On November 26th, Maine issued Bulletin 439 (the “Bulletin”) which provides, in granular detail, the criteria for placing insurance through the surplus lines market in the state. The Bulletin has received immediate and substantial attention within the surplus lines industry both for its thoroughness as well as its deviation, in some respects, from the expectations of other states.
Some of the highlights of the Bulletin are as follows:
- Life, health (except for certain types of disability), stop-loss, reinsurance, workers’ compensation and motor vehicle insurance are generally prohibited from being written on a surplus lines basis in Maine. By contrast, a number of states are beginning to allow forms of health coverage to be written through the surplus lines market, and a stop-loss insurance is seen by some other states as a form of liability coverage permissibly written on a surplus lines basis. Moreover, many states allow excess motor vehicle coverage to be written through surplus lines carriers, although most states require primary automobile coverage to be written through the admitted market to the extent such coverage satisfies the financial responsibility requirements of such jurisdictions.
- The “diligent search” requirement must by conducted thoroughly and in earnest. The Bulletin notes that “doing a specific number of inquiries does not mean that the producer has fulfilled this requirement.” By contrast, many states allow the surplus lines broker to presume the unavailability of a product in the admitted market by obtaining three (3) declinations from authorized insurers. Moreover, Maine requires that the diligent search be repeated at renewal, and price alone cannot be used as a means to export to the nonadmitted market in Maine.
- Even if a surplus lines broker cannot place coverage in the admitted market, Maine doesn’t necessarily allow the broker to explore the surplus lines market; rather, “[t]he test . . . is whether admitted coverage is available to the insured, not whether it is available to a particular producer.” This presents a very high standard for a surplus lines broker to meet, as it is effectively barred from placing coverage in the surplus lines market if it is aware of comparable admitted market coverage irrespective of whether the broker has access to such source, including due to the fact that the producer cannot obtain an appointment with an admitted insurer offering the desired product.
- Maine will only allow for surplus lines brokers to place nonadmitted coverage with surplus lines insurers that have been found to be eligible by the state and are on the state’s eligibility list.
The central takeaway from the Maine bulletin is that Maine does not see the surplus lines market as an alternative “of choice”, but rather “of necessity”. Surplus lines companies are often at the forefront of insurance innovation and creativity with respect to emerging industries and associated risks, but states differ substantially regarding the desired competitive balance between the admitted and surplus lines markets. For example, some states, such as Mississippi and Louisiana, have eliminated the diligent search requirement in its entirety and allow surplus lines insurers to compete on substantially equal footing with the admitted market. Some jurisdictions, such as New York, have made pushes to eliminate the diligent search requirement as to certain types of commercial lines products only. Maine clearly resides in the camp that views the diligent search requirement as an important procedural requirement that must be carefully considered and completed before a risk may be serviced by a surplus lines carrier.
Please click here for the Bulletin in full.