New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on August 17, 2006 representing the position of the New York State Insurance Department.

Re: Medical Malpractice Insurance and Excess Line Brokers

Question:

May an excess line broker place medical malpractice insurance for a New York hospital with an unauthorized insurer?

Conclusion:

If insurance is available through the Medical Malpractice Insurance Pool ["Pool"], then an excess line broker may not place medical malpractice insurance for a New York hospital with an unauthorized insurer. An excess line broker may, however place business for a New York hospital that is in excess of that available through the Pool from an unauthorized insurer, provided that the broker adheres to New York’s excess line rules, including the declination requirement.

Facts:

Your inquiry was general in nature and no facts were provided.

Analysis:

If insurance is unavailable in New York, a licensed excess line broker may place certain coverages with insurers that are not authorized to do business in New York. Excess line brokers are regulated under Article 21 of the New York Insurance Law and Insurance Regulation 41, N.Y. Comp, Codes, R. and Regs., tit. 11, § 27.1 et seq. (2003).

N.Y. Ins. Law § 2118(b)(3)(A) requires in relevant part that:

The submission of insurance documents to the excess line association shall be accompanied by a statement subscribed to, and affirmed by, the licensee or sublicensee as true under the penalties of perjury that, after diligent effort, the full amount of insurance required could not be procured, from authorized insurers, each of which is authorized to write insurance of the kind requested and which the licensee has reason to believe might consider writing the type of coverage or class of insurance involved, and further showing that the amount of insurance procured from an authorized insurer is only the excess over the amount procurable from an authorized insurer…

N.Y. Ins. Law § 2118(b)(3)(A) (McKinney 2000 & Supp. 2006).

New York Ins. Law § 2118(e) states in pertinent part that:

(1) Except as provided in paragraph two of this subsection, no licensee shall be required to obtain a declination from an association established pursuant to article fifty-four or fifty-five of this chapter, or to apply for insurance through a plan established pursuant to article fifty-three of this chapter, as a condition of procuring insurance pursuant to this section.

(2)(A) Unless the licensee obtains a declination from the appropriate association, or from an insurer pursuant to an application for coverage through a plan, no diligent effort shall be considered to have been made if the insurance is available from the plan or association in connection with the placement of:

* * *

(ii) medical malpractice insurance for a general hospital, as defined in subdivision ten of section two thousand eight hundred one of the public health law…

N.Y. Ins. Law § 2118(e) (McKinney 2000 & Supp. 2006).

Section 27.3 of Regulation 41 also provides, in pertinent part that:

(a) No excess line broker shall place coverage for a risk with any unauthorized insurer, unless the risk has been declined by at least three authorized insurers, each of which is authorized in this state to write insurance of the kind requested and is an insurer that the excess line broker has reason to believe might consider writing the type of coverage or class of insurance involved…

* * *

(d) If less than the full amount of coverage for the risk can be obtained from authorized insurers, the excess line broker may procure coverage from an unauthorized insurer only for the excess portion over the amount obtainable from the authorized insurers.

(e) (1) Unless the licensee obtains a declination from an appropriate residual market facility, no diligent effort will be considered to have been made if the insurance is available from such residual market facility in connection with the placement of:

* * *

(ii) medical malpractice insurance for a general hospital as defined in section 2801(10) of the public health law, a physician or dentist;

N.Y. Comp, Codes, R. and Regs., tit. 11, § 27.3 (2003).

The New York Medical Malpractice Insurance Plan ["NYMMIP"], which replaced the Medical Malpractice Insurance Association, established the Pool which offers coverage to practitioners unable to secure coverage in the voluntary market. New York permits medical malpractice coverage to be placed with an unauthorized insurer in the excess line market if the insurance is unavailable from the Pool.

Article XII, section 5 of the Plan of Operation of the New York Medical Malpractice Insurance Plan and Article IX, section 4 of the Plan of Operation of the New York Medical Malpractice Insurance Pool state that "[a]ny hospital in the state of New York shall be entitled to apply to NYMMIP for medical malpractice and incidental liability insurance and obtain such insurance subject to limits of $1,000,000 for each claim and $6,000,000 for all claims in any one year…" Therefore primary medical malpractice insurance may not be placed by an excess line broker with an unauthorized insurer since primary coverage for the hospital is available through the Pool.

With respect to writing a hospital excess policy for an amount greater than that which is available from the Pool, the excess line broker must obtain three declinations from insurers in accord with N.Y. Ins. Law § 2118 and § 27.3(a) of Regulation 41. The Pool may not be one of these insurers because it does not offer excess coverage for hospitals.

For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.