Montana amended its insurance code to revise certain definitions and update certain provisions relating to surplus lines insurance effective March 7, 2019; the amendments can be found here. Section 33-2-301(3)(t)(i) of the Montana insurance code amended its definition of “surplus lines insurance” to include inland marine insurance. Revisions to Section 33-2-302(2)(a) that address conditions precedent to the sale of surplus lines insurance include the deletion of terms that provide that a producer must show that the insurance is not procured for the purpose of securing a lower premium rate than would be accepted by an authorized insurer or for an advantage in terms of the insurance contract. Section 33-2-302(2)(b) adds a provision to exempt producers from the diligent search requirement of subsection (2)(a)(ii) if the premium quoted by an authorized insurer is at least ten percent (10%) higher than the rate quoted by the unauthorized, eligible surplus lines insurer.
As previously discussed in this blog, a “diligent search” is required in order to place surplus lines coverage. Often the diligent search requirement prohibits declining coverage offered by an admitted insurer solely because the premium rate offered by the admitted insurer is higher than that offered by the surplus lines insurer. California, for example, prohibits “use of a surplus line broker’s license for the sole purpose of premium rate or competition with admitted insurers.” Cal. Code Regs. tit. 10 § 2140. That said, the industry also recognizes that admitted insurers should not be allowed to force arbitrary rates upon the insuring public. With the amendments described above, Montana has allowed such a declination if the premium rate is at least ten percent (10%) higher than that of an admitted insurer which seems to strike the balance between prohibiting surplus lines placement solely based on pricing and prohibiting arbitrary pricing by the admitted market. It remains to be seen whether other states will follow suit and expressly address whether surplus lines brokers may obtain declinations solely upon price in certain circumstances.
*Locke Lord is proud to publish the Locke Lord Excess and Surplus Lines Manual on an annual basis, located here.