On June 16, 2020, the Excess Line Association of New York (“ELANY”) issued Bulletin No. 2020-35, promulgating ELANY’s new issue of “ELANY Elaborates” (the “EE”). This issue of EE (available here) focuses primarily on the classification of “surplus lines agents” in New York and elsewhere.
While it is quite common across the United States to see surplus lines brokers work closely with their surplus lines insurance company counterparts, most states view surplus lines producers as brokers for prospective insureds, and some states impose additional restrictions (and sometimes prohibitions) on a surplus lines broker acting in an agency capacity. New York, along with California, provides some of the most comprehensive guidance in this regard.
Under the EE, ELANY notes that the New York Insurance Law expressly prohibits unauthorized insurers from doing business in the state through an agent, and that “[i]nsurance agents have no role in excess [surplus] line placements”, even if involved in a retail capacity. This does not preclude a surplus lines broker from being granted binding authority on behalf of a surplus lines insurer in New York; provided, however, that the binding authority agreement must be filed with ELANY and, critically, the agreement must not define the producer as an “agent” for the carrier or grant the surplus lines broker other authorities that would shift the fiduciary duty that the broker owes to the insured over to the insurance carrier.
The EE notes that California is even more restrictive regarding surplus lines brokers acting in an agency capacity, and the state has levied an 8-figure fine based, in part, on the utilization of a “managing general agent” to facilitate surplus lines placements. California Bulletin 96-4 (available here) sheds additional light on activities that may and may not be conducted by a surplus lines broker in the state.
There is no question that the surplus lines industry and the specialized nature of its insurance offerings is conducive to close and coordinated involvement between surplus lines brokers and their respective unauthorized insurer counterparts, but all parties must make sure to not trip applicable state prohibitions on agency involvement. We will continue to report on any guidance promulgated by the states in this area.