Diligent Effort Requirement in Texas
The diligent effort requirement is a Texas surplus lines placement condition concerning the availability of the required insurance from authorized insurers before coverage is placed with an eligible surplus lines insurer.
Definition
The diligent effort requirement in Texas is the statutory condition under which the full amount of required insurance generally must be unavailable, after a diligent effort, from an insurer authorized to write and actually writing the applicable kind and class of insurance in Texas before the insurance may be placed with an eligible surplus lines insurer.
The requirement forms part of the statutory framework governing access to the surplus lines market. It distinguishes insurance that remains obtainable through authorized insurers from insurance that may be placed through surplus lines mechanisms when the admitted market cannot supply the full amount required, subject to applicable statutory exceptions.
Structural Components
- Required insurance: The insurance amount and coverage being sought for the applicable risk.
- Authorized insurer market: Insurers authorized in Texas that are actually writing the relevant kind and class of insurance.
- Diligent effort: The effort directed toward determining whether the required insurance can be obtained from the applicable authorized market.
- Availability determination: The determination of whether the full amount of required insurance can be obtained from authorized insurers.
- Surplus lines placement: Placement through a properly licensed surplus lines agent when the statutory conditions for surplus lines insurance are satisfied.
- Eligible surplus lines insurer: A surplus lines insurer that satisfies the eligibility requirements applicable to the placement.
Parameters & Conditions
The diligent effort requirement is primarily associated with Texas surplus lines insurance placements. Under the general rule, the relevant inquiry concerns whether the full amount of required insurance can be obtained from an insurer authorized to write and actually writing that kind and class of insurance in Texas.
- The inquiry concerns actual availability within the authorized market rather than the theoretical existence of an insurer licensed for the applicable line.
- The statutory condition applies to the amount of required insurance, and surplus lines insurance generally addresses the amount not obtainable from authorized insurers when the general placement rule applies.
- The resulting surplus lines insurance must be placed through a surplus lines agent.
- The surplus lines insurer must satisfy the statutory eligibility requirements applicable at the relevant inception and anniversary dates.
- Specific categories of insureds, coverages, or lines of insurance may be subject to statutory exceptions or modified diligent-effort treatment.
Topic Relationships
- Excess and Surplus Lines — the insurance market framework within which the diligent effort requirement generally operates.
- Underwriting — the insurer risk-evaluation process that affects whether an authorized insurer will accept a particular exposure.
- Insurance Distribution — the broader structure through which insurance products are accessed and placed.
- Insurance Broker — an insurance distribution role conceptually related to market access and placement activity.
- Independent Insurance Agent — an insurance distribution role associated with access to multiple insurance markets.
- Commercial Property Insurance — a class of insurance that may involve surplus lines placement when applicable statutory conditions are present.
Exceptions, Limitations & Boundaries
The diligent effort requirement is not an absolute prerequisite for every Texas surplus lines placement. Texas law contains circumstances in which the general diligent-effort condition does not apply or applies differently.
- Certain exempt commercial purchasers may receive surplus lines insurance without satisfaction of the general diligent-effort condition when the applicable statutory disclosure and written-request requirements are satisfied.
- Certain industrial insureds may be exempt when the statutory disclosure, insurer financial-strength, and written-request conditions are satisfied.
- Qualifying surplus lines flood coverage is subject to a statutory exception from the general diligent-effort and admitted-market amount limitations.
- Certain commercial lines designated by Texas statute are exempt from the general diligent-effort requirement unless applicable filing requirements are temporarily reinstated.
- The availability of windstorm and hail insurance through the Texas Windstorm Insurance Association does not by itself prevent surplus lines placement under the applicable statutory framework.
- Texas group property insurance provisions may establish a different frequency or application of the diligent-effort requirement for qualifying group policies.
The diligent effort requirement concerns the statutory conditions governing access to surplus lines insurance. It does not independently define the coverage terms, exclusions, limits, underwriting standards, or claims provisions contained within a particular insurance contract.
Diligent Effort Requirement in Texas: Definitional FAQ
It is the general surplus lines placement condition requiring a determination, after a diligent effort, that the full amount of required insurance cannot be obtained from an insurer authorized to write and actually writing the applicable kind and class of insurance in Texas.
Yes. It is part of the Texas statutory framework governing when insurance may be placed with an eligible surplus lines insurer.
No. The relevant statutory condition concerns whether the full amount of required insurance can be obtained from an insurer authorized to write and actually writing the applicable kind and class of insurance in Texas.
No. Texas law establishes exceptions and modified applications for certain insureds, coverages, lines of insurance, and group insurance arrangements.
No. Diligent effort concerns eligibility for the placement pathway and does not itself determine the contractual coverage terms, exclusions, conditions, or limits of the resulting policy.