Industrial Insured Bill May Impact Risk Managers in Texas

House Bill 1559, which creates an exemption for entities classified as an “industrial insured,” has been voted out of the Texas House of Representatives. The bill was voted on by the full House on Thursday, April 13, and was referred to the Senate Administration Committee on Wednesday, April 19.

If the bill becomes law, it will add language to the Texas Insurance Code to define “industrial insured” and to exempt those that qualify from the diligent effort requirement set forth in Section 981.004(a)(1) of the Code.

To qualify as an industrial insured, the entity seeking coverage must meet the following requirements:

• Employ a qualified risk manager
• Meet one of the following criteria:
  • Has paid more than $25,000 in commercial property and casualty premiums in the preceding 12 months
  • Employ at least 25 full-time employees

House Bill 1559, filed by Rep. John Frullo, was amended by Rep. Dade Phelan on the House floor. Initially, the company or individual had to satisfy all three requirements listed above before being classified as an industrial insured. After the amendment, only the first requirement and one of the following two must be satisfied, instead of all three. The amendment was adopted by the House before the bill passed on the floor.

Once classified as such, the industrial insured’s licensed 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. However, other requirements must be met:

• 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 better

Senate Bill 562, the companion bill in the Senate for House Bill 1559, has passed through the Senate Business and Commerce Committee, but has not yet been voted on by the full Senate.