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HB 2275

Relating to arbitration provisions in surplus lines insurance contracts.
Overall Vote Recommendation
Yes
Principle Criteria
positive
Free Enterprise
positive
Property Rights
positive
Personal Responsibility
positive
Limited Government
positive
Individual Liberty
Digest
HB 2275, introduced in the 89th Texas Legislature, addresses arbitration provisions in surplus lines insurance contracts for risks located entirely within Texas. The bill mandates that any arbitration required under such a contract must be conducted within the state unless both the insurer and policyholder agree to an alternative venue. In cases where the venue is changed, the insurer is required to provide written notice and a premium credit to compensate the policyholder for any additional costs resulting from the change. Additionally, the bill specifies that the arbitration process and the interpretation of the insurance contract must be governed by Texas law.

This legislation applies to surplus lines insurance contracts delivered, issued for delivery, or renewed on or after January 1, 2026. Contracts executed before this date will remain subject to existing laws. The act is set to take effect on September 1, 2025. By standardizing the arbitration process and emphasizing the application of Texas law, HB 2275 aims to enhance consistency and predictability in surplus lines insurance agreements involving Texas-based risks.

The original version of HB 2275 and the Committee Substitute both address arbitration provisions within surplus lines insurance contracts in Texas. However, the original bill was more stringent compared to the substitute version.

In the original bill, any surplus lines insurance contract containing an arbitration clause had to conduct arbitration strictly within the state of Texas. Additionally, the contract and arbitration proceedings were required to be governed solely by Texas law. This mandate left no room for alternative arbitration venues, even if both parties agreed otherwise.

The Committee Substitute introduces more flexibility. It allows the insurer and policyholder to mutually agree on a different arbitration venue, provided the insurer gives written notice and compensates the policyholder with a premium credit for any extra costs due to the venue change. Similar to the original bill, the substitute still mandates that arbitration and contract interpretation be governed by Texas law.

The core difference lies in the flexibility of the arbitration venue. While the original bill required arbitration strictly within Texas, the committee substitute permits an alternative venue through mutual agreement, balancing consistency with a degree of contractual freedom. 
Author (5)
Matt Morgan
Jeffrey Barry
Ann Johnson
Cassandra Garcia Hernandez
John Bryant
Co-Author (100)

Contact the Author

Rep. Matt Morgan

Capitol Phone:
(512) 463-0710
Capitol Office:
EXT E2.802
E-Mail:
[email protected]
Visit Official Website
Fiscal Notes

The Legislative Budget Board (LBB) has determined that HB 2275, will have no significant fiscal impact on the state budget. The LBB's analysis indicates that any costs associated with implementing the bill can be managed within existing resources. This suggests that state agencies, particularly the Texas Department of Insurance, do not expect to incur substantial additional expenses as a result of the bill's provisions.

Furthermore, the bill is not expected to have any fiscal implications for local government units. This means that municipalities, counties, and other local entities will not experience increased costs or revenue changes due to the implementation of HB 2275.

Overall, the fiscal impact of the bill is minimal, with both state and local governments able to accommodate the changes within their current budget frameworks.

Vote Recommendation Notes

The overall vote recommendation for HB 2275 is Yes. The bill addresses arbitration provisions in surplus lines insurance contracts, specifically when the covered risk is located entirely within Texas. It requires that arbitration be conducted within the state and governed by Texas law, ensuring that policyholders are not subjected to potentially disadvantageous out-of-state arbitration processes. However, the bill also introduces flexibility by allowing the insurer and policyholder to mutually agree on a different arbitration venue if the insurer provides written notice and a premium credit to cover any additional costs incurred by the policyholder.

HB 2275 aligns well with key liberty principles. First, it promotes individual liberty by protecting Texas policyholders from being compelled into out-of-state arbitration, which could undermine their legal protections. It also upholds private property rights by ensuring that disputes over Texas-based insurance contracts are resolved within the state's legal framework. Additionally, the bill supports free enterprise by balancing consumer protection with contractual flexibility, allowing both parties to agree on an alternative venue under specific conditions. The bill does not impose excessive regulation, which aligns with the principle of limited government, and it encourages personal responsibility by requiring both the insurer and policyholder to make informed decisions when changing the arbitration venue.

The LBB has reported that the bill would not have a significant fiscal impact on the state or local governments, indicating that the proposed changes are cost-effective and sustainable. Considering the bill's balance between consumer protection and contractual freedom, as well as its alignment with core liberty principles, Texas Policy Research recommends that lawmakers vote YES on HB 2275.

  • Individual Liberty: HB 2275 promotes individual liberty by ensuring that Texas policyholders are protected under state law when dealing with surplus lines insurance contracts. By mandating that arbitration be conducted within Texas (unless both parties mutually agree otherwise), the bill prevents insurers from imposing out-of-state arbitration clauses that could compromise the rights of Texas residents. This approach empowers individuals by maintaining their access to familiar and favorable legal standards within their home state, safeguarding their ability to fairly resolve disputes.
  • Personal Responsibility: The bill reinforces personal responsibility by requiring that both the insurer and policyholder make informed decisions when agreeing to an alternative arbitration venue. The requirement for written notice and a premium credit when changing the venue emphasizes transparency and accountability on the part of the insurer. This provision ensures that policyholders are aware of the implications and costs associated with a change in arbitration location, fostering responsible and deliberate decision-making.
  • Free Enterprise: The bill supports free enterprise by maintaining a balanced approach to regulation. While it establishes basic protections for policyholders, it also allows contractual freedom by enabling insurers and policyholders to agree on a different arbitration venue if both parties consent. This flexibility ensures that surplus lines insurers can continue to operate without facing overly restrictive requirements, preserving a competitive insurance market while still protecting consumers from potentially burdensome arbitration clauses.
  • Private Property Rights: By stipulating that arbitration and contract interpretation must be governed by Texas law, the bill upholds private property rights. It ensures that disputes involving insurance policies covering Texas-based risks are resolved according to local legal standards rather than being subjected to the laws of another state. This protection is vital for policyholders who might otherwise face legal disadvantages or increased costs from out-of-state arbitration.
  • Limited Government: HB 2275 reflects the principle of limited government by not imposing unnecessary or burdensome regulations on insurers. Instead, it sets reasonable requirements that prioritize consumer protection without overregulating the insurance industry. The bill ensures that state involvement is limited to maintaining fairness in arbitration practices while allowing flexibility when both parties mutually agree.
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