Fleet Nonrenewal and the Three Declinations

Michigan permits surplus lines placement only when the full amount of coverage cannot be procured from authorized insurers after a diligent search. The test is not whether the producer contacted three companies; it is whether the producer made a good-faith, documented effort with authorized insurers that actually write the class and the requested limit. Insurer A's email is a substantive declination because it states a valid underwriting reason: no new commercial auto fleets. Insurer B's email is also substantive if B actually writes commercial auto and declines the Canadian exposure. Insurer C is the weak point: C offered only $2 million, not the requested $4 million, so the producer must confirm that C could not write the full $4 million. A phone statement recorded on a sticky note is poor evidence. The record should identify each insurer, the date, the line and limit requested, the reason for declination, and the person who declined. The producer should also check whether any other admitted market writes the class. The 18% higher surplus lines premium is not itself a reason to skip admitted markets. Conclusion: the search may be substantively adequate if C truly could not write $4 million, but the documentation is deficient and must be corrected before binding.

No, not merely because the admitted quote is more expensive. Surplus lines is not a price-shopping alternative to the admitted market; it is available only when the full coverage is not procurable from authorized insurers. If C can write the full $4 million limit and the coverage is materially equivalent, the producer must place with C even at a higher price. The producer may place surplus lines only if there is a genuine coverage difference that makes C's offer not comparable, for example, C excludes Ontario operations, imposes unacceptable conditions, or cannot provide the required cargo limit. A 40% premium difference is a business consideration for the insured, not a legal basis for surplus lines. If the insured refuses C's higher quote, the producer should document the refusal and explain that surplus lines cannot be used as a price alternative. The producer should also compare deductibles, exclusions, and claims handling; a cheaper surplus lines policy with a $25,000 deductible and narrow Canada coverage may not satisfy the same need. Conclusion: confirm C's full-limit offer, compare coverage, and do not bind surplus lines unless C's offer fails to meet the insured's actual coverage needs.

Before binding, the producer should: (1) obtain written confirmation from C that it cannot write the full $4 million limit, or a written quote if it can; (2) replace the sticky note with a dated declination memorandum or email; (3) verify the surplus lines insurer is eligible in Michigan and is not on any prohibited list; (4) prepare the required written surplus lines notice and obtain the insured's signed acknowledgment; (5) compare the surplus lines policy to the expiring coverage, especially Ontario exposure and cargo limits; (6) confirm the premium, taxes, and fees in writing. The producer should not let the six-day deadline override the documented search. Records should include the application, all declinations, the coverage comparison, the notice and acknowledgment, the policy, the invoice, and proof of tax remittance. Retain them for the statutory period. If the producer binds before completing these steps, the file will not support the placement if DIFS examines it or the insured has a coverage dispute.