1.2 Insurance, Financial Responsibility, Display of License, and Advertising Rules

Financial Responsibility and Minimum Insurance Requirements

To protect property owners, consumers, and the public from financial loss resulting from property damage, bodily injury, or improper mechanical work, 16 Texas Administrative Code (TAC) §75.40 requires all licensed Texas Air Conditioning and Refrigeration contractors to maintain active Commercial General Liability (CGL) insurance continuously throughout their license period. An active license cannot be maintained, nor can contracting work be legally performed, without verified insurance coverage on file with TDLR.

Class A vs. Class B Insurance Coverage Thresholds

Insurance minimums are scaled according to the license class held by the contractor, reflecting the potential risk exposure associated with larger equipment capacity:

TDLR publishes the minimums as three separate limits, and candidates routinely miss that the first two limits are combined limits covering property damage and bodily injury together, while the third is a distinct products and completed operations aggregate that responds after the job is finished:

Class A Contractor Minimum Limits

• Per Occurrence, property damage and bodily injury combined: $300,000
• Aggregate, property damage and bodily injury combined: $600,000
• Aggregate for products and completed operations: $300,000

Class B Contractor Minimum Limits

• Per Occurrence, property damage and bodily injury combined: $100,000
• Aggregate, property damage and bodily injury combined: $200,000
• Aggregate for products and completed operations: $100,000

Exam Trap: The third figure is not a separate property-damage limit. It is the products and completed operations aggregate — coverage for damage caused by work you have already completed and left the site, such as a condensate line that floods a ceiling three weeks after the install. A candidate who reads the third column as "property damage" will misstate what the policy actually has to cover.

If a contractor holds both a Class A and a Class B license, a single policy may satisfy both, provided the coverage meets the Class A minimums.

Certificate of Insurance (COI) Filings

Proof of insurance must be submitted directly to TDLR on an official Certificate of Insurance (COI) form completed by an authorized insurance agent or insurer licensed to do business in Texas. Key COI requirements include:

1. Certificate Holder: TDLR must be named as the certificate holder.
2. Licensee Identification: The exact legal name of the licensee and business entity, along with the complete license number (e.g., TACLA000123E), must appear on the certificate.
3. Policy Cancellation Notice: The insurance policy must contain an endorsement requiring the insurer to provide written notice of cancellation or non-renewal to TDLR at least 30 days prior to policy termination.
4. Uninsured License Status: If a contractor's liability policy lapses or is canceled, the contractor's license is automatically placed on inactive status, and all contracting operations must immediately cease until acceptable proof of coverage is filed.

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License Number Display and Vehicle Identification Rules

TDLR strictly enforces mandatory license identification rules across all business assets and public communications. These standards enable consumers and code inspectors to verify license authenticity and distinguish legitimate licensed contractors from unlicensed operators.

Motor Vehicle Lettering Specifications

Every commercial vehicle owned, leased, or operated by a contractor and used in the ACR contracting business must display the contractor's license number. The display must adhere to the following statutory specifications:

• Placement: The license number must be prominently displayed on both sides of the vehicle (driver side and passenger side doors or side panels).
• Lettering Size: All numbers and letters in the license display must be at least two inches (2") in height.
• Color Contrast: The lettering must be in a color that sharply contrasts with the background color of the vehicle body (e.g., black lettering on a white truck door, or white reflective lettering on a dark blue panel).
• License Format: The full license string must be displayed, including the state prefix, class, number, and endorsement letter. Examples: TACLA001234E (Class A Environmental) or TACLB009876R (Class B Commercial Refrigeration).

Required Business Documents and Advertising Media

The contractor's complete license number must appear on virtually all public-facing documents, contracts, and marketing channels, including:

• Written customer proposals, bids, and estimates
• Service invoices, billing statements, and contracts
• Business cards, letterheads, and stationary
• Print advertisements (yellow pages, flyers, newspapers, magazines)
• Electronic media (websites, social media business pages, online directories, digital ads)
• Broadcast media (television and radio commercials)
• Billboard advertisements and lawn signs

+-----------------------------------------------------------------------+
|                      MANDATORY INVOICE STATEMENT                      |
|                                                                       |
|  "Regulated by The Texas Department of Licensing and Regulation,      |
|   P.O. Box 12157, Austin, Texas 78711, 1-800-803-9202, 512-463-6599,   |
|   www.tdlr.texas.gov"                                                 |
+-----------------------------------------------------------------------+

In addition to the license number, all invoices, proposals, quotes, and written contracts provided to clients must contain the mandatory statutory disclosure statement informing consumers that the contractor is regulated by TDLR and listing TDLR's official mailing address, telephone numbers, and website address.

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Municipal Permitting & Local Regulatory Authority

A critical topic on the Texas HVAC Contractor exam is the balance between state regulatory authority and municipal (city/town) power.

State Preemption of Local Licensing

Under Texas Occupations Code Chapter 1302, state law preempts local contractor licensing. A municipality (city, town, or village) in Texas is explicitly prohibited from:

• Requiring a state-licensed ACR contractor to pass a local competency exam.
• Requiring a contractor to hold a local municipal HVAC contractor license.
• Charging a local licensing or testing fee to state licensees.

Permitted Municipal Powers

While cities cannot issue separate licenses or administer exams, state law grants municipalities full authority to regulate local construction and safety within their jurisdictions. Municipalities ARE legally authorized to:

1. Require Local Contractor Registration: Cities may require state licensees to register their state license with the city building department before pulling permits — but since September 1, 2021, Texas Occupations Code Sec. 1302.304 prohibits a municipality from charging any registration fee to a TDLR-licensed ACR contractor. Registration may be required; a fee for it may not. Permit and inspection fees remain allowed.
2. Mandate Building and Mechanical Permits: Cities may require contractors to obtain municipal permits prior to installing, replacing, or altering mechanical and fuel gas equipment.
3. Charge Permit and Inspection Fees: Municipalities may charge reasonable permit fees to cover code enforcement costs.
4. Enforce Technical Codes & Conduct Inspections: Cities enforce local building, mechanical, and fuel gas codes—such as the International Mechanical Code (IMC), International Fuel Gas Code (IFGC), and International Residential Code (IRC)—and inspect completed work for code compliance.
5. Require Local Performance Bonds: Cities may require contractors to post a local permit or performance bond to ensure work is completed in accordance with local ordinances.