Procedural Updates

TO: All Property and Casualty Insurers and Eligible Surplus Lines Insurers

RE: Senate Bill 714. Relating to the regulation of certain warrantors of vehicle protection products (Adds Article 9035, Chapter 20, Title 132. Revised Statutes) 

Senate Bill 714, “Vehicle Protection Product Regulatory Act” (Act) enacted by the 77th Texas Legislature, establishes regulation of vehicle protection products by the Texas Department of Licensing and Regulation (TDLR). The Act requires warrantors of vehicle protection products, as defined therein, to register with the TDLR. To ensure adequate performance of a warrantor’s obligations to a consumer each warrantor shall comply with one of two options to establish financial security. One option is to insure the warrantor’s vehicle protection products under a reimbursement insurance policy issued by an insurer authorized to transact insurance in Texas or under a surplus lines insurance policy issued by an insurer eligible to place coverage in Texas as regulated under Article 1.14-2, Insurance Code.

Reimbursement insurance policies issued pursuant to this legislation must contain the following language.

“Notwithstanding any other definition, term, condition, limitation, exclusion, endorsement or other provision of this policy or any other insurance policy: (1) the Named Company shall reimburse or pay on behalf of the Insured (Warrantor) any covered amounts the Warrantor is legally obligated to pay or shall provide the service that the Warrantor is legally obligated to perform according to the Warrantor’s obligations under any insured vehicle protection product issued or sold by the Warrantor dwing the term of this policy; and (2) ff the covered amounts are not paid or the covered service is not provided to a consumer within 60 days after the consumer provides proof of loss, payment shall be made directly from the Named Company to the consumer or the Named Company shall provide the required service.”

The TDLR requires additional language for reimbursement insurance policies as stated in the attached TDLR letter to vehicle protection product warrantors.

Insurers may not cancel a reimbursement policy until the insurer delivers to the warrantor a written notice of cancellation pursuant to Articles 21 .49-2A, Insurance Code. Cancellation of a reimbursement insurance policy does not reduce the insurer’s responsibility ‘or vehicle protection products issued by the warrantor and insured under the policy before the date of the cancellation.

While eligible surplus lines insures are not required to file policy forms with the Texas Department of Insurance (TDI) for approval. they must comply with the requirements set forth in the Act and outlined in this bulletin for reimbursement policies covering vehicle protection products purchased on or after January 1 2002. All other insurers planning to write reimbursement insurance policies to cover vehicle protection products purchased on or after January 1, 2002 must file their policy forms, rules and rates with TDI or amend existing filings to comply with these requirements. Programs accepted on an individual risk submission basis do not comply with this Act and must be filed with TDI as a new filing. Reimbursement policies and endorsements are subject to prior approval and the rates and rules for these forms are file and use. All flings must be submitted in accordance with the filing requirements contained in “Property and Casualty Filings Made Easy,” accessible on our website.

This notice provides a summary description of the insurance requirements of Senate Bill 714 and ts not intended to provide a detailed presentation of the law. To view the entire text of the bill, please view www.capitol.state.tx.us.

Questions regarding this bulletin should be addressed to:

Melvin Smith
Commercial Property/Casualty Section, MC 104-PC
Texas Department of Insurance
P O Box 149104
Austin, TX 78714-9104

Sincerely,
Marilyn Hamilton, Associate Commissioner
Property & Casualty Program, MC 104-PC

Notice of Insufficient Reimbursement Insurance Policy
View Sample Letter

TO: REGULATED PERSONS AND ENTITIES, INCLUDING ALL INSURANCE COMPANIES, CORPORATIONS, EXCHANGES, MUTUALS, RECIPROCALS, ASSOCIATIONS, LLOYD´s, HEALTH MAINTENANCE ORGANIZATIONS, MULTIPLE EMPLOYER WELFARE ARRANGEMENTS, THIRD PARTY ADMINISTRATORS, INDEPENDENT REVIEW ORGANIZATIONS, VIATICAL/LIFE SETTLEMENT PROVIDERS, BROKERS, AND OTHER ENTITIES REGULATED BY THE TEXAS DEPARTMENT OF INSURANCE AND AUTHORIZED OR ELIGIBLE TO DO BUSINESS IN TEXAS; AND TO THEIR AGENTS AND REPRESENTATIVES AND THE PUBLIC GENERALLY

RE: The Use of Electronic Signatures and Records in Connection with Marketing and Selling Insurance and Related Products or Engaging in Other Business Regulated by the Texas Department of Insurance.

This Bulletin is intended to provide information to individuals and entities regulated by the Texas Department of Insurance (TDI) and to prompt discussions between the regulated community, consumers and TDI about transacting business electronically.

Advances in electronic technology are allowing businesses, including those regulated by TDI, to integrate various elements of electronic commerce into their operations. The Internet and electronic commerce have resulted in increased conveniences and opportunities for consumers and the industry.

Texas UETA

The 77th Texas Legislature passed and Governor Rick Perry signed SB 393 adopting the Uniform Electronic Transactions Act (Texas UETA). Texas UETA became effective January 1, 2002, and is codified as Chapter 43 of the Texas Business and Commerce Code. In accordance with federal law, Texas UETA qualifies as a statute that will “modify, limit, or supersede the provisions of section 101” (15 U.S.C. §7001) of the federal Electronic Signatures in Global and National Commerce Act (E-Sign). See, 15 U.S.C. §7002; Tex. Bus. & Com. Code §43.019. However, SB 393 does not modify the consumer disclosure provisions of section 101(c) of ESign. See, Tex. S.B. 393, §6(a), 77th Leg., R.S. (2001).

Texas UETA creates a statutory structure in Texas that supports the use of electronic signatures and electronic records in everyday public and business undertakings. Texas UETA addresses the effect of electronic transactions as follows:

1. A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.
2. A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.
3. If a law requires a record to be in writing, an electronic record satisfies the law.
4. If a law requires a signature, an electronic signature satisfies the law.

Tex. Bus. & Com. Code §43.007. An “electronic signature” is defined as “an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.” Tex. Bus. & Com. Code §43.002(8). Texas UETA also provides for electronic notarization. Tex. Bus. & Com. Code §43.011; see, also, Tex. Civ. Prac. & Rem. Code §121.004; Tex. Gov´t Code §406.013. Therefore, certain insurance transactions may be conducted through electronic means.

Careful Review of Texas UETA

TDI encourages regulated persons and entities to carefully review Texas UETA and other applicable laws in connection with the use of electronic signatures and records in their business. Regulated persons and entities should develop responsible strategies to address the issues inherent in conducting business electronically. Regulated persons and entities that wish to incorporate the use of electronic commerce should conduct their own review of legal issues and technical capabilities. Regulated persons and entities may also wish to review their current forms and procedures to determine whether they need to be revised to accommodate electronic commerce. In addition, record retention procedures should be reviewed to ensure proper maintenance, security and privacy of electronic documents.

Other Applicable Law

Transactions subject to Texas UETA are also subject to other applicable law. Tex. Bus. & Com. Code §43.003(d). Regulated persons and entities should refer to the other applicable law when seeking to integrate elements of electronic commerce into their business operations. For example, regulated persons and entities should consider the following:

• Electronic transactions must comply with the privacy requirements of the federal Gramm Leach Bliley Act (GLBA), the federal Health Insurance Portability and Accessibility Act (HIPAA), and related state statutes and rules.
• Any person or entity that wishes to do the business of insurance in Texas, or engage in other business activities regulated by TDI, in any form, including electronic commerce, must be properly licensed, registered or otherwise authorized to conduct such business in the State of Texas. Surplus lines business must be properly eligible as required in Article 1.14-2 of the Texas Insurance Code.
• Any Internet site marketing insurance or other regulated products to Texas residents must comply with Texas advertising statutes and rules.
• Laws requiring that information be produced or made available to TDI also apply to information maintained electronically and information regarding electronic transactions.
• Contracts, policies and other products marketed to Texas residents by electronic commerce must meet applicable legal requirements, including the following:
  • requirements regarding free look periods;
  • formatting requirements including pagination and type size, as well as requirements that certain language be conspicuous or be placed in a certain location within a document;
  • requirements regarding prior approval; file and use subject to review and/or approval; file for information; and/or exemption from review.

Regulated persons and entities are encouraged to discuss with TDI how these statutory and regulatory requirements may be satisfied.

Voluntary Electronic Transactions

Although transactions may be conducted electronically, Texas UETA provides that the use of electronic records and signatures is voluntary. Texas UETA “does not require a record or signature to be created, generated, sent, communicated, received, stored, or otherwise processed or used by electronic means or in an electronic form.” Tex. Bus. & Com. Code §43.005(a). Likewise, a person who has consented to conduct one transaction electronically, may refuse to conduct subsequent transactions electronically. Tex. Bus. & Com. Code §43.005(c).

Information Filed With TDI

With regard to information required to be filed with TDI, Texas UETA allows Texas state agencies to determine the extent to which the agency will accept, send, create, store, process, use and rely upon electronic records and signatures. Tex. Bus. & Com. Code §43.017. In addition, Texas UETA authorizes the Texas Department of Information Resources (DIR) and the Texas State Library and Archives Commission (SLAC) to adopt rules regarding the acceptance and use of electronic records by Texas governmental entities. TDI is carefully monitoring the activities of DIR and SLAC in implementing Texas UETA.

With regard to information currently required to be filed with TDI, the sole electronic method for rate and form filing is through the System for Electronic Rate and Form Filing (SERFF). The electronic filing of agent appointments may be processed through the National Insurance Producer Registry´s Producer Information Network (PIN). The enactment of Texas UETA does not alter these designations.

Other Issues

There are emerging issues involved in conducting business electronically which will only be clarified over time as the result of court decisions and administrative actions. We look forward to discussing the issues raised by electronic transactions with consumers, agents, companies and other regulated persons and entities in an effort to provide greater market access for the consumer.

Any questions regarding this Bulletin or related issues should be directed to Ann Bright, Section Chief, Agency Counsel Section, Legal & Compliance Division by telephone at (512) 463-6411 or by electronic mail at ann.bright@tdi.state.tx.us

Sincerely
José Montemayor
Commissioner of Insurance

IMPORTANT FILING NOTICE

New rules adopted by the Texas Department of Insurance December, 2000 (28 TAC § 15.20) and by the Comptroller’s Office March, 2001 (34 TAC §3.822) require some significant changes in reporting of certain policies to the Stamping Office. These changes begin with policies you file on or after November 1, 2001 and are discussed below.

Policies Not To Be Reported

The following types of policies need not be reported to the Stamping Office:

1. 100% of premium is on exposures outside Texas.
   (Please note that under Article 1.14-2, Sec. 12(a) of the Insurance Code, agents could report premium on non-Texas exposures as if they were Texas risks and pay the tax to Texas. This option is still available to you, although there may be tax consequences in other states for the insureds.)
2. 100% of premium is exempt from tax (i.e., on risks located in federal or international waters, or under the jurisdiction of a foreign country).
   If any portion of the exposure can be allocated to Texas ( e.g., time spent in a Texas port or in Texas state waters), then that premium is taxable and the policy must be reported to the Stamping Office under the procedures outlined below.
3. 100% of premium is preempted from state tax by federal law and is on risks located entirely outside Texas.
   Federal preemptions exist for premium on policies issued to federally chartered credit unions, the National Credit Union Administration, and the Federal Deposit Insurance Corporation (FDIC) when acting as receiver of a failed financial institution that holds the property being insured. If any of the exposure is located in Texas, the policy must be reported. The Stamping Office will in turn process the premium as “non-taxable”, although there will be a stamping fee charged on the Texas premium.

Reporting of Allocated Premium

Beginning November 1, agents must report to the Stamping Office the gross amount of the policy premium, not just the Texas portion. You must allocate the policy premium according to whether the premium is on Texas exposures, on Other States exposures, or is Exempt from tax. (Again, the Insurance Code permits you to report all taxable premium as ‘Texas” if you desire.) As in the past, you should only charge a stamping fee on the premium allocated to Texas. The allocation requirement also applies to any premium-bearing item (endorsements, audits, cancellations, etc.).

You are required to maintain a record of the method you chose to allocate the premium. (28 TAC
§ 15.19) Methods of allocation are found in the Comptroller’s premium tax rule (34 TAC §3.822(c)) and include percentage of physical assets in Texas, percentage of sales in Texas, percentage of time insured’s conduct or property is exposed to coverage in Texas, or “any other method of equitable apportionment that is adequately described.”

To assist you in complying with TDI and Comptroller rules and in reporting a policy with allocated premium, we have revised both the Transmittal and Verification Slip (T &V) and the Policy Security Correction (green) T&V. These replace previous versions of the forms. We have also developed a new form to be attached to the relevant item. Copies of these forms are enclosed with this bulletin. When filing an allocated premium policy or other premium-bearing item, place an “X” in the box just to the left of the ”Named Insured” column for that policy on the new T&V. You will fill out all other parts of the T & V as you have in the past. The premium reported on the T & V is only the Texas premium. (Note: in our recently concluded agents seminars, we informed attendees that all the various premium allocations would also need to be listed on the T & V for each allocated policy. Following feedback from agents, we have decided this was duplicative and unnecessary additional work. X’ing the allocation box provides us sufficient information on the T & V.)

Next, for each allocated premium policy or other premium-bearing item, it will be necessary to use the new “Other States/Exempt Premium” form. On this form, you must show the policy number, then indicate next to each category the amount of premium that is Texas, Other States, and Exempt. Attach this form to the top of the relevant transaction in the batch you will send to the Stamping Office. Only use this form to report a policy (or other premium-bearing item) that includes non-Texas and/or tax-exempt premium in addition to the Texas premium.

To help you better understand how to use the forms, we have enclosed completed samples of both a T&V and an “Other States/Exempt” form for your review. Also, a specimen copy of each form is available for download from our website.

We know many agents are currently using a stamp on the dec page of the policy copy sent to the Stamping Office, on which you indicate the portion of a policy’s total premium that is allocated to Texas. We will consider your continued use of such a stamp to report allocated premium under the new requirements, instead of using our suggested “Other States/Exempt Premium” form. However, we ask that you call SLTX to discuss this possibility. We will not accept use of a stamp until you speak with our office.

TO: ALL INSURANCE COMPANIES, CORPORATIONS, EXCHANGES, MUTUALS, RECIPROCALS, ASSOCIATIONS, LLOYDS, HEALTH MAINTENANCE ORGANIZATIONS AND OTHER ENTITIES REGULATED BY THE TEXAS DEPARTMENT OF INSURANCE AND AUTHORIZED OR ELIGIBLE TO DO BUSINESS IN TEXAS; AND TO THEIR AGENTS AND REPRESENTATIVES AND THE PUBLIC GENERALLY

Re: Implementation of Privacy Provisions Required by Texas & Federal Law

The purpose of this bulletin is to provide information about the proposed Texas Department of Insurance (the Department) implementation of privacy legislation enacted by the 77th Texas Legislature. A federal law, the Gramm Leach Bliley Act (GLBA), requires state insurance authorities to adopt standards relating to the disclosure of nonpublic personal financial information applicable to the insurance industry. It is up to a state to determine the date by which insurers, HMOs, agents and other entities subject to the regulation by that state’s insurance authority must be in compliance with the standards adopted by the state. GLBA does not impose such a date. In response to GLBA, two bills were enacted during the 77th Legislative Session: SB 712, which relates to privacy of personal financial information held by entities regulated by the Department, and SB 11, which relates to privacy of personal health information, including information held by an entity regulated by the Department.

• SB 712 requires insurers, HMOs, agents and other entities regulated by the Department to comply with the GLBA requirements relating to the disclosure of nonpublic personal financial information. The intent of the bill is that the Commissioner adopt rules based upon a model privacy regulation developed by the National Association of Insurance Commissioners (NAIC) to aid states in adopting consistent privacy requirements for regulated entities. These rules must be adopted within thirty days of the bill’s effective date, which was June 14, 2001. In order to ensure that this deadline can be met, SB 712 expressly authorizes the Commissioner to adopt these rules on an emergency basis.
• In response to SB 712, the Department plans to adopt emergency rules no later than July 13, 2001. These rules, which will be effective immediately, will be patterned after the NAIC model privacy rules and will relate to personal financial information held by insurers, HMOs, agents and other affected entities licensed by the Department. This means that as of the effective date, affected entities must immediately begin to implement privacy policies and procedures consistent with the rules. However, the Department anticipates that the B-0030-01 Page 2 of 2 rules will state that affected entities will not need to provide any required privacy notices until sixty days after the effective date of the rules. The emergency rules will be posted on the Department’s website and published in the Texas Register.
• Contemporaneously with the filing of these emergency rules, the Department will publish proposed rules for public comment prior to final adoption. Since both sets of rules serve the same purpose and will be based on the NAIC model, it is anticipated that the proposal will be substantially similar to the emergency rules.
• SB 11, which takes effect January 1, 2002, provides separate privacy and disclosure requirements for personal health information and directs the Commissioner to adopt health information privacy rules. Accordingly, the Department will propose rules for health information patterned after the NAIC model rule. These rules must also be consistent with federal Health Insurance Portability and Accessibility Act (HIPAA) privacy regulations which apply to health care plans, and other entities regulated by the Department that conduct business relating to health care plans. Although the HIPAA regulations became effective on April 13, 2001, enforcement of the regulations will not begin until April 13, 2003. It is anticipated that the HIPAA regulations may change somewhat prior to their enforcement date. The Department will monitor any new developments concerning the HIPAA privacy regulations and will incorporate the final requirements of these regulations into its rules implementing SB 11.

The Department’s goal is to carry out the privacy mandates of the Texas Legislature by implementing fair and effective regulatory and enforcement requirements that protect consumer privacy and facilitate cooperation and compliance on the part of entities subject to these requirements.

The Department will continue to provide updated and more detailed information on its web site as privacy implementation continues to progress. We recognize the industry’s need for timely and pertinent information and we appreciate your patience as we work through these highly complex and very important issues.

Sincerely,
José Montemayor, CPA
Commissioner of Insurance

To: ALL INSURANCE COMPANIES AUTHORIZED OR ELIGIBLE TO WRITE PROPERTY & CASUALTY INSURANCE IN TEXAS

RE: Enactment of Legislation SB984 and HB2284 by the 76th Texas Legislature Notice to Insurers

The purpose of this bulletin is to notify insurers of the requirements of two bills enacted by the 76th Texas Legislature regarding the writing of property & casualty insurance. Insurers should review their business practices to ensure that they are in compliance with the laws described in this bulletin.

SB 984

Senate Bill 984 amends Subchapter E, Chapter 21, Texas Insurance Code by adding Article 21.49-2E. This article applies to any insurer admitted to do business and authorized to write property and casualty and liability insurance in this state.

Article 21.49-2E provides that an insurer´s written statement giving the reason or reasons for cancellation, declination, or nonrenewal of an insurance policy required by Articles 21.49-2, 21.49-2A, and 21.49-2B of the Texas Insurance Code shall fully explain a decision which adversely affects an applicant or policyholder by denying the applicant or policyholder coverage or continued coverage.

Article 21.49-2 applies to insurers issuing policies regulated pursuant to Chapter 5 of the Texas Insurance Code, other than policies subject to 21.49- 2A or 21.49-2B, or marine insurance policies other than inland marine. Upon request, the insurer must give to the policyholder or applicant for insurance the reason or reasons for declination, cancellation, or nonrenewal.

Article 21.49-2A applies to each insurance company or other entity admitted to do business and authorized to write liability insurance, including County Mutuals, Lloyds, and reciprocal or interinsurance exchanges, but excluding Farm Mutuals and County Mutuals writing exclusively industrial fire insurance as defined by Article 17.02. Liability insurance is defined as general liability, professional liability other than medical professional, commercial automobile liability, commercial multiperil coverage, and any other lines of insurance designated by the Texas Department of Insurance. Subsection (g) requires the insurer to state in a notice of cancellation or nonrenewal the reason for the cancellation or nonrenewal.

Article 21.49-2B applies to any licensed insurer writing property and casualty insurance in the state, including County Mutuals, Lloyds, reciprocal or interinsurance exchanges, and Farm Mutuals.

The article applies to personal automobile policies, other than policies written through TAIPA, homeowners or farm or ranch owners policies, standard fire policies insuring one-family dwellings, duplexes, or the contents of one-family dwellings, duplexes, or apartments, and policies providing property and casualty coverage to a governmental unit other than a fidelity, surety, or guaranty bond. The insurer must provide, at the request of an insured or applicant, a written statement of the reason for a cancellation or nonrenewal of or determination not to issue a policy.

The statute provides that the insurer’s written statement shall:

(1) state the precise incident, circumstance, or risk factor or factors applicable to the applicant or policyholder that violate the guideline or guidelines; and

(2) state the source of information the insurer relied on regarding the incident, circumstance, or risk factor or factors.

The Department believes that these provisions provide clear guidance as to the contents of the notice. To assist insurers in drafting such notices, the Department points out that the statute also provides that the written statement must fully explain a decision which adversely affects an applicant or policyholder by denying coverage or continued coverage; accordingly, it is the Department’s position that general statements do not comply with the intent of the statute and that insurers must clearly state the specific reason(s) the applicant or policyholder does not qualify for coverage or continued coverage. The Department will be reviewing insurers’ written statements periodically to ensure that the statements provide the information required by this statute.

This statute became effective September 1, 1999, and applies to a cancellation, declination, or nonrenewal of an insurance policy that occurs on or after January 1, 2000.

HB 2284

House Bill 2284 amends Subchapter E, Chapter 21, Texas Insurance Code by amending Article 21.57(b). This article applies to any person or entity transacting the business of insurance in this state, as defined in Article 1.14- 1 of the Texas Insurance Code, including surplus lines insurance.

Article 21.57(b) provides that any insurer receiving automatic premium payments through withdrawal of funds from a person´s account, including the withdrawal of funds from a person´s escrow account, for purposes of premium payments on any insurance coverage shall not increase those premium payments unless:

(1) The insurer, not later than the 30th day before the effective date of the increase in premium, notifies the person of the increase and provides such person a postage prepaid form that may be used to object to such increase; and

(2) neither the insurer nor financial institution receives written objection to the increase in premium at least five days before the date on which such increase takes effect.

This statute became effective September 1, 1999.

Please direct questions regarding this bulletin to Larry Dunbar, Manager, Homeowners Division, at (512) 322-2266.

David Durden
Associate Commissioner
Property & Casualty Program

TO: All Property and Casualty Insurers and Eligible Surplus Lines Insurers

RE: Senate Bill 1775 – Relating to the regulation of certain providers of service contracts (Adds Article 9034, Chapter 20, Title 132. Revised Statutes)

Senate Bill 1775, “Service Contract Regulatory Act” (Act), enacted by the 76th Texas Legislature, establishes regulation of service contracts by the Texas Department of Licensing and Regulation (TDLR). The Act requires providers of service contracts, as defined therein, to register with the TDLR. To ensure faithful performance of its obligations under the service contract, providers are required to comply with one of three options to establish financial security. One option is to insure the provider’s service contracts under a reimbursement insurance policy issued by an insurer authorized to transact insurance in Texas or under a surplus lines insurance policy issued by an insurer eligible to place coverage in Texas as regulated under Article 1.14-2, Insurance Code.

Reimbursement insurance policies issued pursuant to this legislation must state that:

(1) the insurer that issued the reimbursement insurance policy shall reimburse or pay on behalf of the provider any covered amounts the provider is legally obligated to pay or shall provide the service that the provider is legally obligated to perform according to the provider’s contractual obligations under the insured service contract issued or sold by the provider; and

(2) if the covered service is not provided to a service contract holder within 60 days of proof of loss, payment shall be made directly from the reimbursement insurer to the service contract holder or the reimbursement insurer shall provide the required service.

Insurers may not cancel a reimbursement policy until the insurer delivers to the provider a written notice of cancellation pursuant to Articles 21.49-2A, Insurance Code. Cancellation of a reimbursement insurance policy does not reduce the insurer’s responsibility for service contracts issued by the provider and insured under the policy before the date of the cancellation.

While eligible surplus lines insurers are not required to file policy forms with the Texas Department of Insurance (TDI) for approval, they must comply with the requirements set forth in the Act and outlined in this bulletin for reimbursement policies covering service contracts entered into on or after January 1, 2000. All other insurers planning to write reimbursement insurance policies to cover service contracts entered into on or after January 1, 2000 must file their policy forms, rules and rates with TDI or amend existing filings to comply with these requirements. Programs accepted on an individual risk submission basis do not comply with this Act and must be filed with TDI as a new filing. Reimbursement policies and endorsements are subject to prior approval and the rates and rules for these forms are file and use. All filings must be submitted in accordance with the filing requirements contained in “Property and Casualty Filings Made Easy,” accessible on our website.

This notice provides a summary description of the insurance requirements of Senate Bill 1775 and is not intended to provide a detailed presentation of the law.

As reported in a previous bulletin, the Texas Surplus Lines Association has reached agreement with the Texas Department of Insurance to permit the Stamping Office to stop collecting and reporting premium by individual syndicates on Underwriters at Lloyd’s policies. This means you will no longer be required to redistribute individual syndicate percentages of participation on policies with multiple Lloyd’s contracts, or on policies where Lloyd’s is not the sole insurer.

Since, as a part of this agreement, the Stamping Office must continue to verify the eligibility of each syndicate as of the effective date or annual anniversary date of the policy, you must continue to provide the Stamping Office a listing of the syndicates and their percentage of participation on each policy. We shall continue to tag any Lloyd’s security reported without a breakdown of the participating syndicates and you will still be required to correct or replace any ineligible syndicate we identify.

This change applies to all Lloyd’s policies processed by the Stamping Office on or after May 15, 1997. Please refer any questions to SLTX.

The Stamping Office continues to receive agent filings indicating coverage on a single policy through both surplus lines insurers and admitted insurers. Please note that insurers authorized to write business on an admitted basis in Texas are precluded from writing surplus lines business as only unauthorized insurers may be eligible pursuant to Sec. 2(b) of Art. 1.14-2 of the Texas Insurance Code and 28 TAC 15.10.

Beyond the matter of not complying with Texas law, there are several practical problems with combining insurers on a single policy. The surplus lines premium tax cannot be applied to admitted insurers (tax rates and mode of remittance to the state differ,) nor can the surplus lines stamp regarding nonparticipation in the guaranty fund. In addition, admitted insurers are generally subject to rate and form regulation by the Texas Department of Insurance. The failure of an admitted insurer to comply with these rate and forth regulations may subject the insurer to disciplinary action including monetary forfeiture among other sanctions.

Please ensure that any coverage provided by admitted insurers is written under a policy separate from the policy written by surplus lines insurers. Again, this is required by law.