Surplus Lines Requirements Subject to Evolving Regulatory and Judicial Views
By: Travis Miller
In the last edition of the Florida Insurance Report, we summarized the Florida Supreme Court’s decision in Essex Ins. Co. v. Zota. In sum, the Florida Supreme Court construed a statute exempting surplus lines products from admitted market filing requirements to apply only to the rates. This left uncertainty as to how the Office of Insurance Regulation and Florida courts would treat surplus lines forms under statutes requiring forms approval or mandating policy terms.
After our last report, the Office of Insurance regulation announced an important clarification of its position on surplus lines product regulation. The OIR indicated that it would not require surplus lines insurers to file forms for approval, absent extenuating circumstances. Although the OIR’s position was only informal, it seemed to give the industry a reprieve from the uncertainty created by Essex and allow the industry time to consider whether a statutory fix would be viable in the 2009 legislative session. Of course, both the OIR and the Florida Surplus Lines Service Office noted that a court could reach a different interpretation.
Unfortunately, the reprieve was short-lived, as the 11th Circuit Court of Appeals entered its decision in CNL Hotels & Resorts, Inc. v. Twin City Fire on August 18, 2008. Among the issues in CNL Hotels & Resorts, the court considered whether a provision in an endorsement to a surplus lines policy effectively limited coverage. The court observed that following the Florida Supreme Court’s decision in Essex, the endorsement’s status as an unfiled, unapproved form might render it void and thereby affect the scope of coverage under the policy. The 11th Circuit remanded the case to the trial court for determination of the impact of the insurer’s use of an unfiled form following Essex.
Although the 11th Circuit suggested that the endorsement might be void following Essex, the Florida Insurance Code arguably does not compel that result. Nonetheless, the CNL Resorts & Hotels case is one to watch on remand, and the possibility that insurers’ intent behind coverage forms currently in effect might now be affected by judicial interpretations of filing requirements adds unwanted uncertainty.
We continue to evaluate the impact of these court decisions on surplus lines insurance in Florida and assess the possibility that the Office of Insurance Regulation might be able to reduce the current uncertainty, at least until the next legislative session, through an authoritative pronouncement. For additional information on this issue, please contact Travis Miller or any of our Insurance Professionals.