New Jersey Laws and Regulations Specific to Surplus Lines
Statutory framework
The New Jersey Surplus Lines Law is codified at N.J.S.A. 17:22-6.40 et seq., with implementing rules in N.J.A.C. 11:1-28. Surplus lines is a statutory exception to the rule that insurance must be placed with an admitted insurer. It allows a licensed surplus lines producer to place coverage with an eligible nonadmitted insurer only when the admitted market has declined the risk.
Conditions for a lawful placement
- The producer must hold a New Jersey surplus lines producer license.
- A documented diligent search is required. New Jersey practice looks for written declinations from authorized insurers, with three declinations as the common benchmark. The Department's export list exempts specified coverages from individual declinations.
- The insurer must appear on DOBI's eligible surplus lines insurer list, or meet the alien-insurer alternative through the NAIC International Insurers Department listing where permitted.
- The insured must receive written disclosure that the insurer is not admitted and that New Jersey guaranty fund protections differ. A surplus lines guaranty fund may apply, subject to its caps and exclusions.
- A 5% surplus lines premium tax applies, and the producer files the annual report and tax by March 1 for the prior calendar year. Under the NRRA home-state rule, New Jersey taxes and regulates the placement when New Jersey is the insured's home state.
- Exempt commercial purchasers may bypass the individual diligent search, but the producer must still disclose the nonadmitted nature of the placement and use an eligible insurer.
Worked example
A New Jersey manufacturer needs product recall coverage. Three admitted insurers decline in writing. An eligible surplus lines insurer quotes. The producer places the risk, collects premium, adds the 5% tax, delivers the nonadmitted-insurer disclosure, and files by March 1. If the producer instead uses an insurer that is not on the eligible list, the placement is unlawful even though the declinations exist.
Traps that cost marks
Surplus lines is not a price-shopping alternative to an available admitted market. Missing the tax filing, skipping the disclosure, or failing to document declinations are common exam failures.