirements of Subchapter B; and

(2)  the stamping office provides evidence to the department that the insurer meets those requirements.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.211.  Financial Condition Of Surplus Lines Insurers.

(a) A surplus lines agent must make a reasonable effort to determine the financial condition of an eligible surplus lines insurer before placing insurance with that insurer.

(b)  A surplus lines agent may not knowingly place surplus lines insurance with a financially unsound insurer.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.212.  Accepting Surplus Lines Insurance From Other Agents.

(a) A surplus lines agent may originate surplus lines insurance or accept surplus lines insurance from another agent who is licensed to handle the kind of insurance being accepted.

(b)  A surplus lines agent who accepts surplus lines insurance from an agent may share a commission with that agent.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.213.  Filing Contract With Stamping Office. A S

urplus lines agent shall report to and file with the stamping office a copy of each surplus lines insurance contract as provided in the stamping office's plan of operation. The department may accept that filing instead of the filings required under Section 981.105.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.214.  Compliance With Stamping Office Plan Of Operation.

A surplus lines agent shall comply with the stamping office's plan of operation.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.215.  Surplus Lines Agent Records.

(a) A surplus lines agent shall maintain a complete record of each surplus lines contract obtained by the agent, including any of the following, if applicable:

(1)  a copy of the daily report;

(2)  the amount of the insurance and risks insured against;

(3)  a brief general description of the property insured and the location of that property;

(4)  the gross premium charged;

(5)  the return premium paid;

(6)  the rate of premium charged on the different items of property;

(7)  the contract terms, including the effective date;

(8)  the insured's name and post office address;

(9)  the insurer's name and home office address;

(10)  the amount collected from the insured; and

(11)  any other information required by the department.

(b)  The surplus lines agent shall keep the record required by this section open for examination by the department without notice at any time until the third anniversary of the date the surplus lines contract expires or is canceled.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003. Amended by Acts 2003, 78th Leg., ch. 1276, Sec. 10A.233(a), eff. Sept. 1, 2003.



Section  981.216.  Annual Report.

(a) Before March 1 of each year, a surplus lines agent shall submit a report to the department for the preceding calendar year.

(b)  The commissioner shall adopt the form for the annual report.

(c)  The annual report must:

(1)  demonstrate that the amount of insurance obtained from each eligible surplus lines insurer is only the amount that exceeds the amount obtainable from an authorized insurer; and

(2)  include any other information required by the commissioner.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.217.  Notice To Department Required.

(a) A surplus lines agent shall notify the department not later than the 30th day after the date any of the following occurs:

(1)  balances due for more than 90 days to an eligible surplus lines insurer or for more than 60 days to the agent acting on behalf of the surplus lines insurer exceed $1 million or 10 percent of the insurer's policyholder surplus calculated on December 31 of the preceding year;

(2)  balances due for more than 60 days from a managing general agent or a local recording agent appointed by or reporting to the managing general agent exceed $500,000;

(3)  authority to settle claims for an eligible surplus lines insurer is withdrawn;

(4)  funds held for an eligible surplus lines insurer for losses are greater than $100,000 more than the amount necessary to pay losses and loss adjustment expenses expected to be paid on behalf of the insurer in the next 60-day period; or

(5)  the agent's contract to act on behalf of a surplus lines insurer is canceled or terminated.

(b)  The commissioner shall adopt the form to be used under Subsection (a).

(c)  A surplus lines agent may comply with the notification requirement under Subsections (a)(1), (2), and (4) by submitting a single annual report if:

(1)  the agent or applicable eligible surplus lines insurer routinely operates beyond the limits provided by those subdivisions; and

(2)  the commissioner verifies that fact under a procedure adopted by the commissioner.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section  981.218.  Department Monitoring Of Surplus Lines Agents.

The commissioner shall monitor the activities of surplus lines agents as necessary to protect the public interest.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003. Amended by Acts 2003, 78th Leg., ch. 1276, Sec. 10A.228(b), eff. Sept. 1, 2003.



Section  981.219.  Advertising.

A surplus lines agent may advertise regarding the agent's ability to place surplus lines insurance permitted by this chapter.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003.



Section 981.220.  Managing General Agents; Limited Authority Of Certain Agents.

A surplus lines license granted to a managing general agent who is not also licensed under Chapter 4051 is limited to the acceptance of business originating through a licensed general property and casualty agent.  The license does not authorize the agent to engage in business directly with the insurance applicant.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1, 2003. Amended by Acts 2003, 78th Leg., ch. 1276, Sec. 10A.234(a), eff. Sept. 1, 2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch. 548, Sec. 2.10, eff. September 1, 2007.



Section 981.221.  Suspension Or Revocation Of License.

If a license holder does not maintain the qualifications necessary to obtain the license, the department may revoke or suspend the license or deny the renewal of that license in accordance with Chapter 4003 and Subchapters B and C, Chapter 4005.

Added by Acts 2003, 78th Leg., ch. 1276, Sec. 10A.229(b), eff. Sept. 1, 2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch. 730, Sec. 2E.134, eff. April 1, 2009.



Section 981.222.  Applicability Of Other Law.

In addition to the requirements of this chapter, the administration and regulation of a surplus lines agent's license is governed by Title 13, except that the provisions of Sections 4001.002(b)(2)-(6), 4001.003, and 4001.004 and Subchapters C-G, Chapter 4001, do not apply to a license issued under this subchapter.

Added by Acts 2003, 78th Leg., ch. 1276, Sec. 10A.229(c), eff. Sept. 1, 2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch. 730, Sec. 2E.135, eff. April 1, 2009.


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