The Office of General Counsel issued the following opinion on August 2, 2006, representing the position of the New York State Insurance Department.
Re: Excess Line Insurance
1. Does the failure of an authorized insurer to respond to a solicitation for insurance coverage constitute a declination for the purpose of determining that the insurance is unobtainable in whole or in part from insurers authorized to write such insurance in New York State?
2. In determining that insurance is unobtainable from an authorized insurer, may an excess line broker rely upon declinations obtained with respect to other insureds in lieu of obtaining separate declinations for the insured?
3. Are any fire taxes imposed on excess line brokers in addition to the 3.6% premium tax?
4. Does the Superintendent of Insurance hold hearings to determine whether a particular coverage is eligible for procurement from an unauthorized insurer in the excess line market?
1. No, an authorized insurers failure to respond to a solicitation for insurance coverage does not constitute a declination.
2. No, except for a few limited exceptions, an excess line broker must obtain three declinations from authorized insurers with respect to each insured before procuring coverage from an unauthorized insurer.
3. No, excess line brokers are responsible for a 3.6% premium tax on each policy procured pursuant to the excess line license. No additional fire tax is imposed.
4. No, the Insurance Law expressly delineates the permissible kinds of insurance that an excess line broker may procure through the excess line market.
No facts were provided; the inquiry is of a general nature.
The duties of an excess line broker regarding the placement of business with an unauthorized insurer are specified in N.Y. Ins. Law § 2118 and N.Y. Comp Codes R. & Regs. tit. 11, Part 27 (Regulation 41). Before placing coverage for a risk with any unauthorized insurer, the excess line broker is required to file an affidavit showing that the broker was unable, after diligent effort, to obtain the coverage, in whole or in part, from an authorized insurer, including, where appropriate, residual market facilities authorized to write and writing the kinds of insurance provided. N.Y. Ins. Law § 2118(b)(3) and § 27.0 of Regulation 41. The procedures for filing the affidavit are set forth in N.Y. Ins. Law § 2118(b)(1) and § 27.5 of Regulation 41.
In order to demonstrate such diligent effort, except as discussed below, both the Insurance Law and Regulation 41 specify that an excess line broker must obtain declinations from three authorized insurers whom the broker has reason to believe would consider writing the insurance sought. N.Y. Ins. Law § 2118(b)(3) and § 27.3 of Regulation 41. Thus, an authorized insurers failure to respond to a solicitation for coverage does not constitute a declination.
Pursuant to N.Y. Ins. Law § 2118(b)(3)(A), the excess line broker may meet this requirement by submitting to the Superintendent, along with his or her own affidavit, an affidavit of another broker affirming that, after diligent effort by the affirming broker, the insurance could not be procured from an authorized insurer that the affirming broker had reason to believe might consider writing the type of coverage or class of insurance involved. The criteria to form the basis for the affirming brokers belief are listed under N.Y. Ins. Law § 2118(b)(3)(B).
As a general rule, an excess line broker must obtain three declinations from an authorized insurer with respect to each insured before procuring coverage from an unauthorized insurer. N.Y. Ins. Law § 2118(b)(3) and § 27.3 of Regulation 41.
However, the declination requirement is modified for members of a purchasing group. Under specified conditions, the affidavit evidencing declinations may be filed on behalf of more than one member of a purchasing group. Purchasing groups are established pursuant to the Federal Risk Retention Act of 1986, as implemented by Article 59 of New Yorks Insurance Law. Section 301.6 of N.Y. Comp Codes R. & Regs. tit. 11, Part 301 (Regulation 134) provides in relevant part:
(b) An excess line broker procuring a liability insurance policy from an unauthorized insurer for a purchasing group or a member of such group shall in such transaction comply with sections 2117, 2118, and 2122 of the Insurance Law and Part 27 (Regulation No. 41) of this Title, in the following manner:
(1) Affidavit by broker or excess line broker. An affidavit by a broker or an excess line broker, evidencing the requisite number of declinations, may be executed and filed by the licensee on behalf of more than one member of a purchasing group, where liability insurance for such members was procured during the 30 days prior to the filing of the affidavit, provided that such affidavit specifies all applicable information required in the affidavit for each such included member.
Under N.Y. Ins. Law § 2118(d)(1), an excess line broker is obligated to pay to the Superintendent an excess line premium tax of a sum equal to three and six-tenths (3.6%) of the gross premiums, less return premiums, charged the insured by the insurer for insurance procured by using the licensees New York excess line license. This tax is imposed directly on excess line brokers, not insureds.
The relevant tax forms and allocation schedules are provided under Regulation 41 and may be obtained on the Departments website, www.ins.state.ny.us/abindx.htm. The Premium Tax Statement form is used to calculate the total premium tax. This form also provides a line item calculation ("Report 2") for a three percent (3%) fire premium tax. The fire premium tax is an itemized component of the total premium tax and an excess line broker is required to submit the fire premium tax as a separate check to the Department. No additional fire insurance tax is imposed on an excess line broker pursuant to Article 91 of the Insurance Law.
This opinion does not interpret tax obligations arising under any other law.
Under N.Y. Ins. Law § 2105(a), excess line brokers may procure from an unauthorized insurer the kinds of insurance specified in N.Y. Ins. Law § 1113(a)(4)-(14), (16), (17), (19), (20), (22), (27) and (28).
In addition to procuring these property/casualty classes of insurance, section 2105(h) permits an excess line broker to procure personal accident insurance and accident disability insurance policies, provided the insured is a non-resident of this state, and the nature of the risk to be insured is related to the operation of motor vehicles at high speeds for the enjoyment of spectators, is unusual and is difficult to place.
Thus, the Insurance Law provides expressly prescribes the types of coverage that may be procured through the excess line market. The Superintendent does not hold hearings to determine the eligibility of any particular kind of coverage. However, the Superintendent may, after a hearing on a record, determine that another number of declinations may be appropriate in regard to particular coverages.
N.Y. Ins. Law § 2118(b)(4) (McKinney 2006) provides in relevant part:
The number of declinations constituting diligent effort in regard to placement of coverage with authorized insurers for purposes of paragraph [fig 1] three of this subsection shall be three, unless the superintendent after a hearing, on a record, upon findings and conclusions, determines that another number of such declinations is appropriate in regard to particular coverages. In making such determinations, the superintendent shall consider relevant market conditions, including unavailability of particular coverages from authorized insurers, and may conduct market surveys. Any such determination shall be reviewed at least annually by the superintendent.
Section 27.3(g)(1) of Regulation 41 contains an enumerated list of types of coverages and classes of insurance that the Superintendent has determined are exempt from having to obtain declinations. Furthermore, under Section 27.3(g)(2), application may be made to the Superintendent to add a particular type of coverage to this list.
For further information you may contact Principal Attorney Paul A. Zuckerman, at the New York City Office.