Insurance

Administration

Rule R590-171: Surplus Lines Procedures Rule

Effective Date: 01/24/2024

Admin. Code Reference: R590-171

Rule Type: Current Rule

R590. Insurance, Administration.

R590-171. Surplus Lines Procedures Rule.

R590-171-1. Authority.

This rule is promulgated by the commissioner pursuant to Sections 31A-2-201, 31A-15-103, and 31A-15-111.

R590-171-2. Purpose and Scope.

(1) The purpose of this rule is to:

(a) recognize the Surplus Line Association of Utah as the advisory organization of surplus lines producers;

(b) authorize the Surplus Line Association of Utah to conduct the examination of surplus lines transactions;

(d) require that a surplus lines producer be a member of the advisory organization;

(e) regulate access and exceptions to the surplus lines market; and

(f) prescribe procedures for the placement of insurance with a surplus lines insurer.

(2) This rule applies to a person placing insurance with a surplus lines insurer on a risk located in Utah.

R590-171-3. Definitions.

Terms used in this rule are defined in Section 31A-1-301. Additional terms are defined as follows:

(1)(a) "Exempt commercial purchaser" means a person purchasing commercial insurance from the surplus lines market that meets the following requirements:

(i) the person employs or retains a qualified risk manager to negotiate insurance coverage;

(ii) the person paid aggregate nationwide commercial property and casualty insurance premiums of more than $100,000 in the immediately preceding 12 months; and

(iii) the person meets one or more of the following criteria:

(A) the person possesses a net worth of more than $20,000,000 as adjusted under Subsection (1)(b);

(B) the person generates annual revenues of more than $50,000,000 as adjusted under Subsection (1)(b);

(C) the person employs more than 500 full-time or full-time equivalent employees per individual insured or is a member of an affiliated group employing more than 1,000 employees in the aggregate;

(D) the person is a not-for-profit organization or public entity generating annual budgeted expenditures of at least $30,000,000 as adjusted under Subsection (1)(b); or

(E) the person is a municipality with a population of more than 50,000 persons.

(b) The amounts in Subsections (1)(a)(iii)(A), (1)(a)(iii)(B), and (1)(a)(iii)(D) are adjusted each fifth January beginning January 1, 2015, to reflect the percentage change for such five-year period in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the Department of Labor.

(2) "Export list" means a list, published and determined by the commissioner, of coverages and classes of insurance for which no general market exists with an admitted insurer.

(3) "Surplus lines insurer" means a non-admitted insurer that may place business in Utah with a surplus lines producer.

(4) "Surplus lines producer" means a licensee holding a license type described in Subsection 31A-23a-106(2)(b).

(5) "Surplus lines transaction" means:

(a) the solicitation, negotiation, procurement, or effectuation with a surplus lines insurer of an insurance contract or certificate of insurance; or

(b) a renewal, cancellation, endorsement, audit, or other adjustment to an insurance contract.

R590-171-4. Surplus Line Association of Utah.

(1) The Surplus Line Association of Utah is recognized as the advisory organization of surplus lines producers under Section 31A-15-111.

(2) A licensed surplus lines producer shall be a member of the Surplus Line Association of Utah.

(3) The Surplus Line Association of Utah is authorized to:

(a) facilitate and encourage compliance by its members with:

(i) the laws of Utah; and

(ii) the rules of the commissioner related to surplus lines insurance;

(b) act in other matters specified by Section 31A-15-111;

(d) determine if a surplus lines transaction complies with Subsection 31A-15-103(11) and with Sections R590-171-6 and R590-171-7; and

(e) collect the stamping fee under Subsection 31A-15-103(11)(d).

R590-171-5. Export List.

(1) The commissioner shall maintain an export list of insurance coverages and classes that may be placed with a surplus lines insurer.

(a) The commissioner considers the following in determining the insurance coverages and classes to be included on the export list:

(i) the current marketplace;

(ii) information from the Surplus Line Association of Utah's board of directors;

(iii) information from admitted and surplus lines insurers doing business in Utah;

(iv) information from other sources, including producers and consumers; and

(v) other relevant information.

(b)(i) A person may request, in writing, that the commissioner add or remove a coverage or a class of insurance from the export list.

(ii) The person shall provide evidence of market conditions to substantiate the request.

(2) The export list shall be published at least annually but may be revised and republished at any time.

R590-171-6. Conditions for Placing Insurance with a Surplus Lines Insurer.

Placement of insurance with a surplus lines insurer is subject to Subsections (1) through (3). All information relating to the placement of insurance pursuant to Section 31A-15-103 shall be made available to the commissioner upon request.

(1) Insurance coverages and classes included on the export list may be placed with a surplus lines insurer.

(2)(a) Insurance coverages and classes not included on the export list may be placed with a surplus lines insurer only if:

(i) a good faith effort is made to place the insurance with an admitted insurer that the producer believes will write the type of coverage or class of insurance involved consistent with the following:

(A) the insurance cannot be obtained due to underwriting reasons, or the insured requires specific terms and conditions of coverage that are unavailable through an admitted insurer;

(B) placement with a surplus lines insurer solely to obtain a better price does not constitute good faith unless the producer demonstrates that the price quoted by the admitted market is excessive under Subsection 31A-19a-201(2); and

(C) the inability to place insurance through an admitted insurer with whom the producer has an established relationship is not an exception to the obligation to place the insurance with an admitted insurer; and

(ii) the producer documents the good faith efforts made to place the insurance with an admitted insurer.

(b)(i) The good faith effort documentation in Subsection (2)(a)(ii) shall include a record of the efforts made to place the insurance together with a written explanation confirming that the effort is made in good faith.

(ii) The good faith effort documentation shall be maintained in the surplus lines producer's and the originating producer's files for at least three years from the inception date of coverage or renewal.

(3) An exempt commercial purchaser may purchase commercial insurance from the surplus market.

R590-171-7. Conditions for Marketing Insurance with a Surplus Lines Insurer.

A producer may not solicit business on behalf of a surplus lines insurer except as allowed in this section.

(1) A producer may advertise the availability of an insurance product for the insurance coverages and classes included on the export list to potential insureds and other producers.

(2)(a) A surplus lines producer may advertise its services and product lines to other producers.

(b) A surplus lines producer advertisement:

(i) shall identify that the insurance will be placed with a surplus lines insurer;

(ii) may not identify the insurer by name;

(iii) may not act as a solicitation on behalf of any surplus lines insurer; and

(iv) may not identify specific rates or specific policy provisions.

(3) Once negotiations over the available terms and conditions for specific coverages and classes begin, the producer shall disclose, in writing, to the potential insured:

(a) that the insurance will be placed through a surplus lines insurer;

(b) the name of the insurer;

(c) that the producer is not a producer of the potential insurer because surplus lines insurers are not permitted to appoint producers;

(d) that the surplus lines market is a specialty market with limited regulatory oversight by the commissioner, and specifically, there is no regulation of policy coverage forms or rates; and

(e) that no protection is given under any Utah guaranty fund association.

(4) Subject to Section 31A-23a-501, a surplus lines producer may:

(a) originate surplus lines insurance;

(b) accept an application for surplus lines insurance from a producer licensed as to the kinds of insurance involved; and

(5)(a) Only the portion of a risk that is unacceptable to the admitted market may be placed with a surplus lines insurer.

(b) If it is not possible to obtain the full amount of insurance required by segmenting the risk, or if the only portion that the admitted market will write is incidental to the principal elements of coverage, it is permissible to place the full amount with a surplus lines insurer.

(c) If a full amount is placed with a surplus lines insurer under Subsection (5)(b), an explanation shall be provided in the submission documentation outlined in Section R590-171-8.

R590-171-8. Reporting and Examination.

(1) No later than 60 days after the effective date of a policy or a certificate of insurance placed with a surplus lines insurer, the surplus lines producer shall file with the Surplus Line Association of Utah a complete copy of the policy or certificate of insurance together with justification for placement with a surplus lines insurer.

(2) Justification for placement with a surplus lines insurer shall include:

(a) for insurance placed pursuant to Subsection R590-171-6(1), identification of the specific coverage or class on the export list;

(b) for insurance placed pursuant to Subsection R590-171-6(2), a record of the effort to place the insurance with an admitted insurer under Subsection R590-171-6(2)(a)(ii);

(d) if applicable, an explanation required by Subsection R590-171-7(5)(c); and

(e) any other information or documentation pertinent to the surplus lines placement.

(3) The Surplus Line Association of Utah shall provide submission forms for compliance with Subsection (2).

(4) If a policy or certificate of insurance is not available within 60 days, a binder with sufficient detail to determine the subject of the insurance, coverages, insured, insurer, premium amount and the justification required by Subsection (2) shall be filed with the Surplus Line Association of Utah.

(5)(a) If, during an examination performed by the Surplus Line Association of Utah, it determines that a person placing a policy or certificate of insurance with a surplus lines insurer is noncompliant with Subsection 31A-15-103(11)(a) or this rule, the Surplus Line Association of Utah shall take corrective action against the person

(b)(i) The board of directors of the Surplus Line Association of Utah shall determine what corrective action is appropriate.

(ii) The corrective action is subject to the review of the commissioner.

R590-171-9. Rule Distribution.

The Surplus Line Association of Utah shall distribute a copy of Rule R590-171 to every surplus lines producer and shall instruct the surplus lines producers of the scope, purpose, and operation of the rule.

R590-171-10. Severability.

If any provision of this rule, Rule R590-171, or its application to any person or situation is held invalid, such invalidity does not affect any other provision or application of this rule that can be given effect without the invalid provision or application. The remainder of this rule shall be given effect without the invalid provision or application.

KEY: insurance

Date of Last Change: January 24, 2024

Notice of Continuation: May 21, 2024

Authorizing, and Implemented or Interpreted Law: 31A-2-201; 31A-15-103; 31A-15-111