6.6 Surplus Lines, Aviation, Boatowners & Differences in Conditions (DIC)

6.6 Surplus Lines, Aviation, Boatowners & Differences in Conditions (DIC)

Several specialty property coverages appear on the exam that do not fit standard admitted-market forms. Adjusters must recognize each coverage’s purpose and where it fits in the risk-transfer program.

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Surplus Lines Insurance

Surplus Lines insurance places coverage with a non-admitted (unauthorized) insurer when standard admitted-market insurers decline the risk.

• Diligent Effort: The surplus lines broker must make a diligent effort to place the coverage with admitted insurers before binding with a surplus lines carrier (subject to export lists that waive the search).
• Surplus Lines Broker: A specially licensed broker procures the coverage; the broker, not the insurer, is accountable to the insured.
• Premium Tax: Because the insurer is not admitted, it does not pay state premium taxes; the broker collects a surplus lines premium tax from the insured and remits it to the state.
• No Guaranty Fund: Losses with a non-admitted insurer are NOT protected by the state insurance guaranty association.

Aviation Insurance

Covers aircraft owners and operators:

• Aircraft Hull: Physical damage to the aircraft, written all-risk or named perils, with coverage by flight stage (ground, taxiing, flight). Hull is often a valued policy.
• Aircraft Liability: Bodily injury and property damage liability to passengers and third parties, including medical payments.
• Passenger Liability: Covers injury to passengers on board.
• Third-Party Liability: Covers injury to ground bystanders and damage to property of others.

Boatowners (Yacht) Policy

A package policy for pleasure boats:

• Hull Coverage: Physical damage to the boat on an agreed-value or ACV basis.
• Protection & Indemnity (P&I): Marine liability for bodily injury and property damage caused by the boat’s operation.
• Medical Payments: Injury to others, regardless of fault.
• Uninsured Boater: Covers injuries caused by an uninsured boater.

Differences in Conditions (DIC)

A DIC policy supplements standard property forms by covering perils they exclude (flood, earth movement, and other catastrophic perils), often on an all-risk basis and worldwide:

• Gap Filler: Fills the gaps between named-peril property forms and comprehensive coverage.
• Typical Structure: Written excess over the underlying property policy; pays after the primary policy responds.
• Buy-Back: Some DIC forms exclude flood and earthquake by default but allow the insured to "buy back" those perils for additional premium.

Adjuster Comparison

Surplus Lines Placement Mechanics

• The retail agent who cannot place a risk in the admitted market hands it to a surplus lines broker; the broker has the surplus-lines license.
• The broker documents the diligent effort search (or relies on an export list of risks exempt from the search requirement).
• Premium includes the surplus-lines stamping fee and a state premium tax (typically 1–4%) remitted by the broker.
• Some states operate an industrial insured exemption waiving the diligent search for large sophisticated insureds.

Aviation Insurance Details

• Hull is written on a valued policy with rates varying by flight stage; the most hazardous stage (in-flight) carries the highest rate, while ground-only coverage is least costly.
• Deductibles apply to hull, often a percentage of the insured value, with no deductible for total loss by fire.
• Passenger liability is usually written on a per-seat or per-passenger basis, while third-party liability covers ground bystanders and property.
• Hull war risk is excluded and must be added by endorsement for operations in conflict zones.

Boatowners Policy Details

• Hull is agreed value or ACV, with a lay-up period (winter months) reducing premium when the boat is out of the water.
• P&I covers the boat owner's liability for injuries caused by wake, collision, or operation, plus pollution and wreck removal.
• Medical Payments are no-fault and excluded where worker's compensation or PIP applies.
• Uninsured Boater mirrors uninsured motorist coverage for injuries caused by an uninsured watercraft operator.

DIC Structure and Triggers

• DIC is generally excess over the primary property policy and pays after the primary policy's limits or its exclusions exhaust recovery.
• Some DIC forms are primary for excluded perils like flood and earthquake, paying first when the underlying property policy excludes them.
• The buy-back endorsement restores flood or earthquake that the base DIC otherwise excludes, allowing insureds to tailor catastrophe coverage.