The Third Declination That Never Arrived in Writing
Atlas Roofing & Sheet Metal, a Savannah contractor with $6 million in annual revenue, needs a $2 million commercial general liability policy with a $5 million umbrella. Its retail agent, Peachtree Commercial Insurance, approaches three authorized Georgia carriers. Carrier A declines in writing because of two OSHA citations; Carrier B declines in writing because it will not write roofing contractors above $1 million in gross receipts; Carrier C's underwriter says by phone, 'We are not writing that class,' but refuses to issue a written declination. On March 3, Peachtree binds coverage with Southern Specialty Insurance Company, an eligible surplus lines insurer, at an annual premium of $38,500. The policy is issued March 10. Peachtree never gives Atlas a written notice that Southern Specialty is not authorized in Georgia or that the policy is not protected by the Georgia Insurers Insolvency Pool. Atlas later asks why its regular carriers could not write the risk.
1. Did Peachtree satisfy Georgia's diligent effort requirement before placing the risk with Southern Specialty? Explain.
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No. Georgia's surplus lines law requires a diligent effort to procure coverage from authorized insurers before using the surplus lines market. The usual evidence is written declinations from at least three authorized insurers. Peachtree has two written declinations and one oral refusal. Carrier C's refusal to put its declination in writing does not satisfy the requirement. Peachtree should have obtained a third written declination, tried another authorized carrier, or documented Carrier C's refusal and the additional efforts. Because Atlas is a small roofing contractor, it is not an exempt commercial purchaser, so the search cannot be skipped. Binding before completing the documented search is a licensing violation and undermines the surplus lines placement.
2. What written disclosures should Peachtree have made to Atlas, and when?
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Before or at placement, Peachtree should have given Atlas a written surplus lines disclosure stating that Southern Specialty is not authorized in Georgia and that the policy is not protected by the Georgia Insurers Insolvency Pool. The disclosure should also identify the surplus lines broker and explain that the insured may be responsible for taxes and that the policy is not subject to all Georgia guaranty fund protections. Oral notice is not enough. Failure to disclose exposes Peachtree to Department discipline, and it weakens the insured's ability to make an informed decision.
3. Assume Southern Specialty becomes insolvent and Atlas has an unpaid $500,000 claim. Does the Georgia Insurers Insolvency Pool respond? Why or why not?
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No. The Georgia Insurers Insolvency Pool responds only to claims against insurers authorized to transact business in Georgia. Southern Specialty is a nonadmitted surplus lines insurer, so the pool will not pay Atlas's $500,000 claim. Atlas would have an unsecured claim in the insurer's insolvency proceeding. That is precisely why Georgia requires the surplus lines disclosure before placement. Peachtree's failure to give the notice may support a claim by Atlas against Peachtree, in addition to regulatory action.