1. (a) No insurance coverage shall be eligible for surplus lines unless the full amount of insurance required is not procurable, after a diligent effort has been made to do so, from among the insurers licensed to transact and actually writing that kind and class of insurance in this state, and the amount of insurance eligible for surplus lines shall only be the amount in excess of the amount so procurable from licensed insurers.

2. (b) The Surplus Lines Stamping Office of Texas (the stamping office) shall evaluate surplus lines insurance policies, contracts, or other detailed evidences of coverage which have an effective date on or after July 1, 1988, for eligibility under the Insurance Code, Article 1.14-2, §5, and other applicable provisions of the Insurance Code, Article 1.14-2, using evidence of the following facts and criteria, as applicable:

   1. (1) the surplus lines agent's determination that the authorized insurers and other agents with which business is conducted are not writing the kind and class of insurance sought or will not write the risk involved;
   2. (2) the kind and class of insurance that is reasonably available from authorized insurers;
   3. (3) the rates that would be applicable to the insurance coverage if the coverage had been written by an admitted company;
   4. (4) the rate applied to the insurance coverage procured through the surplus lines agent;
   5. (5) the terms, conditions, and coverages of the insurance contract issued;
   6. (6) the policy forms approved or promulgated for use by authorized insurers for similar coverage; and
   7. (7) any other relevant evidence relating to eligibility under the statute.

3. (c) Policy or contract forms and the contract terms thereof shall not be eligible unless:

   1. (1) the use is reasonably necessary for the principal purposes of the coverage;
   2. (2) the use would not be contrary to the purposes of the coverage; or
   3. (3) the use would not be contrary to the purposes of the Insurance Code, Article 1.14-1 and Article 1.14-2, with respect to the reasonable protection of authorized insurers from unfair competition by unauthorized insurers; and
   4. (4) the contract meets the requirements of §15.21 of this title (relating to Minimum Content of Contracts).
4. (d) The stamping office shall provide a written report to the commissioner of any surplus lines insurance policy or contract which appears, after evaluation under this section, to be ineligible under the Insurance Code, Article 1.14-2. Such report shall be provided to the commissioner upon a determination by the stamping office that compliance as provided in §15.101 of this title (relating to Plan of Operation of the Surplus Lines Stamping Office of Texas) cannot be obtained. Such report shall remain privileged and confidential unless and until introduced into evidence at an administrative hearing or in a court of competent jurisdiction.
5. (e) Reports received under subsection (d) of this section shall be handled by the commissioner under the same procedure for the refusal or suspension of the underlying license of local recording agents under the Insurance Code, Article 21.14, §§16-19, or managing general agents under the Insurance Code, Article 21.07-3, §§12-15, as applicable. Notice by the commissioner of intention to institute disciplinary action shall be provided to the holder of the license under consideration for disciplinary action upon receipt of the report and determination by the commissioner that the coverage may not be eligible for surplus lines. Violations of the Insurance Code, Article 1.14-2, are subject to the provisions and sanctions of the Insurance Code, Article 1.10, §7.

Source Note:The provisions of this §15.7 adopted to be effective January 1, 1976; amended to be effective March 15, 1981, 6 TexReg 770; amended to be effective November 10, 1988, 13 TexReg 5470; amended to be effective March 11, 1992, 17 TexReg 1542.