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Colorado Surplus Lines study materials
Colorado Surplus Lines study resources

Colorado Surplus Lines practice questions

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Question 1Colorado Insurance Statutes, Rules and Regulations

Who is authorized under Colorado law to negotiate and place surplus lines insurance on behalf of a Colorado insured?

  1. A producer licensed only in another state who has not notified Colorado
  2. Any Colorado resident who has passed the property and casualty licensing exam
  3. A producer who holds a Colorado surplus lines broker license Correct answer.
  4. An unlicensed employee of the insured acting without compensation

Explanation

Colorado requires a person who acts as a surplus lines broker to hold a surplus lines broker license issued by the Commissioner; an ordinary producer license does not by itself authorize placements with nonadmitted insurers. Unlicensed persons may not negotiate or place such coverage for another person.

Question 2Colorado Insurance Statutes, Rules and Regulations

At what rate does Colorado tax the gross premiums of surplus lines insurance?

  1. 4.5 percent
  2. 3.0 percent Correct answer.
  3. 2.0 percent
  4. 1.0 percent

Explanation

Colorado imposes a surplus lines premium tax equal to 3.0 percent of the gross premiums written on surplus lines placements. The surplus lines broker collects the tax from the insured and remits it to the Division of Insurance.

Question 3Colorado Insurance Statutes, Rules and Regulations

A surplus lines policy delivered to a Colorado insured must contain a notice disclosing which information?

  1. That the policy is backed by the Colorado Insurance Guaranty Association
  2. That the insurer is authorized in another state and is therefore treated as admitted in Colorado for claims purposes
  3. That the broker personally guarantees the insurer's solvency
  4. That the insurer is not licensed in Colorado and is not guaranty-fund protected Correct answer.

Explanation

Colorado requires each surplus lines policy to carry a conspicuous notice that the insurer is not admitted in Colorado and that the policy is not covered by the Colorado Insurance Guaranty Association. The notice alerts the insured to the unregulated status of the insurer.

Question 4Colorado Insurance Statutes, Rules and Regulations

A Colorado insured's surplus lines insurer becomes insolvent. What does the Colorado Insurance Guaranty Association provide?

  1. Payment of covered claims up to the statutory cap for each claimant
  2. No coverage, because nonadmitted insurers are not members Correct answer.
  3. Payment of claims after a deductible is satisfied
  4. Coverage limited to commercial property claims

Explanation

The Colorado Insurance Guaranty Association protects policyholders of insolvent member insurers, meaning insurers holding a Colorado certificate of authority. Surplus lines insurers are not members, so their policyholders have no guaranty association protection.

Question 5Colorado Insurance Statutes, Rules and Regulations

Which condition must a nonadmitted insurer satisfy before a Colorado surplus lines broker may place business with it?

  1. It must be authorized for that class in its home jurisdiction Correct answer.
  2. It must hold a Colorado certificate of authority
  3. It must be a member of the Colorado Insurance Guaranty Association
  4. It must maintain a claims office in Colorado

Explanation

An eligible surplus lines insurer must be authorized for the class of business in its domiciliary jurisdiction and must meet the applicable financial standards. An insurer holding a Colorado certificate of authority would be admitted rather than nonadmitted.

Question 6Colorado Insurance Statutes, Rules and Regulations

Who collects and remits the Colorado surplus lines premium tax to the Division of Insurance?

  1. The Colorado Insurance Guaranty Association
  2. The nonadmitted insurer
  3. The surplus lines broker Correct answer.
  4. The insured

Explanation

Colorado places the duty to collect and remit the surplus lines premium tax on the surplus lines broker. The broker accounts for the tax on each placement and pays it with the required annual filing.

Question 7Colorado Insurance Statutes, Rules and Regulations

A Colorado manufacturer cannot obtain coverage from any admitted insurer, so a broker places the policy with an insurer that holds no Colorado certificate of authority. This placement is:

  1. Captive insurance
  2. Surplus lines insurance Correct answer.
  3. Reinsurance
  4. An illegal transaction that no license can authorize

Explanation

Surplus lines insurance is coverage procured from a nonadmitted insurer through a licensed surplus lines broker when the admitted market will not provide it. The transaction is lawful when the broker and the insurer satisfy Colorado requirements.

Question 8Colorado Insurance Statutes, Rules and Regulations

For how long must a Colorado surplus lines broker retain the records of each surplus lines transaction?

  1. Three years
  2. Two years
  3. Ten years
  4. Five years Correct answer.

Explanation

Colorado requires surplus lines brokers to keep records of their surplus lines transactions for at least five years. The records must be available for examination by the Commissioner.

Question 9Colorado Insurance Statutes, Rules and Regulations

By what date must a Colorado surplus lines broker file the annual surplus lines statement and pay the premium tax for the prior calendar year?

  1. January 15
  2. June 30
  3. March 1 Correct answer.
  4. April 15

Explanation

Colorado requires the annual surplus lines statement, together with the premium tax due, to be filed with the Division of Insurance by March 1 for the preceding calendar year. The filing reports the surplus lines premium written and the tax collected.

Question 10Colorado Insurance Statutes, Rules and Regulations

A Colorado-based company buys a surplus lines policy covering its operations in Colorado and two neighboring states. Under the Nonadmitted and Reinsurance Reform Act, which state taxes the premium?

  1. No state, because the insurer is not admitted anywhere
  2. Colorado, because it is the insured's home state Correct answer.
  3. The state where the surplus lines insurer is domiciled
  4. Each state taxes the portion of the risk located within it

Explanation

Under the NRRA, only the insured's home state may impose a premium tax on a multistate surplus lines placement, and that state taxes the entire premium. Colorado follows this rule, so the neighboring states may not tax any portion of the risk.

Question 11Colorado Insurance Statutes, Rules and Regulations

An exempt commercial purchaser, as defined by federal and Colorado law, seeks surplus lines coverage through a producer. What does Colorado require regarding a search of the admitted market?

  1. A declination is required from the state residual market plan
  2. No search of the admitted market is required for that purchaser Correct answer.
  3. The Commissioner must approve the placement before the broker binds the coverage
  4. Three written declinations must be obtained before binding

Explanation

The NRRA, which Colorado follows, bars states from imposing a diligent search requirement for an exempt commercial purchaser that is represented by a licensed producer. The purchaser's size and sophistication take the place of a declination search.

Question 12Colorado Insurance Statutes, Rules and Regulations

A surplus lines broker licensed in another state wants to place coverage for Colorado insureds. What must the broker obtain?

  1. Membership in the Colorado Surplus Lines Association
  2. Appointment as a managing general agent in Colorado
  3. A written waiver from the insured's lender
  4. A Colorado nonresident surplus lines broker license Correct answer.

Explanation

Colorado issues nonresident surplus lines broker licenses to qualified brokers who hold a comparable license in good standing in their home state. Holding an out-of-state license alone does not authorize placements for Colorado insureds.

Question 13Colorado Insurance Statutes, Rules and Regulations

A Colorado surplus lines broker learns that a nonadmitted insurer on the broker's list has been placed in liquidation. What must the broker do?

  1. Continue renewing the existing policies with that insurer until each one expires
  2. Ask the Colorado Insurance Guaranty Association to assume the policies
  3. Notify insureds only if a claim is later denied
  4. Stop placing new business with that insurer and place the risk elsewhere Correct answer.

Explanation

A surplus lines broker may place business only with an eligible insurer, and an insurer in liquidation no longer meets that standard. The broker must stop using the insurer for new placements and arrange replacement coverage with an eligible insurer.

Question 14Colorado Insurance Statutes, Rules and Regulations

Which statement about the Colorado Commissioner's oversight of surplus lines brokers is correct?

  1. The Commissioner has no jurisdiction over surplus lines transactions
  2. The Commissioner may examine a broker's surplus lines records and transactions Correct answer.
  3. The Commissioner may examine records only with the broker's written consent
  4. The Commissioner may examine records only after a consumer complaint has been filed and investigated

Explanation

Surplus lines brokers are licensed and regulated by the Commissioner, who has authority to examine their records and transactions. An examination does not depend on a consumer complaint or on the broker's consent.

Question 15Colorado Insurance Statutes, Rules and Regulations

How may a Colorado surplus lines broker satisfy the requirement to disclose the nonadmitted status of the insurer to the insured?

  1. By giving the notice orally when the policy is bound
  2. By printing the notice on the policy or delivering it with the policy Correct answer.
  3. By providing the notice to the insured only if the insured asks for it in writing
  4. By posting the notice on the broker's website

Explanation

Colorado requires the surplus lines disclosure to be in writing and to accompany the policy delivered to the insured. An oral statement, a website posting, or a notice provided only on request does not satisfy the requirement.

Question 16Colorado Insurance Statutes, Rules and Regulations

Which act by a Colorado surplus lines broker violates state law?

  1. Placing coverage with a nonadmitted insurer the broker knows is in rehabilitation Correct answer.
  2. Keeping a record of declined admitted insurers
  3. Charging the premium tax as a separate item on the invoice
  4. Placing a risk with an eligible nonadmitted insurer after several admitted insurers decline

Explanation

A broker may place surplus lines business only with an eligible insurer, and an insurer in rehabilitation is not eligible. Itemizing the premium tax, documenting declinations, and using eligible insurers after admitted market declines are all permitted.

Question 17Colorado Insurance Statutes, Rules and Regulations

Which item must a Colorado surplus lines broker record for each transaction?

  1. The commission split between the broker and its subproducers
  2. The insured's personal credit score
  3. The gross premium charged and the premium tax collected Correct answer.
  4. The loss ratios of admitted insurers that declined the risk

Explanation

Surplus lines records must contain the information the Commissioner needs to verify premium tax and compliance, including the gross premium and the tax collected. Credit scores and internal commission splits are not required surplus lines records.

Question 18Colorado Insurance Statutes, Rules and Regulations

A Colorado broker wants to use an alien insurer that is not authorized in any U.S. state. What makes the insurer eligible for a Colorado surplus lines placement?

  1. Obtaining a Colorado certificate of authority to write the same line of business
  2. Appointing the Commissioner as its attorney for service of process in Colorado
  3. Being listed on the NAIC IID Quarterly Listing of Alien Insurers Correct answer.
  4. Filing a surety bond with the Colorado Commissioner in an amount the Commissioner sets annually

Explanation

Alien insurers that are not authorized in any U.S. jurisdiction qualify as eligible surplus lines insurers by appearing on the NAIC International Insurers Department Quarterly Listing of Alien Insurers. A state bond or a Colorado certificate of authority is not the route to eligibility for such an insurer.

Question 19Colorado Insurance Statutes, Rules and Regulations

Under the NRRA definition used in Colorado, an exempt commercial purchaser must meet which size standard in addition to using a qualified risk manager?

  1. A net worth exceeding $100 million regardless of revenues
  2. Annual revenues exceeding $10 million and 100 employees
  3. A net worth exceeding $5 million and a commercial policy count of at least 10
  4. Net worth over $20 million or annual revenues over $50 million Correct answer.

Explanation

To qualify as an exempt commercial purchaser, the buyer must use a qualified risk manager, pay more than $100,000 in commercial property and casualty premiums in the prior twelve months, and satisfy a size test such as a net worth over $20 million or annual revenues over $50 million.

Question 20Colorado Insurance Statutes, Rules and Regulations

An exempt commercial purchaser with a multistate risk buys surplus lines coverage through a broker licensed only in the insured's home state. What does the NRRA require of Colorado?

  1. Colorado may require the broker to post a bond before the placement
  2. Colorado may require the broker to file the policy with the Division before binding
  3. Colorado may require a Colorado license because the risk includes Colorado property
  4. Colorado may not require a Colorado surplus lines license for that placement Correct answer.

Explanation

For an exempt commercial purchaser, the NRRA bars any state other than the insured's home state from requiring a surplus lines broker license or imposing other placement requirements. Colorado therefore cannot demand its own license, bond, or pre-binding filing for that transaction.

Question 21Colorado Insurance Statutes, Rules and Regulations

For a nonadmitted insurer that is authorized in its home state, what minimum capital and surplus standard does the NRRA set for surplus lines eligibility?

  1. $15 million Correct answer.
  2. $2 million
  3. $50 million
  4. $5 million

Explanation

The NRRA provides that a state may not exclude a nonadmitted insurer that is authorized in its home state and maintains capital and surplus of at least $15 million. Colorado applies this federal floor when judging eligible insurer standards.

Question 22Colorado Insurance Statutes, Rules and Regulations

Under the NRRA definition, a qualified risk manager must have how much commercial property and casualty risk management experience, together with a recognized designation or additional experience?

  1. At least two years of experience with no designation required
  2. At least one year of experience and a CPCU designation
  3. At least ten years of experience and a state-issued risk manager certificate from the insured's home state
  4. At least three years plus a CPCU or ARM designation or seven years of experience Correct answer.

Explanation

A qualified risk manager must have at least three years of commercial property and casualty risk management experience and hold a recognized designation such as CPCU or ARM, or alternatively have at least seven years of experience. The standard is part of the federal definition of exempt commercial purchaser.

Question 23Colorado Insurance Statutes, Rules and Regulations

A Colorado surplus lines broker places coverage for a commercial insured that is not an exempt commercial purchaser. What must the broker document?

  1. Approval of the placement by the Colorado Surplus Lines Association
  2. A comparison of the surplus lines premium with the rate charged by the residual market plan
  3. The insured's written waiver of guaranty association protection
  4. The diligent effort to obtain coverage from admitted insurers, including declinations Correct answer.

Explanation

For insureds that are not exempt commercial purchasers, Colorado requires the broker to show that the coverage could not be obtained from admitted insurers, typically through documented declinations. The other documents listed are not conditions of a lawful surplus lines placement.

Question 24Colorado Insurance Statutes, Rules and Regulations

A Colorado surplus lines broker wants to share part of the commission on a surplus lines policy with the insured to win the account. What is the result under Colorado law?

  1. The arrangement is permitted because surplus lines rates are unregulated
  2. The arrangement is permitted if the broker discloses it in writing
  3. The arrangement is permitted if the insured is a commercial entity
  4. The arrangement is prohibited as an unlawful rebate Correct answer.

Explanation

Sharing commission with an insured to induce the purchase of insurance is an unlawful rebate under Colorado's unfair trade practice laws, which apply to surplus lines brokers. Disclosure does not cure the violation.

Question 25Colorado Insurance Statutes, Rules and Regulations

A Colorado producer places surplus lines coverage without holding a surplus lines broker license. What is the consequence?

  1. The placement is valid, but the producer must pay a higher premium tax
  2. The producer faces license discipline and penalties for unlicensed activity Correct answer.
  3. The policy is void and the insured forfeits all coverage for the unexpired term
  4. The insurer must refund the premium and issue an admitted policy

Explanation

Acting as a surplus lines broker without the required license is unlicensed activity that subjects the producer to administrative penalties and discipline against its license. The violation is the producer's, and the policy is not automatically void.

Question 26Colorado Insurance Statutes, Rules and Regulations

Under Colorado law, surplus lines insurance is best described as insurance that is:

  1. not procurable from authorized insurers Correct answer.
  2. sold only to exempt commercial purchasers
  3. written only by the Colorado FAIR Plan
  4. approved case by case by the Commissioner

Explanation

Colorado defines surplus lines insurance as insurance that cannot be procured from insurers authorized to transact business in the state. A licensed surplus lines broker may then place the coverage with an eligible nonadmitted insurer.

Question 27Colorado Insurance Statutes, Rules and Regulations

What is the rate of the Colorado surplus lines premium tax on gross premiums?

  1. 2%
  2. 5%
  3. 1%
  4. 3% Correct answer.

Explanation

Colorado imposes a 3% premium tax on surplus lines premiums. The surplus lines broker collects the tax and remits it to the Division of Insurance.

Question 28Colorado Insurance Statutes, Rules and Regulations

Before placing coverage with a nonadmitted insurer, a Colorado surplus lines broker must:

  1. post a cash bond with the Division of Insurance
  2. make a diligent effort with authorized insurers Correct answer.
  3. obtain prior written approval from the Commissioner for each policy
  4. publish notice of the placement in a newspaper

Explanation

Before using the surplus lines market, the broker must make and document a diligent effort to obtain coverage from authorized insurers. The Commissioner does not approve individual surplus lines placements.

Question 29Colorado Insurance Statutes, Rules and Regulations

The written notice a Colorado surplus lines broker gives to an insured regarding a nonadmitted insurer must inform the insured that:

  1. the policy will automatically convert to an admitted policy after one year
  2. the policy is not protected by the Colorado guaranty association Correct answer.
  3. the insurer has been approved by the Commissioner as financially sound
  4. the premium tax will be waived if a claim is filed

Explanation

The notice must warn that the insurer is not admitted and that the policy is not covered by the Colorado insurance guaranty association. The broker must give this written disclosure to the insured.

Question 30Colorado Insurance Statutes, Rules and Regulations

To be eligible for surplus lines placement in Colorado, a nonadmitted insurer generally must be:

  1. authorized in every state in which the insured has operations
  2. authorized to transact insurance in its home state Correct answer.
  3. owned by a Colorado-domiciled holding company
  4. a member of the Colorado guaranty association

Explanation

Under Colorado's surplus lines eligibility standards, a nonadmitted insurer must be authorized in its home state. It does not need to be authorized in Colorado or be a guaranty association member.

Question 31Colorado Insurance Statutes, Rules and Regulations

Which body issues surplus lines broker licenses in Colorado?

  1. the National Association of Insurance Commissioners
  2. the Colorado Attorney General's office
  3. the U.S. Department of Commerce
  4. the Colorado Division of Insurance Correct answer.

Explanation

The Colorado Division of Insurance, through the Commissioner, licenses surplus lines brokers. The National Association of Insurance Commissioners is not a licensing body.

Question 32Colorado Insurance Statutes, Rules and Regulations

Colorado's surplus lines placement requirements generally do not apply to which of the following?

  1. general liability coverage for a Colorado contractor
  2. reinsurance Correct answer.
  3. commercial property coverage for a Colorado retailer
  4. professional liability coverage for a Colorado law firm

Explanation

Surplus lines statutes regulate direct placement of insurance for insureds, not reinsurance. Reinsurance transactions are not placed through the surplus lines market under Colorado law.

Question 33Colorado Insurance Statutes, Rules and Regulations

A nonadmitted insurer may transact surplus lines business in Colorado only if:

  1. it appoints every Colorado producer as its agent
  2. a licensed surplus lines broker places the business Correct answer.
  3. it maintains a claims office in Denver
  4. it files all policy forms with the Division of Insurance

Explanation

A nonadmitted insurer may not transact insurance in Colorado directly; it must act through a licensed surplus lines broker. The broker is responsible for compliance with placement and tax rules.

Question 34Colorado Insurance Statutes, Rules and Regulations

A Colorado surplus lines broker contacts several admitted insurers that decline a commercial risk. To support the placement, the broker should document:

  1. the insured's promise not to file claims
  2. the broker's personal opinion that the risk is uninsurable
  3. the admitted insurers contacted and why each declined Correct answer.
  4. only the final premium charged to the insured

Explanation

The broker must make a diligent effort and keep a record of the authorized insurers contacted and why each declined. This record supports the conclusion that the risk was not procurable from admitted insurers.

Question 35Colorado Insurance Statutes, Rules and Regulations

A surplus lines policy has a gross premium of $10,000 and a return premium of $2,000. At the Colorado surplus lines tax rate, what is the premium tax due?

  1. $60
  2. $240 Correct answer.
  3. $300
  4. $200

Explanation

The tax is calculated on net premium: $10,000 minus $2,000 equals $8,000. At 3%, the tax is $240.

Question 36Colorado Insurance Statutes, Rules and Regulations

A Colorado surplus lines broker wants to pay part of the commission to an unlicensed friend who referred the insured. This is:

  1. required if the friend is a Colorado resident
  2. allowed because surplus lines commissions are unregulated
  3. prohibited; commissions cannot go to unlicensed persons Correct answer.
  4. allowed if the friend discloses the payment to the insured

Explanation

Colorado law prohibits sharing commissions with a person who is not licensed to sell insurance. Referral fees to unlicensed persons are not permitted as commission splitting.

Question 37Colorado Insurance Statutes, Rules and Regulations

A nonadmitted insurer writes a surplus lines policy for a Colorado insured. For a lawsuit arising from that policy, legal process may be served on:

  1. the insurer's local claims adjuster only
  2. the Colorado Surplus Lines Association
  3. the insured's attorney
  4. the Colorado Commissioner of Insurance as the insurer's agent Correct answer.

Explanation

Nonadmitted insurers are subject to suit in Colorado, and service of process may be made on the Commissioner as their agent. This gives Colorado insureds a local way to serve legal process.

Question 38Colorado Insurance Statutes, Rules and Regulations

The Colorado Commissioner may remove an insurer from the list of eligible surplus lines insurers if the insurer:

  1. uses a nonresident broker
  2. fails to meet the eligibility standards Correct answer.
  3. writes only commercial lines
  4. charges premiums higher than admitted insurers

Explanation

The Commissioner maintains the eligible insurer list and may remove an insurer that fails to meet the standards. Removal means the insurer is no longer eligible for surplus lines placements.

Question 39Colorado Insurance Statutes, Rules and Regulations

Premium paid by an insured to a Colorado surplus lines broker is held by the broker:

  1. in a fiduciary capacity for the insured and insurer Correct answer.
  2. free of any accounting requirements
  3. as personal funds once the check clears
  4. as a donation to the broker's business

Explanation

Insurance premiums received by a producer or surplus lines broker are trust funds held in a fiduciary capacity. The broker may not treat them as personal funds or commingle them improperly.

Question 40Colorado Insurance Statutes, Rules and Regulations

A Colorado surplus lines broker learns that an insurer is not authorized in its home state. The broker may:

  1. place the coverage after notifying the guaranty association
  2. not place the coverage because the insurer is not eligible Correct answer.
  3. place the coverage if the premium is below the admitted market rate
  4. place the coverage if the insured signs a waiver

Explanation

An insurer must be authorized in its home state to be eligible for surplus lines placement. A waiver by the insured cannot cure the insurer's ineligibility.

Question 41Colorado Insurance Statutes, Rules and Regulations

Which statement about a nonadmitted insurer's rates and forms in Colorado is correct?

  1. Forms must use the Colorado standard fire policy wording
  2. Every rate and form must be filed with the Division before use
  3. Rates and forms must be approved by the Commissioner annually
  4. No rate or form filing with the Division is required Correct answer.

Explanation

Nonadmitted insurers are not subject to Colorado's rate and form filing requirements. They must instead meet the eligibility standards for surplus lines insurers.

Question 42Colorado Insurance Statutes, Rules and Regulations

The written disclosure a surplus lines broker provides to a Colorado insured must identify:

  1. the Commissioner's personal telephone number
  2. the names of all admitted insurers that declined the risk
  3. the home address of the broker's family
  4. the name and address of the nonadmitted insurer Correct answer.

Explanation

The disclosure must identify the nonadmitted insurer so the insured knows with whom the coverage is placed. It also must explain the lack of guaranty association protection.

Question 43Colorado Insurance Statutes, Rules and Regulations

A Colorado surplus lines broker changes the address of the business. The broker must notify the Division of Insurance within:

  1. 10 days
  2. 90 days
  3. 15 days
  4. 30 days Correct answer.

Explanation

A licensed surplus lines broker must keep the Division informed of current business address information. Colorado requires notice within 30 days of the change.

Question 44Colorado Insurance Statutes, Rules and Regulations

An insured tells a Colorado surplus lines broker that 'no admitted insurer will write this risk.' Before placing surplus lines coverage, the broker:

  1. must ask the Commissioner to confirm the statement
  2. must conduct and document the broker's own diligent search Correct answer.
  3. must wait six months before placing coverage
  4. may rely solely on the insured's statement

Explanation

The broker has an independent duty to conduct and document a diligent search of authorized insurers. The insured's statement alone does not satisfy the broker's obligation.

Question 45Colorado Insurance Statutes, Rules and Regulations

Colorado's surplus lines premium tax is imposed:

  1. in lieu of the premium tax paid by authorized insurers Correct answer.
  2. only when the insured is a Colorado resident
  3. only on personal auto policies
  4. in addition to the full premium tax paid by authorized insurers

Explanation

The surplus lines premium tax stands in place of the premium tax that authorized insurers pay. It is not an additional layer on top of the admitted insurer premium tax.

Question 46Colorado Insurance Statutes, Rules and Regulations

A Colorado surplus lines policy has a gross premium of $50,000 and a return premium of $5,000. The surplus lines tax rate is 3%. What amount of premium tax must the broker remit?

  1. $1,500
  2. $1,650
  3. $1,350 Correct answer.
  4. $2,000

Explanation

The taxable premium is $50,000 minus $5,000, or $45,000. At the 3% surplus lines rate, the tax is $1,350.

Question 47Colorado Insurance Statutes, Rules and Regulations

A surplus lines broker places coverage with an insurer that is authorized in its home state but not in Colorado. The insured later argues the policy is void because the insurer was not admitted. Under Colorado surplus lines law, the policy is:

  1. voidable at the insured's option
  2. enforceable, because a licensed broker placed it with an eligible insurer Correct answer.
  3. enforceable only if the Commissioner approves it after the loss
  4. void because nonadmitted insurers cannot issue enforceable policies

Explanation

A surplus lines policy placed through a licensed broker with an eligible nonadmitted insurer is enforceable. The insurer's nonadmitted status does not make the policy void.

Question 48Colorado Insurance Statutes, Rules and Regulations

A Colorado surplus lines broker cannot find an admitted insurer willing to write a risk and places it with an eligible nonadmitted insurer, but the broker keeps no record of the admitted insurers contacted. The broker has:

  1. complied because the insurer was eligible
  2. complied because coverage was unavailable from admitted insurers
  3. violated the law only if a claim is denied
  4. violated the diligent effort documentation requirement Correct answer.

Explanation

The broker must both make a diligent effort and keep records showing the authorized insurers contacted and their responses. Missing records violate the documentation requirement even if coverage truly was unavailable.

Question 49Colorado Insurance Statutes, Rules and Regulations

A Colorado surplus lines broker places coverage with an alien insurer that is listed on the NAIC International Insurers Department. The surplus lines premium tax:

  1. applies to the premium at the Colorado surplus lines rate Correct answer.
  2. is replaced by a federal tax
  3. applies only if the insured is a Colorado resident
  4. does not apply because the insurer is alien

Explanation

The surplus lines premium tax applies to premiums paid to eligible nonadmitted insurers, including alien insurers listed on the NAIC IID. Alien status does not exempt the policy from the Colorado tax.

Question 50Colorado Insurance Statutes, Rules and Regulations

The Commissioner removes an insurer from Colorado's eligible surplus lines insurer list. A Colorado broker that has a renewal of an existing policy with that insurer:

  1. may renew only if the insured signs a waiver
  2. may renew the policy because it was previously eligible
  3. may not place the renewal unless the insurer is again eligible Correct answer.
  4. may renew if the premium is unchanged

Explanation

Once an insurer is removed from the eligible list, the broker may not place new or renewal surplus lines coverage with it. The insurer must regain eligible status before the broker may use it again.