This year, one of the Florida Surplus Lines Association's (FSLA) main objectives was to eliminate the due diligence requirement for those commercial lines coverages that have been deregulated as to a rate approval by the Office of Insurance Regulation. In 2010, a number of commercial lines risks had been deregulated as to rate, and in 2011 the trades, and in particular the American Institute of Architects, proposed to run the gamut of coverages with the exception of personal lines insurance. The proposed legislation had no real opposition from any quarter and in fact was endorsed by most insurance trade and business organizations.

With that development, FSLA desired to eliminate the need for due diligence for those same lines. We were fortunate to be partnered in that effort by the Florida Association of Insurance Agents, whose members equally wanted to eliminate the requirement for the same lines. The "due diligence" bill had no apparent opposition and is generally not unique to Florida, as many states have exempted the need for due diligence in varying degrees, especially for industrial insureds.

Changes Effective in July and October
The new law took effect July 1, 2011, for those commercial lines that were previously deregulated, and on Oct. 1, 2011, for the new lines incorporated in the 2011 bill. We believe that the new disclosures provided by the bill are better because the insureds know up front that they are purchasing coverage in the surplus lines market and agree to it. That in turn provides more protection for the agent and for the company.

HB 1087, sponsored by Rep. Doug Holder, R-Sarasota, enacted the legislation that eliminates the due diligence requirements prior to placing coverage with surplus lines insurers for those commercial risks that have been deregulated by statute as to rate. This does not impact residential lines insurance. We believe the commercial lines insurance market is very competitive today, and the due diligence effort in these limited instances is, therefore, unnecessary.

As of July 1, 2011, retail agents were no longer required to complete a diligent effort form prior to quoting or binding surplus lines coverage for the following commercial classes:

Commercial excess or umbrella
Surety and fidelity
Boiler and machinery and leakage and fire extinguishing equipment
Errors and omissions
Directors and officers, employment practices and management liability
Intellectual property and patent infringement liability
Advertising injury and Internet liability insurance
Property risks rated under a highly protected risks-rating plan.

Beginning on Oct. 1, 2011, the list was expanded to include:

Fiduciary liability
General liability
Non-residential property, except for collateral protection insurance as defined in s. 624.6085
Non-residential multi-peril (package policies)
Excess property (non-residential)
Burglary and theft.

This does not mean the total end of the diligent effort form. Many lines, including residential property, residential multi-peril, and commercial residential will still be subject to the completion of due diligence before the risk can be exported.

Greater Safeguards for Insureds
The amendment provides greater safeguards for the insureds because it requires notification of the insured and requires the insured's consent up front that the retail agent will be going to the surplus lines market. There is still a requirement to provide a signed surplus lines disclosure statement requiring insureds to acknowledge that they have been fully informed that surplus lines carriers provide no protection from the Florida Guaranty Association. The amendment also requires notice to the insured that coverage may be available from an admitted carrier at a lower cost.

It is the retail agent's responsibility to obtain the insured's signature on the surplus lines disclosure statement and to retain the form for his records. Once the notice is signed by the insured, then the insured is presumed to be informed of the information contained in the notice, and provides that the notice protects the retail agent to the same extent that the diligent effort does when placing risk in the surplus lines market.

Another beneficial result of this legislation is that it now permits retail agents to display both admitted and non-admitted market quotes, simultaneously, for some commercial lines, without the diligent effort requirement. We believe the amendment is a plus/plus for all concerned.

Special Reports /

Due Diligence Legislative Changes for 2011

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