Two Declinations and a Ghost Quote
Kestrel Risk Partners is asked to insure a 22,000-square-foot trampoline and ax-throwing venue in Fort Wayne that also sells beer, with liquor liability limits of $1M/$2M. The agency contacts four Indiana-admitted carriers. Carrier A declines by phone: 'not in appetite, no letter needed.' Carrier B emails that it does not write amusement or liquor classes. Carrier C never responds. Carrier D quotes but excludes trampoline liability and imposes a $25,000 deductible; the insured calls that offer unusable. On April 2 the producer binds a non-admitted carrier. The file holds one line: 'searched market - no admitted options.' In October a Department of Insurance market-conduct examiner asks for the diligent search documentation.
1. How would you evaluate whether the search actually satisfies Indiana's diligent search standard?
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The statutory test is a good-faith, contemporaneous, documented effort to place the risk with authorized insurers that could realistically write that class, those limits, and that exposure. Indiana does not prescribe a magic number of declinations; quality beats count.
Favorable facts: four admitted carriers were approached, and one produced an actual quote, which shows a real market test rather than a formality.
Fatal weaknesses:
- The Carrier A declination is undocumented. A file entry must name the insurer, the date, the person contacted, and the specific reason. 'Not in appetite' recited in a note written weeks later proves nothing.
- Silence from Carrier C is not a declination. No follow-up is shown.
- The Carrier D offer was rejected without a written rationale from the insured. A risk is not 'unprocurable' merely because the admitted offer is expensive; the producer must show the admitted terms were materially different (an exclusion that guts coverage for the venue's core exposure usually does that) and record the insured's decision.
- Nothing shows when the contacts occurred relative to the April 2 binding.
On this record an examiner would likely find the search insufficiently documented.
2. Assume trampoline and ax-throwing facilities appear on Indiana's export list. Does that change the analysis, and what about the liquor exposure?
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Yes, substantially. Export-list classes are recognized as markets the admitted system does not serve, so the individual diligent search and declination file are not required for that class.
But the relief is class-specific, not transaction-wide:
- Fit the risk to the list. The producer must confirm the venue genuinely matches the listed class description and record which listed class and which version/date of the list is being relied on. A hybrid venue (amusement plus alcohol) may not map cleanly onto a single listed class.
- Split the risk. If the amusement exposure is exportable but the liquor liability portion is not a listed class, the non-listed portion still needs a documented search - or a separate admitted-market attempt - before it goes non-admitted.
- Nothing else is excused. Export status does not waive the eligibility of the insurer, the written disclosure to the insured, or premium tax and reporting duties.
Best practice is a file memo explaining the export basis rather than silence, because the examiner will ask why no declinations exist.
3. What should the file contain for each carrier contact, and what should the producer do now that the examination request has arrived?
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Required file content, per contact: insurer name; date and method of contact; underwriter or contact person; the specific reason given (appetite, class, limits, loss history, deductible); any quoted terms and why they were not comparable; and the insured's written acknowledgment when an admitted offer was rejected.
Also required: the producer's search declaration, the signed disclosure, and evidence of the non-admitted insurer's eligibility.
Immediate steps:
- Do not backdate or rewrite notes. Reconstruct from contemporaneous sources - emails, phone logs, CRM timestamps - and label anything reconstructed as such.
- Obtain a signed statement from the insured about why the Carrier D quote was rejected.
- Give the examiner the complete file, including the weak spots, with a short memo explaining the export-list position if it applies.
- Explain the gap rather than let the examiner infer concealment; a documentation failure is a curable deficiency, an altered file is a credibility problem.
Prospective fix: a one-page search checklist that must be completed before any binding is issued.