Fronting a Georgia Surplus Lines Risk for an Unlicensed Nonresident
A Florida resident holds a Florida surplus lines broker license and a Florida property/casualty agent license. She wants to place a $60,000 commercial auto policy for a Georgia trucking company with a nonadmitted insurer. She does not have a Georgia nonresident surplus lines license. She asks a Georgia-licensed property/casualty agent who does not hold a surplus lines license to 'sign as broker of record' on the Georgia filing. The Florida broker will negotiate the terms directly with the insured and the insurer, and the Georgia agent will receive 25% of the commission for the use of her name. The Georgia agent will not review the policy, not collect tax, and not maintain the file. The Florida broker tells the client that 'the Georgia agent is just a paperwork formality.'
1. Is this arrangement permissible under Georgia law? Why or why not?
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No. This is a classic fronting arrangement. The Georgia agent holds only a property/casualty license, not a Georgia surplus lines broker license, so she cannot act as broker of record on a surplus lines placement. The Florida broker is not licensed in Georgia, so she cannot solicit, negotiate, or place the Georgia risk. Paying the Georgia agent 25% of the commission for the use of her name is compensation for unlicensed surplus lines activity. Both brokers face license discipline, and the placement may be treated as unauthorized.
2. What licensing steps should the Florida broker take to place the Georgia risk?
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The Florida broker should apply for a Georgia nonresident surplus lines broker license and place the risk in her own name. She must hold a current Florida surplus lines license in good standing and meet Georgia's nonresident licensing requirements. If Georgia grants reciprocity, she may not need to repeat the full exam, but she must still be licensed before soliciting or binding the Georgia risk. She should also arrange for collection and remittance of Georgia's 4% surplus lines tax and give the required nonadmitted insurer disclosure.
3. What are the risks to the Georgia agent?
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The Georgia agent risks suspension or revocation of her property/casualty license, a civil penalty, and disgorgement of the 25% commission. She could also face an errors-and-omissions claim if the policy or tax handling fails, because she is the broker of record. 'Paperwork formality' is not a defense: signing the filing makes her responsible for the placement. She should decline the arrangement unless she obtains a surplus lines license and actually performs the broker's duties.