On April 14, 2021, the Maine’s Bureau of Insurance issued Bulletin 457 to explain the general conditions and requirements for surplus lines placements, and to reaffirm to producers their obligations and responsibilities under Maine law. As we note below, Maine maintains some of the strictest surplus lines protocols in the country and attention must be acutely given to Maine’s standards when placing surplus lines business in the state.
The Bulletin begins by noting that surplus lines carriers are not licensed by the state, are exempt from most consumer protections, do not participate in state guaranty funds, and that Maine takes the position that “placing coverage in surplus lines should always be the exception, not the rule.”
Maine producers must consider all of the following when placing surplus lines coverage:
- Life, health (other than disability), employee benefit excess (i.e. stop-loss), reinsurance, and workers’ compensation insurance may not be placed in the Maine surplus lines market;
- Motor vehicle insurance, because of the availability of the assigned risk market, generally should not be placed in the Maine surplus lines market;
- Surplus lines coverage must be placed through a producer with surplus lines authority;
- Where adequate coverage exists in the admitted market, the risk may not be placed as surplus lines;
- Any placement of surplus lines coverage must be of a type that an authorized insurer may write; and
- The producer’s diligent search of the admitted market must be adequate.
Importantly, with respect to the adequacy of the diligent search, the Bulletin states that “doing a specific number of inquiries [of the admitted market] does not mean that the producer has fulfilled this requirement.” The adequacy of the search is “a function of many variables, including for example the type of insurance sought and the coverage limits needed.” At renewal, “the producer should investigate whether circumstances exist, such as improved loss history or improved market conditions,” which may result in the producer returning the risk to the admitted market. The Maine Superintendent may exempt a line of insurance from the diligent search requirement if, after a hearing, it is determined that no “reasonable or adequate market” exists for that line (as of the date of this Bulletin, there are no coverages in Maine eligible for direct export). Critically, unlike most other states that allow a diligent search to be completed by obtaining declinations from three (3) admitted companies, “[a] producer may not place risk in the surplus lines market if the desired coverage exists in the admitted market”, which suggests that there must be total admitted market unavailability for a policy to be placed on a surplus lines basis.
The Bulletin highlights additional obligations of producers under Maine’s surplus lines laws as well. Policies (or other evidence of coverage) must be delivered by the producer to the insured promptly after placement, and the policy must contain the name of the producer and the required disclosure wording. Producers are also responsible for remitting the premium tax. Adequate records must be retained by producers, and producers must “document thoroughly” the basis for each placement and renewal. Finally, copies of all records must be made available upon the Superintendent’s request.
The Bulletin also reviews various considerations applicable to the decision to place surplus lines coverage. For example, the fact that a surplus lines insurer offers coverage similar to an authorized insurer at a lower premium is not an adequate basis for placing surplus lines coverage. Likewise, the fact that a producer does not maintain an appointment with a particular admitted carrier does not make the coverage unavailable from the admitted market (in such a scenario, if the producer wants the business, the producer should obtain the appointment, or work with an appropriately appointed producer).
Maine permits disability insurance to be written on a surplus lines basis. When placing disability coverage, producers may usually only obtain the amount above what an admitted carrier will provide. Only in the case of a risk that will not be written by admitted market carriers (e.g., due to the insured’s profession) may a producer place the entire risk into surplus lines.
With respect to property risks, where an insured needs coverage that is more extensive than the coverage available in the admitted market, a surplus lines policy may cover the entire property risk.
Finally, according to the Bulletin, surplus lines carriers operating in Maine “do need to be eligible under the surplus lines law” and Maine producers may not place surplus lines coverage with “financially unsound or ineligible” insurers.
The full text of the Bulletin can be found here.