"THE NOTICE OF EXCESS LINE PLACEMENT"

 

THE NOTICE OF EXCESS LINE PLACEMENT

You all remember that fun little predecessor to the Notice of Excess Line Placement called the Part B affidavit? If you do, then youll also recall the great joy which rang throughout the land when the Part B was eliminated in 1996.

The Part B ostensibly accomplished several goals. By having a signed affidavit from the insured, both the producing broker and the excess line broker had a sworn statement from the insured affirming his knowledge that the placement was with a non-admitted insurer whose policy forms were not necessarily approved by the New York Insurance Department and no insolvency fund protection protected the insured in the event of the insurers insolvency.

The practical problems with the Part B affidavit were numerous. The insureds were slow to sign it, if they signed it at all. Brokers had to follow up constantly creating extra work and administration. Part B delays often made the filings late.

ELANY and other interested parties were successful in having the Part B affidavit eliminated and replaced by ...

"The Notice of Excess Line Placement"

The insurance department agreed to the elimination of the Part B affidavit and in its place the department required the Notice (see Example A) to be sent, advising the insured that the insurer was not authorized, that the policy forms were not necessarily approved and no insolvency fund protected the insured in the event of the insurers insolvency.

THE BIG CHANGE

The broker was no longer required to obtain and submit a signed affidavit by insured.

Either the excess line or the producing broker can send the Notice. The party who sends the Notice of Excess Line Placement should answer question 2(c) in the Part A or Part C affidavit affirmatively. As shown in Examples A and B the Notice requires very little adaptation from account to account. The only information which changes from Notice to Notice is the date of issue, the name of the insured and the name of the broker who sent the Notice.

When administered properly, the Notice of Excess Line Placement provides protection to the brokers.

No broker enjoys an insurance department inquiry, a coverage contest nor an errors and omissions suit. Good use of the Notice can help you avoid the problems referred to above.

FIRST THE PROBLEM

The insurance department receives complaints from consumers regarding excess line policies on occasion. The majority of complaints occur because of coverage issues. When the department advises the insured that excess line insurers have broader latitude to tailor coverage and forms, some insureds have denied receiving the Notice that an excess line insurer was used.

A number of brokers issue the notice without addressing it specifically to the named insured and without identifying the broker who sent it. Use of such a generic notice that fails to identify the named insured and the specific broker who sent the notice may not be sufficient proof at the most critical juncture when litigation or a regulatory action is threatened.

ELANYS SIMPLE SOLUTION

ELANY recommends as a matter of best practices that the notice be addressed specifically to the named insured and that it specifically set forth the name of the broker who sent it.

It makes sense to type in the insureds name as well as the brokers since a form issued generically to "named insured" on a blank sheet of paper will not establish the proof necessary to protect you if a coverage fight or worse, an insolvency occurs.

One last point offers you the greatest protection possible. Most excess line transactions charge back at least the tax and stamping fee to the insured which means you need a total cost form signed by the insured. The total cost form and the Notice of Excess Line Placement can be part of the same form (see Example B). Have the producing broker issue the Notice combined with the total cost form. When it is signed and returned, both the producing and excess line broker should keep a copy of the form without tearing off the total cost form. By treating the total cost form and Notice together, you have a Notice of Excess Placement receipt signed by the insured. The combined form will make it very difficult for an insured or the insureds attorney to allege the insured never received the Notice that the insurer was nonadmitted.

Remember ELANY does not need a signed copy for its file so, you need not wait for the insured to return a signed total cost form to file with ELANY. (Example B shows you how the form might look).

The excess line or producing broker can achieve these minor changes in various ways. Type in the named insured in the body of the Notice where indicated or specifically address the Notice to the named insured. Put the form on a computer and have it print on your stationery so the brokers name is set forth on the letterhead.

TO RECAP

1) Issue the Notice and total cost form as one document,
2) Put the insureds name and address on the Notice for each transaction,
3) Photostat it onto letterhead, or otherwise set forth the name and address of the broker who sent it,
4) Have the party who sends it to the insured answer yes to Affidavit question 2(c),
5) Keep a copy of the combined form in both the producing and excess line brokers file and,
6) Send ELANY a copy of the Notice with the affidavits. You need not wait for the insureds signed copy to file with ELANY.

ELANY DISCLAIMER:

"This is not intended to be nor should it be construed as legal advice. Consult with your own legal counsel."