Arizona Surplus Lines cheat sheet

Surplus lines insurers must be authorized in Arizona or be eligible surplus lines insurers; a diligent effort to place coverage with authorized insurers is required before using surplus lines.

Arizona requires surplus lines brokers to file a quarterly report of surplus lines transactions and pay a premium tax (currently 3%) on surplus lines premiums.

Surplus lines brokers must maintain records of each surplus lines transaction for at least 5 years and make them available to the Director upon request.

The Arizona Director of Insurance may examine surplus lines brokers and insurers; examinations are conducted at least every 5 years for domestic insurers.

Arizona law prohibits surplus lines insurers from using the Arizona Insurance Guaranty Fund; coverage is not protected by the guaranty association.

Surplus lines brokers must disclose to the insured in writing that the insurer is not authorized in Arizona and is not subject to the state's guaranty fund protections.

Arizona requires a surplus lines broker license; a producer must hold a property and casualty license and meet experience or education requirements to obtain a surplus lines license.

The Arizona premium tax rate for surplus lines is 3% of gross premiums, and the broker must remit the tax quarterly with the report.

Arizona statute defines a surplus lines insurer as an eligible insurer not authorized to transact insurance in Arizona but permitted to write surplus lines through a licensed surplus lines broker.

Insurable interest requires a financial interest in the subject matter; in property insurance it must exist at the time of loss, in life insurance at the time of application.

Indemnity principle: insurance restores the insured to approximately the pre-loss financial position, not to a better position.

Utmost good faith requires both parties to disclose material facts; breach by the insured may allow the insurer to rescind the policy.

Adhesion: the insurer drafts the contract, so ambiguities are construed against the insurer (contra proferentem).

Aleatory contract: the amounts exchanged are unequal and depend on chance; premiums are paid regardless of loss.

Subrogation allows the insurer to recover from the negligent third party after paying the insured, preventing double recovery.

Coinsurance in property insurance is a penalty clause: if the insured carries less than the required percentage of value, the claim is reduced proportionally.

Proximate cause is the dominant, efficient cause of a loss; it must be an insured peril for coverage to apply.

Surplus lines insurance is coverage from an insurer not authorized in the state, placed through a licensed surplus lines broker when authorized insurers decline the risk.

A diligent effort (or due diligence) search must be documented; typically three declinations from authorized insurers are required before placing surplus lines.

Surplus lines brokers must use eligible surplus lines insurers that meet capital and surplus requirements and appear on the state's eligible list.

Surplus lines policies are not subject to state guaranty fund protection; the insured must acknowledge this in writing.

Surplus lines brokers must collect and remit surplus lines premium tax and file quarterly reports with the state.

The surplus lines broker is responsible for verifying the financial condition of the nonadmitted insurer and ensuring it is eligible in Arizona.

Surplus lines insurance cannot be used to provide coverage for risks that are readily available from authorized insurers; it is a market of last resort.

A surplus lines broker must keep records of the diligent effort and the policy for at least 5 years and provide a copy of the policy to the insured.