Eligibility of a Surplus Lines Insurer
A broker is considering placing coverage with a surplus lines insurer that is domiciled in another state. The insurer is not admitted in Alaska but is authorized in its home state. The insurer has a surplus of $15 million and has been in business for 10 years. The broker checks the insurer's rating: A- from A.M. Best. The insurer is not listed on Alaska's eligible surplus lines insurer list. The broker argues that because the insurer is authorized in its home state and has a good rating, it should be eligible. The client needs coverage quickly.
1. Is the insurer eligible to write surplus lines in Alaska? Explain.
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No, the insurer is not eligible to write surplus lines in Alaska unless it appears on the Alaska Division of Insurance's list of eligible surplus lines insurers. Alaska law requires that surplus lines insurers be authorized in their state of domicile and meet certain financial and other requirements, and the Division maintains a list of eligible insurers. Even if an insurer meets financial and rating standards, it must be on the list to be used. The broker cannot place coverage with an unlisted insurer, even if it is authorized elsewhere. The broker should verify the current eligibility list. If the insurer is not listed, the broker must find an eligible insurer or request that the Division consider adding the insurer, which may take time. Placing coverage with an unlisted insurer would violate Alaska surplus lines law.
2. What are the potential consequences for the broker if they place coverage with this insurer?
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Placing coverage with an ineligible surplus lines insurer could result in administrative penalties against the broker, including fines, suspension or revocation of the broker's license, and civil liability. The policy may be deemed invalid or unenforceable, leaving the client without coverage. The broker could also be required to refund commissions and pay the premium tax. Additionally, the broker may face disciplinary action from the Division of Insurance for violating surplus lines placement rules.