6.5 Surplus Lines Documents: Required Contents, the § 981.101 Notice, Evidence of Insurance, Contract Requirements, and Advertising

6.5 Surplus Lines Documents: Required Contents, the § 981.101 Notice, Evidence of Insurance, Contract Requirements, and Advertising

This section covers four outline items together: evidence of insurance, contract requirements, advertising, and the disclosures built into every surplus lines document. They are grouped because they all govern what the insured receives and what the agent may say.

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1. What Counts as a "Surplus Lines Document"

TIC § 981.101(a) defines a surplus lines document as each new or renewal insurance contract, certificate, cover note, or other confirmation of insurance obtained and delivered as surplus lines coverage. Binders, cover notes, certificates, and renewal documents all qualify, not just the final policy.

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2. The Statutory Notice (TIC § 981.101(b))

Each surplus lines document must state, in 11-point type:

"This insurance contract is with an insurer not licensed to transact insurance in this state and is issued and delivered as surplus line coverage under the Texas insurance statutes. The Texas Department of Insurance does not audit the finances or review the solvency of the surplus lines insurer providing this coverage, and the insurer is not a member of the property and casualty insurance guaranty association created under Chapter 462, Insurance Code. Chapter 225, Insurance Code, requires payment of a ___ (insert appropriate tax rate) percent tax on gross premium."

The notice contains four facts:

1. The insurer is not licensed to transact insurance in Texas; the coverage is surplus lines coverage.
2. TDI does not audit the insurer's finances or review its solvency.
3. The insurer is not a member of the guaranty association (TPCIGA).
4. Chapter 225 requires a stated tax rate on gross premium (4.85%).

Exam Warning: The statute prescribes the wording and the 11-point type size. It does not require boldface, color, or placement on the declarations page. Answers that add "boldface," "red ink," or "signed by the insured" are distractors.

Variations

• Domestic surplus lines insurers are exempt from § 981.101(b) and use the statement in 28 TAC § 15.5(c) instead (Section 4.1).
• Purchasing groups: The agent must stamp or write "Purchasing Group" conspicuously on each document issued to a purchasing group or its members (28 TAC § 15.115(c)).

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3. Other Required Contents (TIC § 981.101(c); 28 TAC § 15.5)

Each surplus lines document must show:

The Stamping Office's filing checklist also looks for the Texas complaint notice required by 28 TAC § 1.601 and the ZIP code of the Texas risk location.

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4. Contract Requirements (TIC §§ 981.102, 981.054, 981.005)

• Form limit: A surplus lines policy or contract form may not be used unless its use is reasonably necessary for the principal purposes of the coverage or is not contrary to Chapter 981's purpose of protecting authorized insurers from unwarranted competition (§ 981.102).
• No tie-ins: The insurer may not require the insured to place other, non-surplus-lines coverage with it as a condition of writing surplus lines coverage (§ 981.054).
• Validity: A surplus lines contract is valid and enforceable and is recognized like a comparable admitted contract unless there is a material and intentional violation of Chapter 981 or 225. Even then, the insured may enforce its rights (§ 981.005).

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5. Evidence of Insurance and Delivery (TIC §§ 981.103-.104)

1. On placing new or renewal coverage, the surplus lines agent must promptly issue and deliver to the insured, or the insured's agent, either the policy or, if the policy is not available, a certificate, cover note, or other confirmation of insurance (§ 981.103(a)).
2. If the policy was not available at placement, the agent must, on the insured's request and as soon as reasonably possible, obtain the policy from the insurer and deliver it to replace the temporary evidence (§ 981.103(b)).
3. The agent may not deliver evidence of insurance, or represent that coverage has been granted, without prior written authority from the insurer or information from the insurer in the regular course of business that coverage has been granted or the policy issued (§ 981.103(c)).
4. The written evidence must contain the complete terms, conditions, and exclusions, and any temporary confirmation must be replaced as promptly as possible (28 TAC § 15.105(a)).
5. Changes: If the insurers, their proportions, or any other material coverage term changes after delivery, the agent must promptly deliver a substitute certificate, cover note, confirmation, or endorsement showing the current status (§ 981.104). The agent must also promptly file substitutes and endorsements with the Stamping Office, with a memorandum explaining the change (§ 981.105(b)).

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6. Advertising (TIC § 981.219)

A surplus lines agent may advertise its ability to place surplus lines insurance permitted by Chapter 981. The general Chapter 541 rules still apply. The agent may not advertise that an eligible insurer is licensed or admitted in Texas, that TDI approved its rates or forms, that coverage is state-guaranteed, or that a Stamping Office "stamp" means state approval. Those statements are false or misleading under TIC §§ 541.052 and 541.061.

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7. Compliance Check: An Excess Liability Placement

A Houston wholesale agent places $20,000,000 of commercial excess liability for a Baytown chemical manufacturer with an eligible London market syndicate. The premium is $180,000.

• Binder and policy: Each shows the insured's and syndicate's names and addresses, the placing agent, the coverage, term, premium, rate, and the 4.85% tax ($8,730). Each carries the § 981.101(b) notice in 11-point type, the service-of-process designee, and the stamping fee.
• Delivery: The binder is delivered on placement. The agent obtains and delivers the policy as soon as reasonably possible, and a later endorsement adding a location is delivered and filed promptly.
• Filing: The agent files with SLTX within 60 days after the later of the effective or issue date. At 0.04%, the stamping fee is $72.