On February 8, 2021, the Excess Line Association of New York (“ELANY”) issued Bulletin No. 2021-05 reminding surplus line insurers and brokers about some often overlooked compliance requirements. Among the topics was the issuance of group policies and use of binding authority agreements.
With respect to group policies issued in New York, New York generally prohibits unaffiliated group property and casualty insurance except in certain limited cases, such as through a risk purchasing group, or where members are public entities or nonprofit organizations. Because of this restriction, in New York, unaffiliated group policies should instead be issued on an individual policy basis. As noted in the Bulletin, violation of such prohibition has resulted in fines imposed by the New York Department of Financial Services.
While New York is restrictive in this regard, it is important to note that where unaffiliated group policies may be permitted in other states, care should be taken to ensure the coverage is placed in accordance with those state laws and regulations. Guidance on how unaffiliated group policies should be treated is not covered by the federal Nonadmitted and Reinsurance Reform Act of 2010 (the “NRRA”). The NRRA specifically addresses how to determine the principal place of business of an affiliated group for regulatory purposes, by looking to the state of the largest group member as determined by percentage of premium attributed to the members. However, the NRRA does not address how to determine the “home state” of an unaffiliated group. This has led to ambiguity on how to structure group products in the surplus lines market for nonaffiliated groups, such as where declinations are required or where taxes need to be paid.
The Bulletin also addresses when binding authority is given to a surplus lines broker by the surplus lines insurer. New York requires that the binding authority agreement satisfy the requirements of 11 NYCRR 27.4 (Regulation 41). Section 27.4 of Regulation 41 requires that the binding authority agreements describe the authority granted to the excess line broker and include certain terms, including: (1) a description of the kinds or classes of insurance which the broker may bind; (2) the maximum dollar limits for any policy which the broker may bind and/or a provision requiring the risk to be submitted to the insurer; (3) the maximum policy period for which the broker may bind; (4) the geographical limits upon the exercise of binding authority by the broker; and (5) the name and telephone number of the principal insurer contact person.
Further, the broker must file with ELANY a signed copy of the written agreement at least 10 business days prior to exercising the binding authority. The broker is also required to file with ELANY any amendments to, or cancellation or termination of, the binding authority agreement.
The Bulletin also reminds brokers that it is unlawful to deliver an excess line policy declaration page or cover note in New York unless it is first stamped by ELANY.
A copy of the Bulletin can be found here.