DFS Reminds Agents About Surplus Lines Diligent Effort Requirement
The Florida Department of Financial Services (DFS) took the opportunity in its recent Insurance Insights newsletter to remind agents of the diligent effort requirement in the Surplus Lines Law. DFS points out that one of the stated purposes of the Surplus Lines Law is to protect authorized insurers from unwarranted competition by unauthorized insurers who are not subject to the same requirements. Additionally, DFS reiterates that there is no guaranty fund protection against the insolvency of unauthorized insurers. Therefore, DFS reminds agents they cannot export insurance coverage for a risk when the risk is already covered by, or can be covered by, an admitted/authorized insurer. DFS points out that it issued a bulletin on this topic as long ago as 1997 (Bulletin 97-007) reminding the industry that improperly placing surplus lines risks constitutes a violation of the Florida Insurance Code if the policy is procurable from an authorized insurer. General lines agents are reminded that if they are unable to place a risk with an admitted carrier (either a company with whom they are appointed or through another agent appointed by an admitted company), they must utilize a Florida licensed and appointed surplus lines agent if they export the risk to an eligible surplus lines insurer. As an example, DFS states that if an admitted/authorized insurer were willing to issue a condominium’s insurance policy excluding wind coverage, then provided all the requirements of section 626.916, Florida Statutes, have been fulfilled, the surplus lines agent would be permitted to export the wind coverage, and only the wind coverage. [See sections 626.914 and 626.916]
Prior to exporting a risk to the surplus lines market, DFS emphasizes that the producing agent is required to make a legitimate diligent effort to seek coverage from insurers authorized to transact and actually writing that kind and class of insurance in Florida. Surplus lines agents must verify that the diligent effort has been made by requiring a properly documented statement of diligent effort from the retail or producing agent. However, DFS advises that to be in compliance with the diligent effort requirement, the surplus lines agent’s reliance must be reasonable under the particular circumstances surrounding the export of that particular risk. Reasonableness is assessed by taking into account factors which include, but are not limited to, a regularly conducted program of verifying the information provided by the retail or producing agent. According to DFS, only searching insurers that an agent knows will not place coverage for the risk is a violation of Florida law. Further, DFS advises that fraudulently completing a diligent effort form (e.g. fake contact names, dates, signatures) is a serious violation and will be prosecuted.