Earlier this spring, proposed legislation was introduced in the New York State Legislature which could lessen the burdens imposed on unauthorized insurers seeking to offer excess lines coverage in New York and possibly expand the scope of that market. Such coverages are typically only available when no or inadequate coverage is available in the admitted marketplace. The state carefully defines this marketplace as unauthorized carriers that are generally not subject to the same degree of regulation in New York as those insurers which are admitted or authorized in the state. For this reason, before offering coverage through unauthorized insurers, New York licensed excess lines brokers must demonstrate “diligent efforts” to first place coverage in the authorized/admitted marketplace by securing at least three coverage declinations from New York authorized carriers. Affidavits attesting to such efforts must be submitted to the Excess Lines Association of New York (“ELANY”).
Existing New York Regulations already exclude certain types of excess lines coverage form the diligent effort requirements. First, NY Comp. Codes R. & Regs. tit. 11 § 27.3(g)(1) creates a so-called “Exportable List” (often referred to in some states as a “White List”). Coverages on this list are deemed by the Department of Financial Services to be unique and difficult to place such that further diligence is determined to be unnecessary. Coverage for high risk activities like amusement parks, sky diving and racing, as well as certain professional liabilities lines, are included on the Exportable List. The diligent effort and affidavit requirements are also not applicable to insureds who are characterized as “exempt commercial purchasers” e.g., a large company with a professional risk manager considered a “sophisticated buyer,” along with certain other facts that must be present pursuant to Insurance Law § 2118(b)(3)(F).
State Senator Neil D. Breslin (D) recently introduced A05253 in the New York State legislature (the full version of which may be found here, Bill Text: NY A05253 | 2023-2024 | General Assembly | Introduced | LegiScan). If adopted, the proposed bill would provide an additional exception from the diligent effort requirement and would excuse failure to perform diligent efforts when a retail producing insurance broker seeks to procure or place commercial lines insurance through an unaffiliated wholesale excess lines insurance broker. Such an exception currently does not exist in the New York Insurance Law or regulations of the DFS. The bill provides, among other things, that retail and wholesale brokers are “unaffiliated” when a broker “does not control, is not controlled by, or is not under common control with the other.” It defines “control” as “directly or indirectly or acting through one or more other persons own[ing], control[ing], or ha[ving] the power to vote twenty-five percent or more of any class of voting securities of the other, or [ ] control[ing] in any manner the election of a majority of the directors or trustees of the other.”
In May, the proposed bill was unanimously passed in the State Senate’s Insurance Committee and unanimously passed by the State Senate. The bill now sits before the State Assembly, where it was introduced on March 7, 2023. Although the Assembly is now out of session, there is a possibility that the bill will pass in the next legislative session, assuming opposition from the Department of Financial Services or the Governor’s Office is not mounted. If adopted, New York excess lines brokers and insureds may encounter more flexibility in securing hard to place coverages in New York State.
Please refer questions to Cynthia J. Borrelli, who directs the Firm’s Insurance Law Practice.