On July 21, 1997, Governor Pataki signed Senate Bill 18, which revises New York's excess line broker law, effective January 17, 1998, to allow excess line brokers to bind coverage on behalf of unauthorized insurance companies.1 To exercise this additional power, excess line brokers must file with the Excess Lines Association of New York ("ELANY") a copy of a written agreement between themselves and each unauthorized insurer on whose behalf they will bind coverage.
Termed an "authority to bind coverage" in the new legislation, the agreement must set forth the terms, conditions and limitations governing the excess line broker's exercise of binding authority. Once such agreements are filed with ELANY, the excess line broker's authority to bind coverage is effective until terminated by the unauthorized insurer pursuant to the filed agreement or the excess line broker's license is suspended, revoked or expires and is not renewed.
The binders which excess lines brokers are authorized to issue must contain a description and location of the subject of insurance, coverage, conditions and term of insurance, the premium together with the names and addresses of the excess line broker, producing broker, insurer and insured.
Although this change in the laws governing excess line brokers does nothing to alter the qualification requirements affecting unauthorized insurers and does not otherwise change the requirements governing the production of business by excess line brokers, the new legislation represents a specific departure from the New York Insurance Department's (the "Department's") longstanding opposition to the practice of excess line brokers issuing binders on behalf of unauthorized insurers. (see, e.g., New York Insurance Department Opinion, No's. 83-8 and 95-66)
This legislatively mandated change also represents a fundamental shift in the regulation of the excess line marketplace by allowing excess line brokers, for the first time, to exercise a limited agency power on behalf of unauthorized insurers. Although the Department's longstanding opposition to the exercise of agency powers by excess line brokers has been grounded in a rational concern that unauthorized insurers not be allowed to circumvent the rules against doing business in New York by acting through third parties, the new legislation casts doubt on the continuing relevance of other specific bans which the Department has imposed on the activities of excess line brokers.2
While the full repercussions of Senate Bill 18 have not yet been seen, what is certain is that excess line brokers and the unauthorized insurers which they are now authorized to represent will now be given an option to simplify the binding process for the benefit of insureds seeking coverage in the excess line marketplace. This simplification will result from both the shorter lead times necessary for excess line brokers to generate quotes and bind coverage and the elimination of the role (and commissions) of non-resident agents which some excess line brokers were previously required to work through in obtaining excess line coverage for New York insureds.
To take advantage of this marketing opportunity, excess line brokers and unauthorized insurers would be well advised to revise their agreements and enter into new agreements, if necessary, so that the necessary filing is in place with ELANY once the new law goes into effect on January 17, 1998.
NOTES:
1. Senate Bill 18 will be codified as new Sections 2117(h)(3) and 2118(f) of the New York Insurance Law.
2. In particular, the Department's prohibitions against excess line brokers sending unsolicited applications for coverage and preparing and sending cancellation notices would appear to be no longer justifiable now that excess lines brokers are authorized to issue binders on behalf of the unauthorized insurers they may now represent. (see, New York Insurance Department Opinion, No. 84-4)