Legislature May Correct Essex Surplus Lines Glitch

Based on information provided by the Property Casualty Insurers Association of America, and information available to this Firm, steps are expected to be taken during the 2009 Florida Regular Legislative Session to correct a significant issue impacting Florida surplus lines carriers that has arisen as a result of the Florida Supreme Court decision in Essex Insurance Company v. Zota.

While the June, 2008 Essex decision was mostly favorable to the surplus lines industry, the Court decided that, because of its analysis of legislative history surrounding a Florida statute, certain provisions of Florida law, previously understood to be applicable only to admitted insurers, also apply to surplus lines insurers.

According to the National Association of Professional Surplus Lines Offices, the industry’s concern stems from the possibility that, under this ruling, surplus lines insurers potentially could be subjected to all of Florida’s rules relating to insurance contracts, including those involving notices of nonrenewal, imposition of attorneys fees and valued policy laws.

In an August 18, 2008 National Underwriter interview, the Florida Office of Insurance Regulation (“OIR”) informally indicated that it interprets Florida law as providing that non-admitted or surplus lines insurers are not required to file policy forms with that agency, except in very limited situations.

On the other hand, a decision recently issued by the United States Court of Appeals for the 11th Circuit in CNL Hotels & Resorts v. Mercedes Zota held that surplus lines policy forms do have to be approved by the OIR to be effective. Significant, unresolved issues will have to be addressed by all surplus lines carriers and brokers in Florida in view of these developments.

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

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