Guidelines relating to the procurement of surplus lines business by licensed resident agents

Issued and entered July 15, 1985 by Nancy A. Baerwaldt, Commissioner of Insurance

BACKGROUND

One of the underlying purposes of the Surplus Lines Insurance Act of 1980, MCLA 500.1900 et seq.; MSA 24.11900 et seq., is to establish a system of regulation which permits an orderly access to surplus lines insurance in this state. Section 1910(4) of the act requires that the commissioner maintain, on a current basis, a list of those lines of insurance for which coverages are determined by the commissioner to be generally unavailable in the authorized insurance market. Furthermore, Section 1916 of the act provides that a surplus lines licensee may compensate a licensed resident agent in this state for obtaining surplus lines business, and that the resident agent may collect a premium on behalf of a surplus lines licensee who has authorized the agent to do so.

Questions have arisen as to how the resident agent may obtain such surplus lines business, since the authority granted under the resident agent license is limited to the solicitation and sale of insurance on behalf of the authorized insurers that have appointed the agent to act on their behalf.

Section 1207(4) of the Michigan Insurance Code, MCLA 500.1207(4); MSA 24.11207(4), provides that "If an agent is unable to immediately provide, through his insurers that are authorized to underwrite the coverage, all or a part of the coverage requested on a risk, he may obtain the part of the coverage refused by his insurers through another licensed agent, through the state accident fund or through a risk sharing plan permitted by state law." The purpose of Section 1207(4) of the Code which is commonly known as "the refused or excess statute" is to provide an avenue for the procurement of insurance by an agent of insurers who normally write such coverages but have declined to write all or part of an unusually large or undesirable risk. This section permits the agent to obtain the refused coverages through another licensed agent. This section, in conjunction with Section 1916 of the Surplus Lines Insurance Act, permits a resident agent to obtain the refused business through a Michigan surplus lines licensee.

GUIDELINES

The Commissioner of Insurance shall consider the placement of a line of insurance on the list of coverages determined to be generally unavailable in the authorized insurance market to constitute refusal by insurers authorized to write such coverages for the purpose of Section 1207(4) of the Code. A licensed resident agent, who is appointed to represent insurers whose certificates of authority include the authority to write any of the coverages which have been placed on the commissioner's most current list, may consider the coverage as having been refused by such insurers and may obtain the requested coverage through a Michigan surplus lines licensee.

In regard to those coverages that have not been placed on the commissioner's list, both of the following conditions must be met to constitute a refusal within the meaning of Section 1207(4):

1. The insurers that have appointed the resident agent are authorized to write such coverages and normally do so.

2. The insurers have communicated to the resident agent in writing or otherwise that they will not accept the risk or risks with similar characteristics.

The resident agent may obtain quotations through a surplus lines licensee or other resident agent but, coverage may not be bound through a second agent unless and until the risk has been refused by the insurers that have appointed the original agent.

Surplus lines insurance may not be procured if coverage is available from the state accident fund or other risk sharing plan created by state law, such as the Michigan Basic Property Insurance Association, the Michigan Automobile Insurance Placement Facility, or the Michigan Workers' Compensation Placement Facility. Surplus lines insurance may be procured only by a resident agent through a surplus lines licensee and in compliance with the provisions of the surplus lines insurance act.

RIGHTS AND PROCEDURES

The guidelines in this bulletin shall become effective August 30, 1985. In conformity with section 3(6) of the Administrative Procedures Act of 1969, MCLA 24.203(6); MSA 3.560(103)(6), these guidelines are a statement of policy which the agency intends to follow, which do not have the force or effect of law, and which bind the agency, but do not bind any other person. The Bureau staff shall use these guidelines in the regulation of surplus lines business obtained in this state.