Diligent Effort
TX87 SB1367 waives the diligent effort requirements under 6 TIC 981.004(a) for specific commercial coverages for any insurance policies that are delivered, issues for delivery, or renewed on or after September 1, 2021.
Per 6 TIC 981.004(g), the following specific commercial coverages are outlined within 10 TIC 2251.0031(a) and (c): and 10 TIC 2301.0031(a) and (c):
(1) surety bonds;
(2) fidelity bonds;
(3) commercial inland marine;
(4) boiler and machinery;
(5) environmental impairment or pollution liability;
(6) kidnap and ransom;
(7) political risk or expropriation;
(8) commercial excess liability or umbrella liability;
(9) directors’ and officers’ liability;
(10) fiduciary liability;
(11) employment practices liability;
(12) errors and omission and professional liability other than medical professional liability;
(13) media liability;
(14) product liability, product recall, or completed operations;
(15) commercial cybersecurity, including first- and third-party commercial lines coverage for losses arising out of or relating to data privacy breaches, network security, computer viruses, and similar exposures;
(16) highly protected commercial property (see 10 TIC 2251.0031(b));
(17) commercial flood insurance not provided through the National Flood Insurance Program; or
(18) any combination of the kinds of insurance listed above
Otherwise, a surplus lines broker must make a diligent effort to obtain the full amount of required insurance from an insurer authorized to write that kind and class of insurance in Texas before surplus lines coverage is procured. See Section 981.004 of the Texas Insurance Code for more information on requirements that must be met before an eligible surplus lines insurer may provide surplus lines insurance.
State law does not define “diligent effort.” However, a diligent effort must be made in every situation, unless the insured is classified as an exempt commercial purchaser or industrial insured. If so, state law allows brokers to place certain commercial risks without a diligent effort.
For more information on what is required of an exempt commercial purchaser or industrial insured, see the following chart:
| Exempt Commercial Purchaser | Industrial Insured | |
|---|---|---|
| Texas Insurance Code Section | 981.0031 | 981.0033 |
| Effective date | 01/01/2015 | 09/01/2017 (for policies delivered, issued for delivery, or renewed on or after 01/01/2018) |
| Specific disclosure required between insured/broker | Yes | Yes |
| Insured employs/retains Qualified Risk Manager (required) | Yes | Yes |
| Insured paid aggregate P&C premiums in preceding 12 months (required) | $100,000 or more | $25,000 or more OR employs at least 25 full-time employees |
| Surplus lines insurer financial strength rating (required) | N/A | A- or better from AM Best Company |
| Meets at least one of the following criteria (required) | ||
| Net worth | More than $20 million | N/A |
| Generates annual revenue | More than $50 million | N/A |
| Full-time employees | 500 (or is a member of affiliated group employing more than 1,000) | See above |
| Nonprofit or public entity annual budget expenditures | At least $30 million | N/A |
| Municipality population | More than 50,000 | N/A |