The Producer Who Used Another Broker's License
A New Orleans producer holds a Louisiana property and casualty producer license but no surplus lines broker license. In March 2023, he places a $3 million commercial property policy for a French Quarter restaurant with Thames Union Assurance, an alien insurer not on the Department's eligible surplus lines insurer list. To make the deal, he uses the surplus lines license number of a friend who is a licensed surplus lines broker; the friend never reviews the file and receives $500 for the use of the number. The producer collects an $18,000 premium, issues a certificate, and tells the restaurant the policy is written by a London market insurer and is fully regulated. The restaurant has a $900,000 fire loss in June 2023. Thames Union stops responding and is later placed in liquidation. The restaurant asks whether LIGA will pay.
1. Identify the Louisiana licensing and surplus lines violations in this placement.
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The producer engaged in surplus lines activity without a surplus lines broker license. A regular property and casualty producer license does not authorize negotiating or placing coverage with a non-admitted insurer. Using another licensed broker's license number is also a violation; the licensed broker cannot lend, rent, or allow another person to use the license, and the friend's failure to review the file compounds the problem. Placing coverage with Thames Union is a separate violation because the insurer is not on the Department's current eligible surplus lines insurer list. The producer also misrepresented that the insurer was fully regulated, failed to give the required non-admitted insurer and guaranty fund disclosure, and apparently failed to remit surplus lines premium tax. Depending on the facts, the conduct may also constitute unauthorized insurance business and grounds for license revocation or fines against both producers.
2. Will LIGA respond to the $900,000 fire loss?
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No. LIGA covers claims against insolvent authorized insurers that are members of the guaranty association. Thames Union is not an admitted insurer, and surplus lines insurers are excluded from LIGA coverage. The fact that the policy was placed illegally does not convert Thames Union into an admitted insurer or create guaranty fund coverage. The restaurant therefore has no LIGA recovery for the fire loss. Its remaining theories are against the producer and possibly the licensed broker whose license number was used, including negligence, breach of fiduciary duty, misrepresentation, and unauthorized placement. The restaurant may also have a claim against the producer's errors and omissions insurer, although intentional or unauthorized acts may be excluded.
3. What should have happened, and what exposure do the producer and the friend now face?
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The restaurant should have been placed through a properly licensed Louisiana surplus lines broker, using an insurer on the current eligible list, after a documented diligent effort in the authorized market. The insured should have received a written disclosure that the insurer was not admitted, was not subject to the same regulatory oversight, and was not covered by LIGA. Premium tax should have been collected and remitted, and the file should have contained the policy, disclosure, eligibility verification, and declinations. The producer faces personal liability for the unpaid loss, regulatory penalties, license action, and possible criminal exposure for unauthorized insurance. The friend faces license discipline for lending the license and for failing to supervise the placement. Both face E&O claims, and the restaurant's recovery may depend on collecting from the producers rather than from the insolvent offshore insurer.