Florida Legislature Passes Surplus Lines ‘Fix’ To Recent Court Decisions

Passed unanimously by the Florida Legislature on May 1, 2009 and pending signature by Florida Governor Charlie Crist, CS/HB 853 is considered the “legislative fix” to judicial decisions in two recent court cases that had changed the landscape of Florida surplus lines regulation by apparently requiring the filing of surplus lines policy forms with the Florida Office of Insurance Regulation (“OIR”)  for review and approval pursuant to the provisions of Part II of Chapter 627, F.S.  To view the engrossed version of CS/HB 853, click here.

As introduced, HB 853, which was originally sponsored by State Representative Pat Patterson (R-Deland), provides that Chapter 627 does not apply to surplus lines insurers unless specifically stated, and provides for retroactive application.

 

Should you have any questions or comments, please do not hesitate to contact Colodny Fass.

 

 

Background

Surplus lines insurance refers to a category of insurance for which there is no market available through standard insurance carriers in the admitted market. When insurance coverage is not available from licensed admitted insurers, persons seeking coverage may obtain coverage in the surplus lines market.  Surplus lines insurers are regulated by the state, but to a lesser degree than admitted insurers.

Historically, surplus lines insurance companies have not abided by the same insurance regulatory requirements in chapter 627, Florida Statutes, as admitted market insurance companies due to s. 627.021(2), F.S., which states:  “This chapter does not apply to: . . . (e) surplus lines insurance placed under the provisions of ss. 626.913-626.937.”  Additionally, the Florida Office of Insurance Regulation (“OIR”) has not regulated surplus lines insurers to the same extent as admitted market insurers due to this exemption.

Two recent cases, Essex v. Zota, currently pending in the U.S. District Court for the Southern District of Florida, and CNL Hotels & Resorts, Inc. v. Twin City Fire Insurance Co., in the U.S. District Court for the Middle District of Florida, have changed the landscape of Florida surplus lines regulation by apparently requiring the filing of surplus lines policy forms with the OIR for review and approval, pursuant to the provisions of Part II of Chapter 627, F.S..  From a regulatory standpoint, the OIR is not currently requiring surplus lines insurers to submit form filings.  In fact, the OIR has provided amicus briefs and affidavits in pending cases, stating that the form filings required of admitted insurers have never been required of surplus lines carriers.

CS/HB 853 is considered the “legislative fix” to these judicial decisions.  As originally introduced, the bill provides that Chapter 627 does not apply to surplus lines insurers unless specifically stated, and provides for retroactive application. 

 

Overview

CS/HB 853, which provides that Chapter 627, F.S. does not apply to surplus lines insurers unless specifically stated, responds to the holdings in Zota and CNL Hotels.  The bill imposes certain requirements on surplus lines insurers, beginning October 1, 2009, which are similar to some of the provisions governing admitted insurers in ch. 627, F.S.

 

Analysis By Section

 

Section 1

• Amends s. 626.913, F.S., relating to surplus lines to read: “Except as may be specifically stated to apply to surplus lines insurers, the provisions of chapter 627 do not apply to surplus lines insurance authorized under ss. 626.913-626.937, the Surplus Lines Law.”

Section 2 

• Amends s. 626.924, F.S., requiring surplus lines policies issued on or after a specified date to have stamped or printed on the face of the policy, the following statement: SURPLUS LINES INSURERS’ POLICY RATES AND FORMS ARE NOT APPROVED BY ANY FLORIDA REGULATORY AGENCY.”

Section 3 

• Creates s. 626.9371, F.S., governing “payment of premiums and claims,” and provides methods of payment for premiums and claims regarding surplus lines policies issued on or after a specified date. This section also requires a written authorization to complete payment under certain circumstances and provides for waiver of such requirement. In addition, this provision states that an insurer remains liable for payment of a claim if corresponding funds are misdirected.

Section 4

• Creates s. 626.9372, F.S., requiring that certain insurers provide a disclosure statement to a claimant under certain circumstances. This section also requires that such statement include certain information; requiring that an insurer disclose certain additional information upon the request of a claimant; requiring the amendment of such statement under certain circumstances.

Section 5

• Creates s. 626.9373, F.S., providing for the payment of reasonable attorneys’ fees in cases involving surplus lines insurers at trial and appellate levels, where a judgment or decree is entered against a surplus lines insurer and in favor of an insured or beneficiary under a policy or contract.

Section 6

• Creates s. 626.9374, F.S., governing liability of insureds and deductibles and requires that a surplus lines policy containing a separate hurricane or wind deductible issued on or after a specified date state, “THIS POLICY CONTAINS A SEPARATE DEDUCTIBLE FOR HURRICANE OR WIND LOSSES, WHICH MAY RESULT IN HIGH OUT-OF-POCKET EXPENSES TO YOU.”
• Requires that a surplus lines policy, containing a coinsurance provision applicable to hurricane or wind losses issued on or after a specified date state, “THIS POLICY CONTAINS A CO-PAY PROVISION THAT MAY RESULT IN HIGH OUT-OF-POCKET EXPENSES TO YOU.”

Section 7

• Provides that amendments to s. 626.913, F.S., are remedial in nature and operate retroactively to the regulation of surplus lines insurers from October 1, 1988, except with respect to lawsuits filed on or before May 15, 2009.

Section 8

• Provides for severability.

Section 9

• Provides that the act takes effect upon becoming a law.

 

 

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