Agents and brokers who place relatively straightforward risks with admitted carriers traditionally have not had to concern themselves with the problem of carrier insolvency. If admitted carriers become insolvent, guaranty funds typically cover losses. But hard-to-place risks, which require the broker to access the surplus lines market, can present a virtual minefield. Although rating agencies like A.M. Best will provide brokers with the financial ratings of surplus lines carriers, those ratings won't provide the same level of security as insurance commissioner mandates.

While recognizing that an insurance agent is not a guarantor of the financial condition or solvency of an insurance company, some courts have applied the general rule that brokers are required to use reasonable care, skill and judgment with a view to the security or indemnity for which the insurance is sought. These jurisdictions generally believe that an insurance broker is required to perform varying levels of investigation before placing coverage with a carrier, and failure to do so may render the broker liable to the insured for resulting losses due to the insolvency.

Look to the Regulators