Florida Lawmakers Pass Surplus Lines Insurance Regulation Exemption

Florida Gov. Charlie Crist has a bill on his desk that promises to clarify the state’s regulation of the surplus lines insurance business.

The Florida Senate on May 1 joined in the House in passing the measure lobbied for by the industry.

The measure restores the industry’s traditional exemption from state regulation of its forms and policies, an exemption that was undermined by two court rulings last year. The restoration of the regulatory exemption is retroactive to surplus insurance business written on or after Oct. 1, 1988.

The court rulings had raised the possibility that surplus lines carriers’ policies and forms would have to be approved by the state before use, a requirement this industry does not face in any other state.

The bill (CS/HB 853) also adds consumer protections and customer disclosure requirements that were urged by trial lawyers. These requirements go into effect Oct. 1, 2009.

The Florida Surplus Lines Association has been working with surplus lines, Lloyd’s and other property/casualty lobbyists in Tallahassee for weeks to convince lawmakers that the measure is essential for maintaining markets for hard-to-place insurance risks.

The trial bar lobby sought and achieved several amendments, including one assuring that attorneys’ fees must be incorporated into any court award against a surplus lines insurer.

For the most part, the legislation appears to accomplish what surplus lines professionals believe they need to maintain a healthy marketplace for surplus lines insurance.

“Passage of this legislation is also a victory by insurers and the state’s business community over the trial bar, who saw the court decisions as an invitation to endless litigation against surplus lines insurers whose policies suddenly were required to meet requirements that had previously applied only to admitted insurers,”
said Cecil Pearce, American Insurance Association vice president of state affairs.

The new disclosure provisions 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.

The legislation addresses the regulatory exemption by clarifying that the regulatory provisions of state insurance law in 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 original 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.