Florida Bills to Clarify Regulation of Surplus Lines Insurance Advance

By | April 22, 2009

Florida’s surplus lines insurance brokers and carriers are encouraged that legislation to clarify the surplus lines industry’s regulatory status in the state has survived several committee hurdles and appears headed for a full vote this week in the House and next week in the Senate.

The committees reported out similar bills that would restore the industry’s exemption from state regulation of its forms and policies that was undermined by two court rulings last year. The bills also add some consumer protections and disclosure requirements urged by trial lawyers.

The House bill (HB 853) and Senate bill (SB 1894) could face final votes this week or early next week. The current legislative session ends May 1.

“We are optimistic that this will pass before the end of the session,” Steve Finver, president, Florida Surplus Lines Association, who has been working with surplus lines, Lloyd’s and other property/casualty lobbyists in Tallahassee for weeks to guide the legislation to victory.

Finver said the trial bar lobby has been the main obstacle to clear sailing for the legislation but that compromises have been worked out.

“Trial lawyers wanted many things and we agreed to most of them especially when they protect the consumer. We have seen no other interest opposing these bills,” he said.

For the most part, the legislation appears to accomplish what surplus lines professionals believe they need to maintain a healthy marketplace for the insurance they sell to individuals and businsses that can’t obtain coverage in the standard market. They have warned that surplus lines carriers could restrict their writings in the state if they are required to have their policies and forms approved by the state before use, a requirement they do not face in any other state.

The restoration of the regulatory exemption would be retroactive to surplus insurance business written on or after Oct. 1, 1988 under both bills.

However, the bills also impose some new requirements on surplus lines insurers that would go into effect Oct. 1, 2009. These include requiring surplus lines insurers to print on the policy a notice if it contains a separate deductible or a co-pay provision for hurricane or wind losses, which may result in high out-of-pocket expenses to the insured, as well as a notice stating that surplus lines insurers’ policy rates and forms are not approved by any Florida regulatory agency. Other added provisions specify the payment types for surplus premium and claims and establish time frames for certain disclosures by insurers to claimants regarding liability claims.

Reflecting the lobbying of the trial bar, the Senate, but not House, version also provides for an award of attorney’s fees upon a judgment against a surplus lines insurer.

Surplus lines insurers are regulated by the state, but to a lesser degree than admitted insurers. The Office of Insurance Regulation (OIR) has not regulated surplus lines insurers to the same extent as admitted market insurers due to the traditional exemption.

In two recent court decisions the Florida Supreme Court and the U.S. Court of Appeals for the Eleventh Circuit addressed the applicability of the surplus lines insurance exclusion. Generally, these cases held that the exclusion only excluded surplus lines insurance from the statutory provisions governing insurance rates and not from other insurance regulatory requirements in chapter 627.

The legislation now being advanced in Tallahassee addresses the exemption by providing that the provisions of chapter 627 do not apply to surplus lines insurance unless a statutory section specifically states it applies to such insurers.

The bill applies retroactively to Oct.1, 1988 because that is the effective date of the law adding the surplus lines exemption to the statute.

Surplus lines insurers write policies for unusual situations that include hazardous materials transporters, commercial trucking enterprises, day care centers, older homes located in coastal areas, professional athletes, hospitals, expensive boats and cars, and medical malpractice. In order to place business with a surplus lines insurer, a surplus lines agent must make a “diligent effort” to place the policy with a Florida-authorized insurer, which is shown by having three written rejections of coverage from authorized insurers currently writing the type of insurance being sought.

“It is important for all to understand this must pass or the consumers in Florida could lose a marketplace that writes many businesses small and large,” said FSLA’s Finver, who is also president of the surplus lines agency Continental Agency of Florida, which is based in Boca Raton. “All the carriers are concerned and have stressed these concerns to myself and my associates.”

Topics Carriers Legislation Florida Excess Surplus

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