1. (a) Plan of operation. The plan of operation of the Surplus Lines Stamping Office of Texas (the plan) and any amendment thereto shall become effective upon written approval of the State Board of Insurance, and shall constitute the manner in which the Surplus Lines Stamping Office of Texas (the stamping office) shall operate and discharge its responsibilities in accordance with the Insurance Code and the rules and regulations of the State Board of Insurance.
2. (b) Those to whom the plan applies. All persons licensed as surplus lines agents under the Insurance Code, Article 1.14-2, shall be subject to the provisions of the plan.

3. (c) Directors.

   1. (1) Board of directors. The management of all the affairs, property, and business of the stamping office shall be vested in the board of directors, and such board of directors shall consist of nine persons who serve terms as established in the plan of operation. Four of the members of the board of directors must represent the general public. A public representative may not be:

      1. (A) an officer, director, or employee of an insurance agency, agent, broker, solicitor, adjustor, or any other business entity regulated by the Texas Department of Insurance;
      2. (B) a person required to register with the secretary of state under the Government Code, Chapter 305; or
      3. (C) related to a person described by subparagraphs (A) or (B) of this paragraph within the second degree of affinity or consanguinity.
   2. (2) Appointment and removal. The board of directors shall be appointed by the State Board of Insurance. The State Board of Insurance may remove a director for willful misconduct or absence from three or more meetings of the board of directors during a calendar year. A director who is absent from six meetings of the board of directors during a calendar year automatically vacates his or her position on the board of directors.
   3. (3) Terms of directors. Directors will serve for a term of three years. Directors may not serve consecutive full terms, except for the public insurance counsel. Directors shall serve until their successors are duly appointed except when removed from office. The minutes of the stamping office shall show the names of the board of directors and the term of office for each.
   4. (4) Vacancies. Vacancies on the board of directors may be filled for the remaining period of the vacating director's term by appointment by the State Board of Insurance. Persons currently on the board of directors will continue to serve until their present terms expire (unless removed from office). Vacancies thereafter shall be filled by persons meeting the qualifications as listed in paragraph (1) of this subsection. A person appointed to fill a vacancy must have the same qualifications as the director whose vacancy is being filled.

   5. (5) Actions. A majority of the board of directors shall constitute a quorum for the transaction of business and the acts of a majority of the directors present at a meeting at which a quorum is present shall be the acts of the board of directors, except that an affirmative vote of six or more directors is required to:

      1. (A) adopt an annual budget after review by the State Board of Insurance;
      2. (B) approve contracts with an obligation of $5,000 or more, not contemplated within the approved annual budget;
      3. (C) recommend for adoption by the State Board of Insurance a schedule for stamping fees and other fees;
      4. (D) borrow money;
      5. (E) amend this plan, subject to the approval of the State Board of Insurance;
      6. (F) authorize bank signatures; or
      7. (G) adopt and amend the procedures manual, following State Board of Insurance review.
   6. (6) Polling by telephone. When issues listed in paragraph (5) of this subsection are presented to the directors at any annual, regular, or special meeting, those directors absent from such meeting may be polled by the chairman of the board of directors on such issues by telephone or telegraph and any vote cast by such an absentee director on such issues by telephone or telegraph shall be as valid as though such absentee director was in fact present at the meeting for purposes of determining whether a quorum is present and voting. Votes cast in this manner shall be subsequently confirmed in writing by letter from such absentee director to the chairman.

   7. (7) Directors' annual meeting. The first regular meeting of the board of directors in the fiscal year is designated as the directors' annual meeting, and shall be held at such place designated by the board of directors. At each directors' annual meeting the board of directors shall:

      1. (A) elect officers;
      2. (B) review the plan and proposed amendments, if any;
      3. (C) review operating expenses, schedule of fees, and annual report for submission to the State Board of Insurance and the commissioner;
      4. (D) review, consider, and act on any other matters deemed by the board of directors to be necessary to the administration and purposes of the stamping office under the Insurance Code, Article 1.14-2, and rules and regulations adopted thereunder by the State Board of Insurance which are specifically applicable to the stamping office.

   8. (8) Board organization. The directors of the stamping office shall elect a chairman, a vice chairman, and a secretary. They shall be elected at the board of directors' annual meeting and shall hold office until the next directors' annual meeting, or until their successors are elected and installed, unless removed pursuant to paragraph (2) of this subsection.

      1. (A) Chairman. It shall be the duty of the chairman to preside at all meetings and to perform all duties usually pertaining to the office, including the appointment of committees. The chairman shall be an ex officio member of all committees.
      2. (B) Vice chairman. It shall be the duty of the vice chairman to perform all the duties of the chairman during the absence of the chairman.
      3. (C) Secretary. It shall be the duty of the secretary to keep full minutes of the proceedings of all meetings of the stamping office and of the board of directors and to perform all duties usually pertaining to such office or as may be assigned by the board of directors.
   9. (9) Regular and special meetings. Regular meetings of the board of directors shall be held monthly on the third Tuesday of each month and the State Board of Insurance and the commissioner or his designee shall be notified. The chairman shall designate the time and place of such regular meetings and may cancel or postpone any regular meeting when, in the chairman's judgment, such cancellation or postponement will not interfere with the business of the stamping office. Special meetings of the board of directors may be called by the chairman and shall be called at the request of any three directors upon not less than five days' written notice to each director and to the State Board of Insurance and the commissioner or his designee of the time and place, which shall be in the State of Texas, and purpose or purposes of any special meeting. Such notice for any special meeting may be waived by written waiver signed by all the directors before or after such meeting. At any regular or special meeting the directors may consider and decide any matter deemed to be necessary for the administration of the stamping office.
   10. (10) Telephone meetings. Any meeting of the board of directors, except the annual meeting, may be held by telephone conference call when all or certain of the directors are not physically present at the place of the meeting, but participate in the conduct thereof by telephone, and, for all voting purposes, such directors shall be considered present and acting.
   11. (11) Consent. Any action which may be taken at regular or special meetings of the board of directors may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all the directors entitled to vote at a meeting. Any such consent signed by such directors shall have the same effect as a unanimous vote.
   12. (12) Compensation; reimbursement. Directors shall serve without compensation, but they may be reimbursed for reasonable expenses incurred by them in carrying out their duties and responsibilities as members of the board of directors.
4. (d) General manager. The board of directors shall employ a general manager who will be responsible for the operation and management of the stamping office in accordance with policy established by the board of directors and shall serve at the pleasure of the board of directors.

5. (e) Operations.

   1. (1) Address. The official address of the stamping office shall be the permanent office of the stamping office.
   2. (2) Employees and contracts. The stamping office may employ such persons, or contract with such firms or corporations, individuals, attorneys, or accountants, as are necessary for the performance of its duties. Contracts shall be subject to policies adopted by the board of directors.
   3. (3) Bank accounts; borrowing. The stamping office may open one or more bank accounts. The board of directors shall recommend for approval by the State Board of Insurance an investment and cash management policy for the stamping office. Such policy may provide for reasonable delegation of deposit and withdrawal authority to such accounts for stamping office business as may be consistent with prudent fiscal policy. The stamping office may borrow money as the board of directors may approve.
   4. (4) Budget and fee schedule. Prior to November 1 of each year, the board of directors shall adopt, subject to State Board of Insurance review, a budget for the stamping office operating and capital expenses and contingent expenses for the period from January 1 to December 31 following. The budget shall take into account unknown and unanticipated expenses as may reasonably occur and make provision for such expenses in accordance with prudent business practice, but reserves, excluding funds for asset replacement, shall not exceed one year's operating expenses. Based upon the anticipated volume of surplus lines premium during the upcoming calendar year, the board of directors shall recommend for adoption by the State Board of Insurance a stamping fee to be charged on all surplus lines business submitted to the stamping office.
   5. (5) Payment of fees. All surplus lines agents shall submit surplus line insurance documents to the stamping office as required by the Insurance Code and the rules and regulations of the State Board of Insurance and shall pay the fees therefor as permitted by law and as required by the stamping office. Any surplus lines agent who is delinquent in the payment of such fees may be reported to the commissioner of insurance; provided, however, that any delinquency of more than 60 days shall be reported to the commissioner of insurance.
   6. (6) Minutes. Upon approval of the minutes of each meeting of the board of directors, a copy shall be provided to the State Board of Insurance and the commissioner.

   7. (7) Reports. The stamping office shall record all surplus lines insurance documents submitted to it pursuant to the Insurance Code and rules and regulations of the State Board of Insurance and shall prepare reports to the commissioner of insurance, to the State Board of Insurance, and to surplus lines agents as required therein. Reports shall also be prepared for such other purposes as approved by the board of directors, or as the commissioner or the State Board of Insurance may reasonably request. The stamping office will furnish records and/or documents to staff of the State Board of Insurance upon request, for purposes of regulation, examination, or tax collection. The following shall be submitted to the commissioner and the State Board of Insurance:

      1. (A) the adopted budget;
      2. (B) a copy of the annual audit; and
      3. (C) an annual summary of operations which contains information on transactions, conditions, operations, and investments during the preceding year, such report to contain such matters and information as prescribed by and in such form as approved by the board of directors. The commissioner or the State Board of Insurance may at any time require the stamping office to furnish additional information with respect to any matter connected therewith and considered to be material in evaluating the economic, efficient, fair, and nondiscriminatory operation of the stamping office.
   8. (8) Procedures manual. The stamping office shall prepare, distribute, and maintain a procedures manual to each surplus lines agent setting forth the procedure for submitting surplus line insurance documents to the stamping office and other matters germane to the operation of the stamping office. The manual shall be prepared in cooperation with the State Board of Insurance, and any changes, updates, or amendments shall be submitted to the State Board of Insurance for review prior to distribution.
   9. (9) Insurance. The stamping office shall procure such bonds and insurance covering the stamping office, the directors, officers, employees, and agents of the stamping office, and its properties and activities, as it deems appropriate.
   10. (10) Status. The stamping office is a nonprofit association created by statute and operated under this chapter to assist the State Board of Insurance by performing duties authorized by this chapter and by the Insurance Code, Article 1.14-2, and any other laws applicable to the stamping office functions.

6. (f) Functions.

   1. (1) The stamping office shall perform those functions specifically enumerated in the Insurance Code, Article 1.14-2, §6A, subsection (b).

   2. (2) The stamping office shall assist the State Board of Insurance and facilitate compliance with the insurance laws of the state and the rules and regulations promulgated thereunder by conducting the following functions under the rules promulgated by the State Board of Insurance:

      1. (A) identifying technical deficiencies in policy preparation and submission, and seeking correction of such deficiencies;
      2. (B) identifying potential nonfraudulent violations;
      3. (C) notifying surplus lines agents of such potential nonfraudulent violations and seeking information related to the potential violations;
      4. (D) compiling information on the eligibility of surplus lines insurance and unauthorized insurers;

      5. (E) immediately reporting to the State Board of Insurance all potentially fraudulent and willful violations of law or rules; and reporting to the commissioner and the Surplus Lines Section of the State Board of Insurance, within time frames specified by the Surplus Lines Section, the following information:

         1. (i) evaluations of eligibility under §15.7 and §15.8 of this title (relating to Eligibility Requirements for Surplus Lines Insurance and Eligibility Requirements for Surplus Lines Insurers);
         2. (ii) all apparent violations;
         3. (iii) summaries of the stamping office activities including actions relating to deficiencies and potential violations which were determined by obtaining additional information to be nonexistent;
         4. (iv) results of inquiries relating to complaints;
         5. (v) result of any other actions under §15.13 of this title (relating to Surplus Lines Insurance Requests for Information, Examination, and Complaints);
         6. (vi) patterns and practice of any surplus lines agent that may constitute lack of compliance with the applicable insurance laws of the state;
         7. (vii) calculation of tax due on policies filed with the stamping office by surplus lines agents or agencies;
         8. (viii) compilations of premiums for property coverage written under a separate policy by a surplus lines insurer affiliated with a licensed insurer which information should include the total policy premium; the portion of the premium that is actual extended coverage and other allied lines, if available; and where the risk is located;
         9. (ix) summaries of the stamping office activities including actions relating to guidelines for encouraging compliance; and
         10. (x) compilations of premium volume by surplus lines agent, insurer, and kinds and class of surplus lines insurance coverage;
      6. (F) providing seminars and other educational programs relating to the Insurance Code, Article 1.14-1 and Article 1.14-2, this chapter, and the procedures of the stamping office;
      7. (G) collecting information as provided in this chapter and the Insurance Code, Article 1.14-2, §6A;
      8. (H) maintaining communications with agents, adjusters, unauthorized insurers, licensed advisory associations, and related trade associations;
      9. (I) maintaining communication with the commissioner and State Board of Insurance including electronic or computer communication as required;
      10. (J) providing information to surplus lines agents including tax reports; and
      11. (K) conducting other activities provided by this chapter.
   3. (3) The stamping office is authorized by §15.13 of this title (relating to Surplus Lines Insurance Requests for Information, Examination, and Complaints) to make inquiries and examine agents to effect its function under this chapter.
   4. (4) Any information collected under this chapter that indicates potential nonfraudulent violation of the laws of this state or the rules or regulations adopted thereunder that has not been determined by inquiries for information to be nonexistent or corrected as a technical deficiency shall be reported to the commissioner and the Surplus Lines Section of the State Board of Insurance. Such report shall not be released to the public by the stamping office. In any proceeding initiated under this chapter, stamping office personnel shall be available to provide evidence and testimony.
   5. (5) Stamping office recommendations against eligibility under §15.8 of this title (relating to Eligibility Requirements for Surplus Lines Insurers) shall be accepted by the commissioner. The stamping office may change an eligibility recommendation based on new or corrected information.

7. (g) Records and reports.

   1. (1) A written record of the proceedings of each meeting of the board of directors shall be retained by the secretary with copies furnished to each director and to the commissioner and the State Board of Insurance.
   2. (2) The board of directors shall, once each year, provide for an independent audit of all the books and records of the stamping office, and a copy of the audit report shall be provided to the commissioner and the State Board of Insurance.
8. (h) Indemnification. Each member of the board of directors, officer, employee, or agent of the stamping office shall be indemnified by the stamping office against all expenses, judgments, decrees, fines, penalties, and amounts paid in settlement, or incurred in the defense, of any action taken or not taken by such person in the performance of such person's powers and duties under the Insurance Code and the rules and regulations of the State Board of Insurance and this plan, unless such person shall be finally adjudged to have committed a breach of duty involving gross negligence, bad faith, dishonesty, willful misfeasance, malfeasance, or reckless disregard of such person's responsibilities. In the event of settlement before final adjudication, such indemnity shall be provided only if the stamping office is advised by independent counsel that such person did not, in counsel's opinion, commit such a breach of duty. The board of directors may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the stamping office against any liability asserted against such person and incurred by such person in such capacity or arising out of such person's status as such, whether or not the stamping office can indemnify such person against such liability under this article.
9. (i) Dissolution. In the event the stamping office is dissolved, the commissioner shall take charge of and transfer the remaining assets, books, and records of the stamping office to the State Board of Insurance or to another organization established for the same or similar purpose as the stamping office and which organization shall be exempt under the Internal Revenue Code, §501(c)(3).

Source Note:The provisions of this §15.101 adopted to be effective June 15, 1988, 13 TexReg 2752; amended to be effective May 7, 1991, 16 TexReg 2302; amended to be effective March 11, 1992, 17 TexReg 1542; amended to be effective March 25, 1993, 18 TexReg 1683.