Texas Legislative Session Comes to a Close

The 85th Texas Legislature has adjourned sine die, which is a Latin term meaning that there is no scheduled day to continue meetings or hearings. The Memorial Day holiday was the 140th and final day of the regular session. No additional bills may be heard in the House or Senate, and no votes will be taken on bills that have not yet reached the floor.

Texas Governor Greg Abbott has the authority to call the legislature back to the floor for a special session, which can last a maximum of 30 days. The governor may call as many special sessions as he desires. However, regardless of whether a special session is called, Gov. Abbott will have until Sunday, June 18, 2017, to sign or veto the bills passed by the legislature during the regular session. These include bills that affect the excess and surplus lines industry.

Throughout this year’s session, the Surplus Lines Stamping Office of Texas (SLTX) has followed the progress of these bills. Fortunately, the legislature has voted in their favor, which means the surplus lines industry will soon have a few new laws to administer for Texas buyers and consumers.

Senate Bill 1070 – Credit for reinsurance

The legislature has sent a bill to Gov. Abbott that relates to financial statement credit and accounting for reinsurance.

Currently, when a Texas insurer chooses to purchase reinsurance from an insurer located outside of the United States, Texas law dictates that the international insurer must post 100 percent collateral before a Texas insurer can receive credit for the purchase of that reinsurance. Under Senate Bill 1070, Texas insurers will be able to require less than 100 percent collateral from insurers located outside of the country.

In addition, the National Association of Insurance Commissioners (NAIC) has required passage of this bill by January 2019 to retain NAIC accreditation, which shows that a state has met and continues to meet certain legal, financial, and organizational standards set forth by the NAIC. The bill has not yet been signed by Gov. Abbott.

House Bill 1559 – Industrial insureds

A bill creating a diligent effort exemption for a new class of insureds was signed into law by the governor on Tuesday, May 23, 2017. The bill defines “industrial insured” as a person who purchases commercial insurance, employs a qualified risk manager, and meets either of the following requirements:

• Has paid more than $25,000 in property and casualty insurance premiums over the preceding 12 months, or
• Employs at least 25 full-time employees

Those who qualify as an industrial insured are no longer required to expend a diligent effort searching for insurance coverage in the admitted market before seeking the same coverage in the surplus lines market. This means that surplus lines insurance, which may meet an insured’s needs at a better value than coverage in the admitted market, may be procured more easily. The law goes into effect on September 1, 2017.

House Bill 1774 – Hail storm litigation reform

Signed by the governor on Friday, May 26, 2017, House Bill 1774 discourages policyholders from suing their insurers, including eligible surplus lines insurers, after their property is damaged by weather-related events.

The bill was introduced after the number of lawsuits against insurers in areas that had been affected by harsh weather increased dramatically. According to Sen. Kelly Hancock, sponsor of the bill in the Senate, this can be attributed to “bad actors” in the market who encouraged home and business owners to file lawsuits against their insurers after convincing the policyholder that they should have collected more from their original claim.

With the passage of the bill, property owners will still be able to sue their insurers, but there are now restrictions in place. For example, when filing suit, the policyholder must provide the specific amount that is alleged to be owed by the insurer and must provide more than 60 days’ notice before the suit is filed.  Now that the bill has been signed by Gov. Abbott, it will take effect September 1, 2017.

House Bill 2492 – Domestic surplus lines insurers

House Bill 2492, which will allow surplus lines insurers to be domiciled in the state of Texas and simultaneously write coverage in Texas, known as domestic surplus lines insurers (DSLI), was passed 30-1 by the Texas Senate on Wednesday, May 24, 2017.

Prior to the introduction of the bill, surplus lines insurers were only able to provide surplus lines insurance in the state of Texas if they were domiciled elsewhere. If the bill is signed by the governor, insurers already domiciled or desiring to be domiciled in Texas will be able to conduct surplus lines business in the state.

Passage of the bill may increase revenue and jobs in the state of Texas, as well as regulatory oversight of surplus lines insurers by the Texas Department of Insurance (TDI). It has not yet been sent to the governor for a signature.