Surplus Lines Placement and Diligent Search
The placement sequence
(1) Confirm the coverage is genuinely unavailable from authorized insurers; (2) determine the insured's home state; (3) perform and document the diligent search; (4) deliver the written disclosure and obtain acknowledgment; (5) verify the nonadmitted insurer is eligible; (6) bind, collect premium and tax; (7) report and retain records.
Diligent search in practice
A diligent effort means seeking the full amount and terms of coverage required from authorized insurers that actually write that class of business in Colorado. Declinations on materially different limits, deductibles, or forms do not count. A single declination rarely satisfies the standard unless the market is genuinely thin; document quotes as well as declines, and date each contact.
The federal overlay
Under the Nonadmitted and Reinsurance Reform Act, only the insured's home state may regulate the placement and tax the premium. Home state is the insured's principal place of business, or an individual's principal residence, or, for multi-state risks, the state with the greatest premium allocation under that state's rules. NRRA also recognizes the exempt commercial purchaser: a purchaser using a qualified risk manager, paying more than $100,000 in aggregate commercial property-casualty premium in the prior 12 months, and meeting one of the size tests (net worth over $20M, revenue over $50M, more than 500 employees, or a nonprofit with a budget over $30M or over 500 employees). For an ECP, diligent search is not required if the broker discloses that admitted coverage may be available at lower cost or better terms.
Traps
Relying on a retail producer's "market unavailable" note; assuming three declinations always suffice; overlooking disclosure timing; assuming the insured can waive diligence entirely.
Worked example
A manufacturer headquartered in Denver with plants in four states: Colorado is the home state, so Colorado law and Colorado tax apply to 100% of the premium.