The California property insurance market is undergoing a dramatic shift. As admitted carriers restrict their appetite for business in the state—particularly in high-risk zones—surplus lines insurers are increasingly stepping in to write residential property insurance.
As previously reported in Insurance Journal—and according to the Surplus Line Association of California—surplus lines homeowners insurance transactions surged by 119% in the first half of 2025 compared with the same period the prior year. Transactions—including new business, renewals, endorsements and extensions—rose from 78,309 to 171,551 during that span.
This builds on a sharp uptick that began in mid-2023, when major admitted carriers began scaling back coverage across the state. Industry leaders report continued expansion into rural, semi-rural, and wildland-urban interface areas, where surplus lines carriers are finding ways to provide coverage amid tightening market conditions.
This evolving landscape raises an important legal and policy question: Must surplus lines insurers comply with California’s requirement to offer earthquake insurance when writing residential property policies?
The Statutory Framework
California Insurance Code (CIC) §10081 et seq. mandates that admitted insurers offering residential property coverage must also offer earthquake insurance. This obligation was first introduced in 1985 and later expanded through Senate Bill 2596, which added drbrts; provisions. A bulletin from the California Department of Insurance reaffirmed the CDI’s intent to require strict compliance with these statutes. Carriers typically comply by offering earthquake coverage on their own paper, through affiliated admitted insurers, or via the California Earthquake Authority—a not-for-profit entity offering residential earthquake policies.
Notably, the CDI has confirmed that an insurer’s offer of a CEA policy—whether the “Basic” or the more expansive “Choice” product—meets the statutory obligation under Chapter 8.5. As such, the public policy goal is clear: residential property insurance must be paired with at least a minimum offer of earthquake coverage to protect California homeowners from seismic risk.
It is important to point out that the statutes impose more than a one-time offer requirement. They include obligations for written disclosures, timely offers at renewal and specific procedures for policyholder acknowledgment or rejection. Each of these obligations could arguably be extended to surplus lines carriers—if the statutes are interpreted to apply.
The Surplus Lines Gray Area
Yet the statutes and bulletins remain silent on whether surplus lines carriers are bound by these requirements concerning earthquake coverage. This ambiguity is critical because, as mentioned, surplus lines carriers are writing an increasing share of residential policies, and if there is an earthquake, consumers and regulators may claim the surplus lines companies should have done more to ensure the insureds had the opportunity to purchase coverage.
Surplus lines insurers are not admitted in California and generally escape many of the obligations imposed on licensed carriers. Still, they are subject to select Insurance Code provisions, which govern standard fire policy terms and have been interpreted to apply to surplus lines carriers. This precedent opens the door to the broader question: Can and should the earthquake offer requirement also extend to the surplus lines market?
CDI’s Reasoning
In a 2019 legal opinion regarding CIC §§677 and 678 (concerning cancellation and nonrenewal), the CDI opined that those provisions apply equally to surplus lines insurers. The department concluded that the plain statutory language, combined with the consumer protection purpose of the law, supports extending the rules to non-admitted carriers, particularly where no express exemption exists.
In that opinion, the department stated:
“Whether a statute regulating the business of insurance applies to an insurer or to a policy in a given case is not determined exclusively based upon whether the insurer is admitted or nonadmitted.”
Rather, the CDI emphasized harmonizing statutes with their broader purpose, cautioning against a narrow reading that would “thwart [the Legislature’s] objective by protecting policyholders from arbitrary policy cancellations and nonrenewals by admitted insurers, while failing to impose any restrictions on nonrenewals and cancellations by nonadmitted insurers.”
Applied to the earthquake insurance offer mandate, this same reasoning suggests that surplus lines carriers—writing residential risks located in California—may be expected to provide similar offers of earthquake coverage, even if not explicitly stated in CIC Chapter 8.5.
Practice and Market Behavior
Some surplus lines carriers appear to be acting cautiously, partnering with admitted insurers or CEA to ensure earthquake coverage is offered alongside residential policies. This practical workaround may signal industry recognition of the regulatory risks of noncompliance, or simply a good faith effort to protect policyholders.
Additionally, the fact that CEA policies are available to homeowners regardless of their fire carrier eliminates one possible defense: that earthquake insurance is not procurable in the surplus lines context.
A Need for Regulatory Clarity
In light of this, the current regulatory silence creates confusion not only for surplus lines carriers but for brokers and consumers as well. The CDI has not yet issued formal guidance on this issue, but given its prior opinions, public interest mandates, and consumer protection posture, there is a compelling case for clarification.
A definitive position—whether by bulletin, regulation, or statute—would ensure consistent consumer protection across the admitted and surplus lines markets. This takes on significant importance as more Californians find themselves insured through the surplus lines channel.
A Question Worth Further Study
The surge in surplus lines homeowners policies raises urgent policy questions. As things stand, surplus lines carriers are not definitively required to offer earthquake insurance, but the CDI’s prior interpretations of other statutes suggest that such a requirement could be imposed or inferred—especially in the absence of a statutory exemption.
Until clarified, the lack of uniformity leaves consumers vulnerable and puts surplus lines carriers and brokers in a legal gray zone. Given the stakes for homeowners, brokers, insurers, and the regulatory mission of the CDI, this is an issue worthy of deeper study and regulatory guidance.
Tosaris is a partner in the San Francisco office of Michelman & Robinson, LLP. She advises insurers and other Department of Insurance-regulated entities on a range of issues, including privacy issues and regulatory compliance. Phone: (415) 882-7770; Email: etosaris@mrllp.com.
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