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New Surplus Lines Bill Signed in Texas

Jun 16, 2017

legislature_2017
House Bill 1559 has been signed by Governor Greg Abbott and will go into effect September 1, 2017.

The bill creates new exemption guidelines regarding “diligent effort” requirements for “industrial insureds” to find insurance in the admitted commercial insurance market. These new guidelines will dramatically expand the number of entities exempt from the obligation.

Those exempt will include “Industrial Insured” entities which fall under the following definitions:

1)  Employs or retains a qualified risk manager to negotiate insurance coverage and

2) Either:

a) Has paid aggregate nationwide commercial property and casualty insurance premiums of more than $25,000 in the immediately preceding 12 months.

Or

b) Employs at least 25 full-time employees.

The Bill was promoted by IIAT (Independent Insurance Agents of Texas) and TSLA (Texas Surplus Lines Association Inc.) to ensure that purchasers have access to the best available products in the surplus lines market for their specific needs.

The new definitions within the bill is expected to exempt the large majority of purchasers of commercial insurance in the Texas marketplace from the diligent effort requirement.

With the exemption classification, the industrial insureds surplus lines agent will not be required to put forth a “diligent effort” in attempting to find coverage in the admitted market before seeking coverage in the surplus lines market.

Once an exemption is provided, additional requirements must still be met, including:

—The agent placing the coverage must disclose that comparable coverage may be available in the admitted market AND that a policy placed in the admitted market may provide greater protection than a surplus lines policy

—After receiving the notice described above from the surplus lines agent, the industrial insured must request in writing that the agent procure insurance from an eligible surplus lines insurer

—The surplus lines insurer offering coverage must have an A.M. Best rating of A- or higher

These new guidelines only apply to policies delivered, issued for delivery or renewed on or after January 1, 2018.

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