Surplus Lines Policy and Coverage Issues
Domain 6 tests coverage analysis for nonstandard and manuscript policies. Surplus lines carriers often use proprietary forms, so read the actual policy rather than assuming ISO language.
Property and casualty
- Property policies may include coinsurance, replacement cost, agreed value, and exclusions for wildfire, flood, mold, or ordinance or law. Check deductibles and sublimits.
- Casualty policies often have occurrence vs claims-made triggers, retroactive dates, and extended reporting periods. The trigger determines which policy responds.
- Specialty lines such as cyber, professional liability, and excess/umbrella may layer over admitted policies and require schedule and follow-form review.
Endorsements, exclusions, claims
- Endorsements change the base form; the last-filed endorsement controls. Exclusions are read narrowly, and exceptions to exclusions can restore coverage.
- Report claims promptly and cooperate. The nonadmitted insurer handles the claim, but the surplus lines broker should document notice and assist the insured.
Worked example: A surplus lines property policy excludes mold but has an ensuing-loss exception. A burst pipe causes water damage and mold. Reasoning: the water damage is covered; the mold may be covered only to the extent it ensues from the covered water damage, subject to the mold sublimit, not as independent mold.
Traps: assuming standard ISO forms; missing a claims-made retroactive date; ignoring an endorsement that narrows coverage; assuming the Iowa guaranty fund will pay if the insurer fails.