1.2 Unauthorized Insurers and the Surplus Lines Law Framework
Key Takeaways
Knowingly representing or aiding an unauthorized insurer is a third-degree felony, and a subsequent violation is a second-degree felony (s. 626.902).
A person who places an illegal contract is personally liable for unpaid claims if the person knew or should have known of the violation (s. 626.901(2)).
Chapter 627 does not apply to surplus lines insurance unless a provision specifically says it applies to surplus lines insurers (s. 626.913(4)).
A surplus lines insurer is deemed paid once the surplus lines agent or originating agent receives the premium on a bound risk (s. 626.926).
The Florida Insurance Guaranty Association Act excludes surplus lines insurance under s. 631.52(13).
Before you can apply any surplus lines rule, you need the framework that Part VIII of Chapter 626 builds. Florida starts from a flat prohibition: nobody may help an unauthorized insurer do business here. The Surplus Lines Law is then a controlled exception to that prohibition.
Key Vocabulary
- Authorized (admitted) insurer: holds a Florida certificate of authority from the Office of Insurance Regulation (OIR).
- Unauthorized (nonadmitted) insurer: does not hold a certificate of authority.
- Eligible surplus lines insurer: an unauthorized insurer that OIR has made eligible to issue coverage under the Surplus Lines Law (s. 626.914(2)).
- Surplus lines agent: an individual licensed to handle the placement of coverage with unauthorized insurers, and to place coverage with authorized insurers for which the licensee is not licensed as an agent (s. 626.914(1)).
- To export: to place with an unauthorized insurer insurance covering a subject resident, located, or to be performed in Florida (s. 626.914(3)).
- Domestic, foreign, alien (s. 624.06): a domestic insurer is formed under Florida law, a foreign insurer is formed under the law of another U.S. state, district, territory, or commonwealth, and an alien insurer is any other insurer, such as a Lloyd's syndicate or a Bermuda company.
The Baseline Prohibition: s. 626.901
No person, whether located in Florida or elsewhere, may directly or indirectly act as agent for, or otherwise represent or aid, an insurer not authorized to transact that insurance in Florida in any of these activities:
- solicitation, negotiation, procurement, or effectuation of contracts or renewals;
- disseminating information on coverage or rates;
- forwarding applications;
- delivering policies;
- inspecting risks;
- fixing rates;
- investigating or adjusting claims; or
- collecting or forwarding premiums.
Three consequences follow. First, if the unauthorized insurer fails to pay a claim under an illegally placed contract, any person who knew or reasonably should have known of the violation, and who solicited, negotiated, took the application for, or effectuated the contract, is personally liable to the insured for the unpaid claim. Second, the illegal contract is not invalid; the insured keeps its rights. Third, the office or department may issue an immediate final cease-and-desist order, because the Legislature treats these violations as an immediate threat to public welfare.
The prohibition does not apply to matters under the Unauthorized Insurers Process Law, surplus lines insurance written under ss. 626.913 to 626.937, transactions that need no certificate of authority under s. 624.402, or independently procured coverage under s. 626.938 that is not solicited, marketed, negotiated, or sold in Florida.
Penalties: ss. 626.902 and 626.903
| Violator | Penalty |
|---|---|
| Florida-licensed agent who knowingly represents or aids an unauthorized insurer | Third-degree felony |
| Any other person who represents or aids an unauthorized insurer in Florida | Third-degree felony |
| Anyone committing a subsequent violation | Second-degree felony |
| Every violator, in addition | Personal, joint and several liability for the taxes due under s. 626.938 |
Under s. 626.903, an unauthorized insurer may not file or maintain a lawsuit in Florida to enforce rights arising from an insurance transaction here unless the transaction is one permitted by s. 624.402.
The Surplus Lines Law: ss. 626.913 to 626.915
Sections 626.913 through 626.937 are the Surplus Lines Law. Its stated purposes are to:
- give the insuring public orderly access to unauthorized insurers, only through qualified, licensed, and supervised surplus lines agents resident in Florida, and only for coverage not procurable from authorized insurers; and
- protect authorized insurers, which must meet form and rate standards, from unwarranted competition by unauthorized insurers.
Two scope rules are frequently tested. The Surplus Lines Law does not apply to independently procured coverage under s. 626.938. And Chapter 627 does not apply to surplus lines insurance unless a provision specifically says it applies to surplus lines insurers (s. 626.913(4)). That is why Part VIII contains its own cancellation, claims-payment, and deductible-notice rules.
Section 626.915 lists four conditions for surplus lines coverage:
- the insurance must be eligible for export under s. 626.916 or s. 626.917;
- the insurer must be an eligible surplus lines insurer under s. 626.917 or s. 626.918;
- the insurance must be placed through a licensed Florida surplus lines agent; and
- the other applicable provisions of the Surplus Lines Law must be met.
Validity and Insurer Liability: ss. 626.925 and 626.926
A surplus lines contract procured under the law is fully valid and enforceable and must be recognized just like a contract issued by an authorized insurer.
Section 626.926 protects the insured if money gets stuck in the distribution chain. If the unauthorized insurer, or someone it authorized, bound the risk, and the surplus lines agent or originating agent received the premium, the insurer is deemed to have received it. The insurer is then liable for covered losses and for unearned premium on cancellation, even if the surplus lines agent never forwarded the money.
The Guaranty Fund Gap
The Florida Insurance Guaranty Association Act does not cover surplus lines insurance; s. 631.52(13) lists surplus lines among its exclusions. That gap is why the insured disclosure in s. 626.916 and the policy stamp in s. 626.924 both warn that surplus lines insureds lack guaranty-act protection if an unlicensed insurer becomes insolvent.
A Florida general lines agent knowingly forwards applications for a nonadmitted insurer that is not on the eligible list, without using a surplus lines agent. The insurer later refuses to pay a covered claim. What is the agent's civil exposure?
None, because the illegal contract is void and the insured receives only a premium refund
Liability is limited to the commission earned on the policy
The agent is personally liable to the insured for the unpaid claim
The Florida Insurance Guaranty Association pays the claim and seeks reimbursement from the agent
Which statement about Chapter 627 and surplus lines insurance is accurate?
Chapter 627 applies in full because surplus lines policies cover Florida risks
Chapter 627 applies to surplus lines insurance only where a provision specifically says it applies to surplus lines insurers
Chapter 627 applies only to surplus lines policies with premiums over $100,000
Chapter 627 applies to surplus lines insurers once they are placed on the eligible list
A surplus lines agent collects the premium on a bound policy but never forwards it to the insurer. A covered loss occurs. What is the insurer's obligation under s. 626.926?
The insurer may deny the claim until the agent's debt is paid
The insurer owes only unearned premium, not losses
The insurer's obligation shifts to the FSLSO
The insurer is deemed to have received the premium and must pay the covered loss
Sections you finish are checked off in the contents.