Surplus Lines Insurance

Insurance lawyers will run across situation where the insurance company is a surplus lines insurance company.

Surplus lines insurance is dealt with, in part, it chapter 981 of the Texas Insurance Code.  Specific points about surplus lines carriers are discussed throughout the insurance code.

The May 25, 2017, Insurance Journal ran a story dealing with surplus lines that was recently passed into law by the legislature and signed by Gov. Greg Abbot.  The law takes effect on September 1, 2017.  The title of the story is, Texas ‘Industrial Insureds” Surplus Lines Bill Signed Into Law.

On May 11, the Texas Senate passed a bill exempting certain policyholders from the requirement that agents to make a “diligent effort” to find insurance in the admitted commercial insurance market.  Gov. Greg Abbott has signed the measure, which becomes effective on Sept. 1.

HB 1559, will dramatically expand the number of entities exempt from the obligation to meet diligent effort requirements.

The bill creates a new exemption from the diligent effort requirement for “industrial insureds” who are defined as an entity which:

“(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 TSLA and IIAT to ensure that purchasers of commercial insurance have access to the best available products in the surplus lines market to fit their coverage needs.

During the legislative process, the TSLA executive and legislative committees elected to support an amendment offered by Representative Dade Phelan that modified the original language to allow an entity to qualify for the exemption if they met either the premium or employee threshold and no longer requires that the entity meet both thresholds.

As a result of the amendment, the bill will likely exempt the vast majority of purchasers of commercial insurance in the Texas marketplace from the diligent effort requirement.