The Vermont Statutes Online

Title 8: Banking and Insurance

Chapter 138: Non-Admitted Insurers and Surplus Lines Insurance

• § 5021. Non-Admitted Insurance Act; short title

  This chapter may be cited as the “Non-Admitted Insurance Act.” (Added 1979, No. 50, § 2.)

• § 5022. Definitions

  (a) Notwithstanding subsection (b) of this section, as used in this chapter, unless the context requires otherwise, words and phrases shall have the meaning given under Title V, Subtitle B of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, as amended.

  (b) As used in this chapter:

  (1) “Admitted insurer” means an insurer licensed to transact business in this State. For purposes of this chapter, “admitted insurer” shall not include a domestic surplus lines insurer.

  (2) “Commissioner” means the Commissioner of Financial Regulation.

  (3) “Domestic insurer” means any insurer that has been chartered by, incorporated, organized, or constituted within or under the laws of this State.

  (4) “Domestic risk” means a subject of insurance that is resident, located, or to be performed in this State.

  (5) “Domestic surplus lines insurer” means a domestic insurer with which insurance coverage may be placed under this chapter.

  (6) “To export” means to place surplus lines insurance with a non-admitted insurer.

  (7) “Home state” means, with respect to an insured:

  (A)(i) The state in which an insured maintains its principal place of business or, in the case of an individual, the individual’s principal residence; or

  (ii) if 100 percent of the insured risk is located outside the state referred to in subdivision (A)(i) of this subsection, the state to which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated.

  (B) If more than one insured from an affiliated group are named insureds on a single non-admitted insurance contract, the term “home state” means the home state, as determined pursuant to subdivision (A) of this subdivision (7), of the member of the affiliated group that has the largest percentage of premium attributed to it under such insurance contract.

  (8) “NAIC” means the National Association of Insurance Commissioners.

  (9) “Surplus lines broker” means an individual licensed under this chapter and chapter 131 of this title.

  (10) “Surplus lines insurance” means coverage not procurable from admitted insurers.

  (11) “Surplus lines insurer” means a non-admitted insurer with which insurance coverage may be placed under this chapter. (Added 1979, No. 50, § 2; amended 1979, No. 197 (Adj. Sess.), § 1; 1989, No. 225 (Adj. Sess.), § 25(b); 1995, No. 180 (Adj. Sess.), § 38(a); 2011, No. 49, § 2, eff. May 26, 2011; 2011, No. 78 (Adj. Sess.), § 2, eff. April 2, 2012; 2019, No. 57, § 4.)

• § 5023. Surplus lines insurance; authorized

  Surplus lines insurance may be procured from non-admitted insurers, if:

  (1) the insurance meets the conditions specified in section 5024 of this title;

  (2) the insurance is placed through a licensed surplus lines broker;

  (3) the insurer meets the conditions specified in section 5026 of this title; and

  (4) all other requirements of this chapter are met. (Added 1979, No. 50, § 2; amended 1979, No. 197 (Adj. Sess.), § 2; 2001, No. 97 (Adj. Sess.), § 19.)

• § 5023a. Domestic surplus lines insurer; authorized

  (a) Surplus lines insurance may be procured from a domestic surplus lines insurer if all of the following criteria are met:

  (1) The board of directors of the insurer has adopted a resolution seeking certification as a domestic surplus lines insurer and the Commissioner has approved such certification.

  (2) The insurer is already eligible to offer surplus lines insurance in at least one other state besides Vermont.

  (3) The insurer meets the requirements of section 5026 of this title.

  (4) All other requirements of this chapter are met.

  (b) The requirements of 8 V.S.A. § 80 shall not apply to domestic surplus lines insurers. A domestic surplus lines insurer shall be deemed to be a non-admitted insurer for purposes of chapter 138 of this title. (Added 2019, No. 57, § 5.)

• § 5024. Conditions for placement of insurance

  (a) Insurance coverage, except as described in section 5025 of this chapter, shall not be placed with a surplus lines insurer unless the full amount of insurance required is not reasonably procurable from admitted insurers actually transacting that kind and class of insurance in this State; and the amount of insurance exported shall be only the excess over the amount procurable from admitted insurers actually transacting and insuring that kind and class of insurance.

  (b) Notwithstanding any other provision of this section, the Commissioner may order eligible for export any class or classes of insurance coverage or risk for which he or she finds there to be an inadequate competitive market among admitted insurers either as to acceptance of the risk, contract terms, or premium or premium rate.

  (c) The due diligence search for reasonably procurable insurance coverage required under subsection (a) of this section is not required for an exempt commercial purchaser, provided:

  (1) the surplus lines broker procuring or placing the surplus lines insurance has disclosed to the exempt commercial purchaser that such insurance may be available from an admitted insurer and may provide greater protection with more regulatory oversight; and

  (2) the exempt commercial purchaser has subsequently requested in writing the surplus lines broker to procure or place such insurance from a non-admitted insurer. (Added 1979, No. 50, § 2; amended 1979, No. 197 (Adj. Sess.), § 3; 2001, No. 97 (Adj. Sess.), § 19; 2011, No. 49, § 3, eff. May 26, 2011; 2019, No. 57, § 6.)

• § 5025. Exceptions concerning placement of insurance with non-admitted insurers; records

  The provisions of this chapter controlling the placement of insurance with non-admitted insurers shall not apply to life insurance, health insurance, annuities, or reinsurance, nor to the following insurance when so placed by any licensed producer in this State:

  (1) insurance on subjects whose home state is other than Vermont;

  (2) insurance on the property or operations of aircraft or railroads engaged in transportation in interstate and foreign commerce; or

  (3) insurance of vessels, crafts or hulls, cargoes, marine builder’s risks, marine protection and indemnity, or other risks, including strikes and war risks commonly insured under ocean or wet marine forms of policy. (Added 1979, No. 50, § 2; amended 2001, No. 97 (Adj. Sess.), § 19; 2011, No. 49, § 4, eff. May 26, 2011.)

• § 5026. Solvent insurers required

  (a) Where Vermont is the home state of the insured, surplus lines brokers shall not knowingly place or continue surplus lines insurance with surplus lines insurers who are insolvent or unsound financially, and in no event shall any surplus lines broker place any insurance with a non-admitted insurer unless such insurer:

  (1) has and maintains capital and surplus or its equivalent under the laws of its domiciliary jurisdiction that equals the greater of:

  (A) the minimum capital and surplus requirements under the law of this State; or

  (B) $15,000,000.00; and

  (2) if an alien insurer is listed on the quarterly listing of alien insurers maintained by the NAIC international insurers department.

  (b) Notwithstanding the capital and surplus requirements of this section, a surplus lines insurer may receive approval upon an affirmative finding of acceptability by the Commissioner. The finding shall be based upon such factors as quality of management, capital, and surplus of any parent company, company underwriting profit and investment-income trends, market availability, and company record and reputation within the industry. In no event, however, shall the Commissioner make an affirmative finding of acceptability when the surplus lines insurer’s capital and surplus is less than $4,500,000.00.

  (c) The Commissioner may from time to time publish a list of all non-admitted insurers deemed by him or her to be currently eligible surplus lines insurers under the provisions of this section, and shall mail a copy of such list to each surplus lines broker. This subsection shall not be deemed to cast upon the Commissioner the duty of determining the actual financial condition or claims practices of any non-admitted insurer; and the status of eligibility, if granted by the Commissioner, shall indicate only that the insurer appears to be sound financially and to have satisfactory claims practices, and that the Commissioner has no credible evidence to the contrary. While any such list is in effect, the surplus lines broker shall restrict to the insurers so listed all surplus lines insurance business placed by him or her. However, upon the request of a surplus lines broker or an insured, the Commissioner may deem a non-admitted insurer to be an eligible surplus lines insurer for purposes of this subsection prior to publication of the name of such surplus lines insurer on the list. (Added 1979, No. 50, § 2; amended 1979, No. 197 (Adj. Sess.), § 4; 1985, No. 236 (Adj. Sess.), § 4, eff. June 3, 1986; 1989, No. 249 (Adj. Sess.), § 1; 1993, No. 235 (Adj. Sess.), § 5, eff. June 21, 1994; 2001, No. 97 (Adj. Sess.), § 19; 2007, No. 49, § 7; 2011, No. 49, § 5, eff. May 26, 2011; 2019, No. 57, § 7.)

• § 5027. Evidence of the insurance; changes; penalty

  (a) Where Vermont is the home state of the insured, the surplus lines broker, upon placing a domestic risk with a surplus lines insurer, shall promptly deliver to the insured the policy issued by the surplus lines insurer, or if such policy is not then available, a certificate, cover note, or other confirmation of insurance, showing the description and location of the subject of the insurance, coverage, conditions and term of the insurance, the premium and rate charged and taxes collected from the insured, and the name and address of the insured and surplus lines insurer. If the risk is assumed by more than one insurer, the document or documents shall state the name and address and proportion of the entire risk assumed by each insurer.

  (b) No surplus lines broker shall issue or deliver such policy or such confirmation of insurance or represent that insurance will be or has been written by any non-admitted surplus lines insurer unless he or she has written authority from the surplus lines insurer to assume the risk or has received confirmation from the surplus lines insurer in the regular course of business that such insurance has been granted.

  (c) If, after delivery of any such document, there is any change in the identity of the insurers, the proportion of the risk assumed by any insurer, or any other material change in coverage evidenced by an appropriate document, the surplus lines broker shall promptly deliver to the insured an appropriate substitute for, or endorsement of the original document, accurately showing the current status of the coverage and the insurers responsible thereunder. The document as modified and issued must conform to all the requirements of this chapter, and any such change resulting in a violation of this chapter is prohibited.

  (d) As soon as reasonably possible, and in no event later than 60 days after placement of any such insurance, the surplus lines broker shall procure from the insurer a full and properly executed policy and deliver it to the insured to replace any confirmation previously issued. The word “policy,” as used in this section, shall include a certificate of insurance or cover note bound under a fully executed and effective contract from a bona fide intermediary or general agent for a surplus lines insurer, provided that it contains or has attached to it all insuring agreements, clauses, conditions, endorsements, exclusions, or any other material provisions that would regularly be included in such a policy.

  (e) Any surplus lines broker who fails to comply with the requirements of this section shall be subject to the penalties provided in this chapter. (Added 1979, No. 50, § 2; amended 1979, No. 197 (Adj. Sess.), § 5; 2001, No. 97 (Adj. Sess.), § 19; 2011, No. 49, § 6, eff. May 26, 2011.)

• § 5028. Information required on contract

  Where Vermont is the home state of the insured, each surplus lines broker through whom a surplus lines insurance coverage is procured shall endorse on the outside of the policy and on any confirmation of the insurance, his or her name, address and license number, and the name and address of the producer, if any, through whom the business originated. Where such coverage is placed with an eligible surplus lines insurer there shall be stamped or written conspicuously in no smaller than 10-point boldface type of a contrasting color upon the first page of the policy and the confirmation of insurance, if any, “The company issuing this policy is a surplus lines insurer and the rates charged have not been approved by the Commissioner of Financial Regulation. Any default on the part of the insurer is not covered by the Vermont Insurance Guaranty Association.” (Added 1979, No. 50, § 2; amended 1979, No. 197 (Adj. Sess.), § 6; 2001, No. 97 (Adj. Sess.), § 19; 2011, No. 49, § 7, eff. May 26, 2011; 2019, No. 57, § 9.)

• § 5029. Surplus lines insurance valid

  (a) Insurance contracts procured as surplus lines insurance from surplus lines insurers in accordance with this chapter shall be valid and enforceable to the same extent as insurance contracts procured from admitted insurers.

  (b) The insurance trade practices provisions of sections 4723 and 4724(1)-(7) and (9)-(18) of this title, and the cancellation provisions of sections 3879-3883 (regarding fire and casualty policies) and 4711-4715 (regarding commercial risk policies) of this title shall apply to surplus lines insurers, both domestic and foreign.

  (c) Other provisions of this title not specifically applicable to surplus lines insurers shall not apply. (Added 1979, No. 50, § 2; amended 1979, No. 197 (Adj. Sess.), § 7; 2019, No. 57, § 10.)

• § 5030. Liability of surplus lines insurer for losses and unearned premiums

  If a surplus lines insurer has assumed a surplus lines coverage through the intervention of a licensed surplus lines broker of this State, and if the premium for that coverage has been received by that broker, then in all questions thereafter arising under the coverage as between the insurer and the insured, the insurer shall be deemed to have received that premium and the insurer shall be liable to the insured for losses covered by such insurance and for any return premiums due on that insurance to the insured whether or not the broker is indebted to the insurer for such insurance or for any other cause. (Added 1979, No. 50, § 2; amended 2019, No. 57, § 11.)

• § 5031. Licensing of surplus lines brokers

  After written application on a form supplied by the Commissioner, any licensed producer who is deemed by the Commissioner to be trustworthy and competent may be licensed as a surplus lines broker, pursuant to the provisions of chapter 131 of this title. (Added 1979, No. 50, § 2; amended 1979, No. 197 (Adj. Sess.), § 8; 1981, No. 42, § 3; 2001, No. 97 (Adj. Sess.), § 19.)

• § 5032. Surplus lines broker may accept business from other producers

  (a) A licensed surplus lines broker may originate surplus lines business himself or herself or may accept such business from any other originating producer duly licensed as to the kind or kinds of insurance involved and may compensate such producer therefor.

  (b) No originating producer shall knowingly misrepresent to the surplus lines broker any material fact involved in any such insurance transaction or in the eligibility of the risk for placement with a surplus lines broker. (Added 1979, No. 50, § 2; amended 1979, No. 197 (Adj. Sess.), § 9; 2001, No. 97 (Adj. Sess.), § 19.)

• § 5033. Records of surplus lines broker

  (a) Where Vermont is the home state of the insured, each surplus lines broker shall keep in his or her office a full and true record of each surplus lines insurance contract covering a domestic risk placed by or through him or her with a surplus lines insurer, including a copy of the daily report, if any, and showing such of the following items as may be applicable:

  (1) amount of the insurance and perils insured;

  (2) brief description of property insured and its locations;

  (3) gross premium charged;

  (4) any return premium paid;

  (5) rate of premium charged upon the several items of property;

  (6) effective date of the contract and its terms;

  (7) name and post office address of the insured;

  (8) name and post office address of the insurer;

  (9) name and post office address of brokerage house, if applicable, and name of licensed individual producer with whom business was placed;

  (10) amount collected from the insured; and

  (11) other information as may be required by the Commissioner.

  (b) The record of each contract shall be kept open to examination by the Commissioner without notice until three years next following termination of the contract. (Added 1979, No. 50, § 2; amended 1979, No. 197 (Adj. Sess.), § 10; 2001, No. 97 (Adj. Sess.), § 19; 2011, No. 49, § 8, eff. May 26, 2011.)

• § 5034. Quarterly reports; summary of exported business

  On or before the end of each month next following each calendar quarter, each surplus lines broker shall file with the Commissioner of Taxes, on forms prescribed by him or her, a verified report of all surplus lines insurance transacted during the preceding calendar quarter. (Added 1979, No. 50, § 2; amended 2001, No. 97 (Adj. Sess.), § 19; 2019, No. 51, § 36, eff. June 10, 2019.)

• § 5035. Surplus lines tax

  (a) Where Vermont is the home state of the insured, gross premiums charged, less any return premiums, for surplus lines coverages placed with surplus lines insurers are subject to a premium receipts tax of three percent, which shall be collected from the insured by the surplus lines broker at the time of delivery of policy or other confirmation of insurance, in addition to the full amount of the gross premium charged by the insurer for the insurance. The tax on any portion of the premium unearned at termination of insurance shall be returned to the policyholder by the surplus lines broker. Nothing contained in this section will preclude a surplus lines broker from charging a fee to the purchaser of the contract sufficient to recover the amount of this tax.

  (b) At the time of filing his or her quarterly report with the Commissioner of Taxes, each surplus lines broker shall remit the premium tax due thereon to the Commissioner of Taxes.

  (c) The Commissioner of Taxes shall collect the tax imposed by this section. All administrative provisions of 32 V.S.A. chapter 151, including those relating to the collection and enforcement of the income tax by the Commissioner of Taxes, shall apply to this section. (Added 1979, No. 50, § 2; amended 1981, No. 42, § 4; 2001, No. 97 (Adj. Sess.), § 19; 2011, No. 49, § 9, eff. May 26, 2011; 2019, No. 51, § 37, eff. June 10, 2019; 2019, No. 57, § 12.)

• § 5036. Direct placement of insurance

  (a) Every insured and every self-insurer in this State for whom this is their home state who procures or causes to be procured or continues or renews insurance from any non-admitted insurer, covering a subject located or to be performed within this State, other than insurance procured through a surplus lines broker pursuant to this chapter, shall, before March 1 of the year after the year in which the insurance was procured, continued or renewed, file a written report with the Commissioner of Taxes on forms prescribed and furnished by the Commissioner of Taxes. The report shall show:

  (1) the name and address of the insured or insureds;

  (2) the name and address of the insurer or insurers;

  (3) the subject of the insurance;

  (4) a general description of the coverage;

  (5) the amount of premium currently charged for it;

  (6) such additional pertinent information as may be reasonably requested by the Commissioner of Taxes.

  (b) Any insurance, where this State is the home state of the insured, or for which premium in whole or in part is remitted directly or indirectly from within this State, shall be deemed insurance subject to subsection (a) of this section.

  (c) A tax at the rate of three percent of the gross amount of premium, less any return premium, shall be levied upon an insured who procures insurance subject to subsection (a) of this section. Before March 1 of the year after the year in which the insurance was procured, continued, or renewed, the insured shall remit to the Commissioner of Taxes the amount of the tax.

  (d) All administrative provisions of 32 V.S.A. chapter 151, including those relating to the collection and enforcement of the income tax by the Commissioner of Taxes, shall apply to this section. (Added 1979, No. 50, § 2; amended 1979, No. 197 (Adj. Sess.), § 11; 2011, No. 49, § 10, eff. May 26, 2011; 2019, No. 51, § 38, eff. June 10, 2019; 2019, No. 57, § 13.)

• § 5037. Suspension, revocation, or refusal of surplus lines broker’s license

  The Commissioner may suspend, revoke, or refuse to renew the license of a surplus lines broker after notice and hearing as provided under 3 V.S.A. chapter 25, upon any one or more of the following grounds:

  (1) failure to make accounts and records relating to domestic risks from this State available to the Commissioner during the period when such accounts and records are required to be maintained under section 5033 of this title;

  (2) closing of the surplus lines broker’s office for a period of more than 30 consecutive days, unless permission is granted by the Commissioner;

  (3) failure to make and file required quarterly reports;

  (4) failure to transmit required tax on surplus lines premiums;

  (5) suspension, revocation, or refusal to renew any other license issued by the Commissioner;

  (6) lack of qualifications as for an original surplus lines broker’s license;

  (7) material violation of any provision of this chapter; or

  (8) for any other cause for which a license could be denied, revoked, suspended, or renewal refused under section 4804 of this title. (Added 1979, No. 50, § 2; amended 1979, No. 197 (Adj. Sess.), § 12; 2001, No. 97 (Adj. Sess.), § 19; 2011, No. 49, § 11, eff. May 26, 2011.)

• § 5038. Actions against insurer; service of process

  (a) A non-admitted insurer may be sued upon any cause of action arising in this State under any surplus lines insurance contract made by it or certificate, cover note, or other confirmation of such insurance issued or delivered by the surplus lines broker pursuant to the procedure provided in chapter 101, subchapter 2 of this title.

  (b) Each surplus lines insurer that assumes a surplus lines coverage shall be deemed thereby to have subjected itself to this chapter.

  (c) The remedies provided in this chapter are in addition to any other methods provided by law for service of process upon insurers. (Added 1979, No. 50, § 2; amended 2019, No. 57, § 14.)

• § 5039. Penalties

  In addition to any other penalty provided for in this chapter or otherwise provided by law, including any suspension, revocation, or refusal to renew a license, any person, firm, association, or corporation violating any provision of this chapter shall be liable for an administrative penalty not exceeding $1,000.00 for the first offense and not exceeding $2,500.00 for each succeeding offense. (Added 1979, No. 50, § 2; amended 1995, No. 167 (Adj. Sess.), § 22.)

• § 5040. Separability of provisions

  If any provision of this chapter, or the application of such provision to any person or circumstances, shall be held invalid, the remainder of the chapter and the application of such provision to persons or circumstances other than those as to which it is held invalid, shall not be affected thereby. (Added 1979, No. 50, § 2.)