Q. What is a surplus lines carrier?

Insurance companies transacting business in Florida must have a certificate of authority issued by the Office of Insurance Regulation (OIR). They are referred to as authorized or admitted insurers and regulated by the OIR on matters such as solvency, rates, and reserves.

Surplus lines insurers are not authorized insurers as defined by Section 624.01 of the Insurance Code. They are regulated by the state, but to a lesser degree than authorized or admitted insurers, and they do not have to obtain a certificate of authority. Surplus lines insurance is alternative property/liability coverage for a consumer to buy when coverage is unable to be purchased from admitted insurers. They are not licensed by the state, but are allowed to issue insurance as an eligible insurer.

Q. What laws govern surplus lines carriers?

Under current law, surplus lines insurance is governed by Florida Statutes 626.913 through 626.937, the Surplus Lines Law. These sections provide the limited regulation imposed on these insurers. They are regulated by the state, but to a lesser degree than authorized or admitted insurers. Surplus lines insurers are considered to be unauthorized insurers, but the Surplus Lines Law allows them to provide insurance as “eligible surplus insurers” upon approval from the Office of Insurance Regulation. They have a different set of eligibility qualifications from admitted insurers.

They are not subject to the state guaranty fund, and therefore, if the surplus lines insurer becomes insolvent, the insured may have no coverage.

Q. Are surplus lines carriers subject to other parts of the Insurance Code?

Section 627.021(2), found in Part I of Chapter 627, provides an exclusion for surplus lines carriers. Part I of Chapter 627 governs insurance rates. The section states: “This chapter does not apply to…surplus lines insurance placed under the provisions of 626.913-626.937.”

In Essex Ins. Co. v. Zota, 985 So. 2d 1036 (Fla. 2008), the Florida Supreme Court was asked to interpret 627.021(2). The Court studied the legislative history of 627.021, and determined that lawmakers had unintentionally used the word “chapter” in 627.021(2), when they intended it to mean “this part,” (i.e., Part I), excluding surplus lines carriers from the rates regulations applied to admitted insurers. The opinion clarifies that sections of Chapter 627 found in Part II apply to surplus lines insurers. Part II of the Chapter contains sections covering items such as attorney fees, Valued Policy Law, deductibles, sinkhole coverage, and a requirement that Replacement Cost and Law & Ordinance coverage be offered.

Q. What has been proposed in the legislative session to change this?

HB 853 and SB 1894 were introduced this session to legislatively override the Essex decision. As originally proposed, the bill broadly exempted surplus lines carriers from all sections of Chapter 627, in both Parts I and II. Currently the Senate bill has added an amendment keeping the carriers subject to attorney fees when there is a judgment in favor of the insured. No similar amendment is in the House bill.

Q. How will this affect the rights of policyholders?

Without further modification, such as with the attorney fee statute, the broad wording of HB 853 and SB 1894 would exempt surplus lines insurers from complying with any of the other conditions and regulations imposed on admitted insurers under Part 2 of Chapter 627. These include the Valued Policy Law (627.702), and required availability of Replacement Cost and Law & Ordinance coverage (627.7011).

Talk to Kristin

Would you like to talk to Kristin about a surplus lines carrier issue? You can reach her in the Merlin Law Group's Tampa office at 813-229-1000 or via email at kdcrowell@merlinlawgroup.com.