Texas ‘Industrial Insureds’ Bill Signed into Law

The Texas Legislature has passed a bill exempting certain commercial insureds from the requirement that agents make a “diligent effort” to find insurance in the admitted insurance market before taking the risk to the surplus lines insurance market.

Gov. Greg Abbott has signed the measure, which becomes effective on Sept. 1.

HB 1559, an initiative of the Texas Surplus Lines Association Inc. and Independent Insurance Agents of Texas, will dramatically expand the number of entities exempt from the obligation to meet diligent effort requirements, according to TSLA. The bill creates a new exemption from the diligent effort requirement for “industrial insureds” who are defined as an entity that:

“(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, including those in the surplus lines market, to fit their coverage needs.

Once classified as such, the industrial insured’s licensed surplus lines agent will not be required to put forth a diligent effort 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 such notice, 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.