"Same as Your Old Policy" - A Residential Exclusion Surprise
A roofing contractor with $6.2 million in revenue has carried an admitted commercial general liability policy for six years with no residential exclusion and a $2,500 per-occurrence deductible. At renewal the admitted carrier non-renews. The producer tells the owner by phone, "Don't worry - I'll get you the same coverage," and later emails, "Attached is your new policy, same as before." The surplus lines policy actually contains a total exclusion for residential roofing and a $10,000 per-claim deductible. The owner signs the delivery receipt and never opens the policy. Eleven months later a hail claim on a residential subdivision is denied, producing a $180,000 uninsured loss. The broker responds that surplus lines policies are non-standard and the insured had a duty to read his policy.
1. Analyze how responsibility for the $180,000 loss should be allocated.
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The broker carries the greater share of the fault, and the "duty to read" argument is weak on these facts.
- A producer who undertakes to place coverage owes the insured reasonable care in procuring the coverage the insured asked for. Here the insured asked for continuity, and the broker expressly promised "same coverage" and "same as before."
- Surplus lines policies routinely differ from admitted forms - that is precisely why the promise was dangerous. The more a non-admitted form departs from the expiring policy, the heavier the broker's burden to identify the difference and explain it before the insured is committed.
- The insured's duty to read is a real defense, but it does not immunize an affirmative misrepresentation. The owner was told in writing that the policy was the same as before; a reasonable insured is entitled to rely on that statement rather than audit the form for a newly inserted residential exclusion.
- Comparative fault is likely: the owner bears some responsibility for never opening a policy he was paying for, which reduces but does not eliminate the broker's exposure.
The strongest counterfactual for the broker would have been a written comparison flagging the residential exclusion before binding, with the insured's informed acceptance. That document does not exist.
2. What should the file have contained, and what should the broker do now?
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What should have been in the file:
- The expiring policy's coverage summary, so a comparison was possible at all.
- A written side-by-side of the surplus lines form against the expiring form, with every material difference highlighted: the residential exclusion, the deductible change from $2,500 to $10,000, and any claims-made triggers or retro dates.
- A written explanation that the insurer was non-admitted and that the Colorado Insurance Guaranty Association does not back the policy.
- The insured's signed acknowledgment of the differences - not merely a delivery receipt for a policy.
- Written record of what the insured said he needed, especially the residential work that was the core of his business.
What to do now: report the matter to the firm's E&O carrier immediately, preserve the phone log and the "same as before" email, do not attempt to reconstruct the file with after-the-fact notes, and evaluate whether replacement coverage can be placed retroactively for the exposure going forward. The email is the case; the broker's best outcome is an early, documented resolution.
3. The insured asks whether the guaranty association or the state's claims-handling rules will help him collect the denied $180,000.
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No on both counts, which is why the disclosure matters so much up front.
- The Colorado Insurance Guaranty Association responds only to claims against insolvent authorized insurers. The carrier here is not admitted, so the association has no role. Had the carrier failed instead of merely denying the claim, the insured would have had no safety net at all.
- State claims-handling regulation is built around the admitted market. A non-admitted insurer is not subject to Colorado rate and form filing, and its claims conduct is not policed the same way. The insured's remedy against the carrier runs through the policy contract and the law of the insurer's domicile, not through a Colorado market conduct complaint.
- The practical remedy is a coverage/contract claim against the carrier, and, if the placement was mishandled, an E&O claim against the broker.
This is the core general principle for surplus lines: the insured trades regulatory protection for availability, and the broker's disclosures are what make that trade an informed one.