WASHINGTON, DC—On May 29, 2009 NAPSLO submitted a letter, in conjunction with the SILA Surplus Lines Steering Committee asking the Washington, D.C. Insurance Department to support legislation that would:

 

•  Eliminate zero reports from surplus lines brokers; and

•  Extend the broker reporting period, which is presently 10 days following the end of the month; and

•   Revise the diligent search requirement, which presently appears to require the surplus lines licensee to conduct the diligent search; and

•  Eliminate the provision that a surplus lines broker license could be revoked if the broker placed policies with an unauthorized insurer "which could be placed with an authorized company except for abnormal provisions in the policy" (NAPSLO and SILA argued that a risk may qualify for surplus lines because the insured requires “abnormal provisions in the policy”); and

•  Change the provision that allows the broker’s license to be revoked or non-renewed if the broker procured policies from "unauthorized companies whose standards of solvency and management do not meet the requirements necessary for the protection of the policyholders."  (NAPSLO and SILA are concerned that the standard encourages the use of hindsight in evaluation of the broker’s performance instead of requiring the use of companies that reasonably appear financially sound at the time of the placement).

 

It appears at least some of the reforms will be implements and a proposed bulletin is currently under discussion in the DOI.

 

FLORIDA—For much of the first part of the year NAPSLO was involved with an informal industry "working group" that worked toward a legislative solution for the problems caused by the Essex v. Zota case. The Zota case ruled that a section of Chapter 627 of the Florida Insurance Code applied to surplus lines policies, notwithstanding the fact that Chapter 627 contained a provision that specifically stated "this chapter does not apply to surplus lines insurance."  Despite this plain language, the Florida Supreme Court concluded the language was a "scrivener's error" (legal clerical error).

 

Near the end of the legislative session, the Florida Legislature passed HB 853/SB 1894 to rectify the holding in Essex v. Zota.  The working group fought off a number of amendments offered by the trial bar and ultimately got the bill passed. The trial bar did succeed in getting some of their amendments attached, but it could have been much worse without the tireless efforts of the working group.  The bill provides that Chapter 627 of the Florida insurance code does not apply to surplus lines insurance, except for those provisions that specifically reference surplus lines insurance. 

 

The legislative fix for the Essex v. Zota case, HB 853, was finally signed by Governor Charlie Crist on June 11. The Zota case was handed down June of 2008 so the bill represents a year of hard work of many parties in a very tough legislative environment. The bill allowed the law suits already on file to continue so the ultimate damage caused by the Zota decision will not be known until all the litigation is resolved.  

 

The Florida Surplus Lines Services Office recently issued bulletin 09-001 to describe notices required to comply with recent changes to the Surplus Lines Law necessitated by the Essex v. Zota case. A series of frequently asked questions was also released and deal mainly with the new notice requirements.  Rumors continue to circulate that there will be legal challenges to the Zota legislative fix, involving, among other things, the limitation on the retroactive application of the law to suits filed before May 15, 2009.

 

Florida HB 1171 is a bill that would deregulate rates for large insurers and permit non-assessable policies for residential property to be exempt from rate limits and rate reviews by the state.  These policies would be exempt from the emergency assessment from the Florida hurricane catastrophe fund and Citizens Property Insurance Corporation.  NAPSLO objected to the bill because surplus lines insurers are already exempt from rates and this bill appears contrary to the intent of the Cat Fund and Citizens laws.  The bill was vetoed but another version of this bill has already been drafted and will be introduced in the next legislative session.

 

Florida SB 410 is a bill that requires that any line of insurance offered in any state must be offered in Florida. The bill does not address surplus lines insurance, but mentions only "an insurer." It did not pass.

 

Rumors are circulating that there will be legislators supporting the elimination of the diligent search requirement in the next legislative session.  The reason for the elimination would apparently be to stimulate competition.    NAPSLO has not taken a position on these types of statutes, but some in the industry are concerned that if there is no regulatory distinction between admitted and non-admitted markets it would open the door to further regulation of surplus lines insurers.

 

GEORGIA—The Georgia Insurance Department has reportedly considered applying the retaliatory tax provisions of the code to surplus lines insurance.  Instructions on the GA web site currently indicate that a decision on this point has not been made. NAPSLO submitted a letter expressing the concern that the multi-state tax system for surplus lines is already complex and overlaying a retaliatory system would only further complicate matters.

 

HAWAII—Hawaii SB 892 would prohibit a surplus lines broker from writing life insurance, accident and health insurance and annuity products. NAPSLO submitted comments to the effect that some lines of insurance categorized as “health insurance” such as disability insurance, are actually written in the surplus lines market. The bill passed.

 

IOWA—On 1-28-2009, Iowa adopted ADC 191-21.1 -9  implementing electronic filing for surplus lines brokers and eliminated the “zero” reports whereby a surplus lines broker was required to notify the department that no business was written during the reporting period.

 

KENTUCKY—Kentucky has taken initial steps to implement a system to allocate surplus lines taxes among political subdivisions of the state where portions of surplus lines exposures reside. A hearing was held Jan 29, 2009 regarding the risk location verification criteria and the process for vendors, and surplus lines brokers to apply for verification of a risk location system.  The system is intended to assist brokers with allocating the surplus lines taxes to the numerous political subdivisions in the state.

 

A hearing was held Aug. 24 at the Kentucky Insurance Department regarding the reporting procedure to be used by surplus lines brokers. The department will generate a report for each licensed broker.  The brokers will be required to retrieve their report, review and sign the report, and submit it to the department along with the tax.  Electronic filing of affidavits will become necessary. 

 

The regulations to implement this complex tax allocation system have become final and will require implementation in 2010. Brokers transacting business with exposures in Kentucky should review the requirements as soon as possible. 

 

LOUISIANA—In December the Louisiana Department of Insurance issued a notice of intent to adopt Regulation 93 - Named Storm and Hurricane Deductibles, which states that it "applies to approved unauthorized insurers, i.e. surplus lines." It does not apply to commercial property or properties with three or more units.  NAPSLO and others objected to the proposed Regulation 93 and its application to surplus lines insurers but it has now become final. The regulation requires insurers who wish to deviate from rules regarding canceling or changing policy terms for homeowner's policies that have been in force for more than three years to file a business plan with the Department outlining how they plan on writing additional policies in the state.

 

NAPSLO has received complaints about Louisiana Insurance Department data calls to surplus lines insurers issuing homeowner's policies for the purpose of validating that the rates of Citizens Insurance Corp. are more than 10% above those charged by the voluntary markets.

 

In connection with an audit of the DOI by the Louisiana Legislative  Auditor, (LLA) the DOI objected that information in its possession was protected from disclosure by third party confidentiality agreements.  The LLA has renewed its request for information and the DOI has begun notifying parties that confidential information provided to the DOI may be released to the LLA without further notice. 

                                                    

Louisiana Bulletin 08-01 eliminated a cap on taxi rates, but acknowledged that the code required taxi rates be filed by surplus lines insurers. NAPSLO has requested that the legislation be amended to remove the filing requirement for surplus lines insurers.

 

HB 333 would allow only one deductible per calendar year for named windstorms, as well as windstorm and hail. It was to apply to homeowners insurance. The language of the bill did not specifically state that it applied to surplus lines insurance or exempted surplus lines insurance. NAPSLO submitted a joint letter with the AAMGA and the Louisiana Surplus Lines Association asking that surplus lines insurers be exempted from the scope of the bill in order to retain the traditional freedom from form regulation. The letter argued that the bill would actually make insurance less available for the most distressed homeowners and force more business into the state-run facility.   Through the efforts of the LSLA and others, the bill has now exempted surplus lines insurance from the one deductible rule.

 

Louisiana passed Senate Bill 290, which became effective Aug. 15, 2009.  It revised the coinsurance statute so that it more clearly applies to authorized insurers.  The bill clarified that surplus lines insurers were not required to file the coinsurance clauses. It now reads that "no policy of fire and extended coverage insurance issued by an authorized insurer covering property or risks in this state shall contain any clause or provisions  . . . providing in any way that the insured shall be liable as a co-insurer unless such clause has been approved by the Commissioner."

 

Louisiana passed HB 623 which restricted the forms that can be used to issue a certificate of insurance. The bill specifically mentions surplus lines insurance. NAPSLO objected to the provisions because the bill amounts to a restriction on the freedom from form regulation necessary for the surplus lines market to function.

 

Louisiana also issued a policy disclosure requirement in Bulletin no 09-08 which the department has verbally stated is applicable to surplus lines insurers. The disclosures would need to be attached to the policy and would identify items such as deductibles, flood limitations etc. The Bulletin does not explicitly mention surplus lines insurance. 

 

  The Department is also drafting “Directive P” which requires data reporting for residential insurance and private passenger insurance.  It specifically mentions surplus lines insurance.  The Louisiana Surplus Lines Association has objected to the proposed Directive P, but it looks like some form of the directive will be issued soon.

 

Other bills that were considered by Louisiana include: SB 40 which would repeal the surplus lines tax and HB 293 which would allow state agencies to purchase excess insurance exempt from the surplus lines tax. These bills did not advance.

 

MARYLAND—The Maryland Attorney General’s office has recently advised the Insurance Department that the Maryland unfair claims practices act applies to surplus lines carriers.  This was a change of position and NAPSLO has provided written objections to the state.  We are waiting on the response.  The state has declined to make public the attorney general’s opinion so we are not aware of what caused the change of position.  We are still trying to determine what the insurance department intends to do now that it has obtained this opinion from the Attorney General. 

 

MINNESOTA—The new Minnesota Surplus Lines Stamping Office opened effective January 1. 2009.  NAPSLO met with representatives from the state on two different occasions and submitted comments in favor of the implementation of the Stamping office. Minnesota recently passed House Bill 1853. It makes changes that primarily impact the stamping office and clarifies that Surplus lines brokers must register with the Minnesota Surplus Lines Association

 

MISSOURI—Missouri SB 464 created a two-year license for surplus lines brokers and amends the quarterly reporting requirements for surplus lines brokers. Missouri is also investigating the creation of a health care stabilization fund.  How it might impact surplus lines insurance is unclear. In connection with this project, a data call has been issued to admitted companies, but was not sent to surplus lines companies. A meeting was held Nov. 13, 2009 in Kansas City to further discuss the proposal.  NAPSLO will monitor the proposal and if necessary submit comments.   The biggest concern is that surplus lines insurers not be displaced by a state-run facility.

 

MISSISSIPPI—Mississippi SB 2858 extends the repealer of the immunity for the Board of Directors of the stamping office. The immunity for the board is extended to 2012.

 

Mississippi also amended the policyholder bill of rights to clarify the disclosure requirements. The regulation specifically mentions surplus lines insurance.

 

MONTANA—Effective July 1, 2009, the Montana Commissioner of Securities and Insurance announced it will review and process surplus lines insurance submissions, determine applicable stamping fees owed, and send surplus lines agent’s tax and fee statements.  All of these functions were previously performed by the Montana Surplus Lines Agents Association (MSLAA).

 

NAPSLO submitted objections and testified in late August in opposition to the closing of the Montana Surplus Lines Stamping Office by the State Insurance Commissioner.  NAPSLO contends that the Stamping Office should have been allowed to continue collecting the stamping fee unless the state found that the stamping office was failing to perform its duties and that the stamping office should have been provided a hearing on the issue.

 

NEW HAMPSHIRE- New Hampshire has proposed a regulation for the use of credit scores that would apply to surplus lines insurance. NAPLSO objected to the proposed regulation because it would require rate and rule filings for surplus lines companies utilizing credit scores

 

NEW JERSEY—The Piermount Iron Works v. Travelers case reversed a lower court decision and held that the cancellation and non-renewal laws were not applicable to a surplus lines insurer.

 

A New Jersey amendment to AC 11:17B-3.1 provides that the prohibition on broker fees continues to apply to personal lines insurance, but this amendment would permit brokers to charge fees for services rendered in connection with commercial lines policies. Policy Fee restrictions, unrelated to a service fee, continue to apply to surplus lines.

 

New Jersey recently withdrew funds from the surplus lines guaranty fund (HB 4108).  NAPSLO worked with a coalition to eliminate the surplus lines guaranty fund last year, because the state raids the fund from time to time. In our view the fund is not providing a benefit to the surplus lines community if the state withdraws the money every few years and uses it for purposes unrelated to surplus lines insurance.

 

New Jersey has increased the surplus lines tax from 3% to 5%. NAPSLO objected to the tax increase on grounds that it was larger than the increase imposed on admitted business.  Imposing an additional burden on the most distressed insured’s is bad policy.

 

New Jersey HB 4092/SB2582 is a bill that would remove the statutory cap on broker fees, but require the cap on broker’s fees to be set by the commissioner. 

 

New Jersey amended its export list on Oct. 5 2009 adding “special risk disability and personal accident coverage” and “livestock gross margin policies” to the list. 

 

NEW YORK—NAPSLO objected to NY circular letter 26 which was circulated to the industry before it was issued.   The circular letter pertains to a law that took effect on January 17, 2009. The law applies to all liability policies (including renewals) issued or delivered in New York on or after the effective date of January 17, 2009, including, by its terms, policies issued in the excess line market. The circular letter was to remind liability insurers of the necessity of promptly revising their property/casualty insurance policy forms to comply with the bill's significant amendments.

 

Specifically, Insurance Law 3420 establishes minimum policy provisions and other requirements with respect to liability policies “issued or delivered” in New York. According to the circular letter, the claim may not be denied if: 1) it had not been reasonably possible to give notice within the prescribed time, and notice is given as soon as reasonably possible, even if the insurer has been prejudiced; or 2) the insurer has not been prejudiced, even if the claim was not made as soon as reasonably possible.

 

NAPSLO objected that the law violates the freedom from form regulation necessary to insure distressed risks.  If the risk is so distressed that it was declined by the admitted market, a law making the tail even longer is not in the best interest of the insured.  

 

The department has released the producer compensation transparency disclosure guidelines. The guidelines specifically exempt surplus lines wholesalers from the disclosure requirements.

                           

New York S290 is a bill that imposes coverage terms and limits upon public vessel liability insurance. It is intended to apply to surplus lines insurance.

 

Resident surplus lines brokers in Missouri, Montana and Florida applying for an Excess Line Broker license in New York will not receive full license authority to write business in New York State because those states do not issue an unlimited license for New York resident licenses, according to a recent bulletin from ELANY. Under Bulletin 2009-10 released on May 11, ELANY reviewed the state's position regarding reciprocity and the issuance of "full" or "limited" non-resident excess/surplus lines broker licenses. The bulletin said that brokers from Florida and Montana will receive a limited license, which permits them only to write purchasing group business in New York.

 

New York will issue an unlimited license for Missouri licensed individuals; however, corporate entities will receive the limited license. In addition, while not limiting what they can write, the state will require a bond for California and Washington resident brokers because those states require a bond for New York resident brokers.

 

New York has adopted revisions to the excess lines placement governing standards, otherwise known as an "export list." NAPSLO testified in favor of the expansion of the export list. The additional coverages include some excess umbrella (over $10,000,000), commercial property (excess of $50,000,000), contract frustration, employed lawyers, and numerous lines impacting care providers. This expansion was the culmination of nearly two years of work by ELANY and other interested parties.

 

ELANY is also seeking a regulatory or statutory change that would allow E&S insurers to provide primary insurance for doctors, dentists and hospitals. These risks are currently required to go to the residual market if they cannot be placed with an admitted carrier.   NAPSLO will submit comments in support of the change. ELANY has also discussed proposing legislation that would waive the declination process for policies at the first and second renewal and allow an admitted quote to be treated as a declination.

 

New York has drafted a second circular letter regarding contract certainty. The circular has not yet been issued, but the draft does mention Excess Lines.

 

OHIO—Ohio is proposing HB 300 which would provide that “to be eligible for a nonresident surplus line broker’s license, a person must hold an active surplus lines broker license in the person’s home state. A nonresident surplus line broker shall obtain a nonresident license with a property and casualty line of authority in this state if the broker is or will be personally performing the due diligent requirements under section 3905.33 of the revised code.”  This change is consistent with the decisions made by the NAIC’s NARAB working group. NAPSLO supported these changes and is encouraged that a state is acting so quickly to implement the reforms.