The Notice of Excess Line Placement
The Department of Financial Services requires a Notice of Excess Line Placement advising the insured that the insurer is not an authorized insurer, that the insurer’s policy forms are not necessarily approved by the Department of Financial Services and the insured is not protected by a security fund in the event of the insurer’s insolvency.
Either the excess line or the producing broker can send the Notice to the insured. The party who sends the Notice should answer question 2(c) in the Part A or 3 in the Part C affidavit affirmatively. The Notice requires very little adaptation from account to account. The only information that 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 brokers from DFS inquiry, a coverage contest, or an errors and omissions suit.
The Department of Financial Services 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.
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.
One last point offers the greatest protection possible. Most excess line transactions charge back at least the tax and stamping fee to the insured, which means the broker needs a Total Cost Form signed by the insured (See OGC Opinion of October 7, 2002). The Total Cost Form and the Notice of Excess Line Placement are usually part of the same form. When the single form is signed and returned, both the producing and excess line broker should keep a copy. Brokers then have a Notice of Excess Line Placement receipt signed by the insured. The combined form will make it very difficult for an insured to allege they never received notice that the insurer was nonadmitted.
ELANY does not need a signed copy for its file, so a broker need not wait for the insured to return a signed total cost form to file with ELANY.
Note, Regulation 41 (11 NY-CRR 27.12) states, “No producing broker or excess line broker shall charge the insured any amount (including reimbursement for premium taxes or stamping fees), other than the premiums for the policy or insurer's policy fee, if any, unless the broker obtains a written memorandum, signed by the insured, specifying the amount and purpose in accordance with §2119 of the Insurance Law.” Additionally, §27.15(e) states, “No insurance policy or contract of insurance placed with an unauthorized insurer shall be binding upon the insured, and no premium charged therefor (sic) shall be due and payable, until the excess line broker has provided, or caused to be provided by the producing broker [the Notice of Excess Line Placement] … .”
To Recap
Issue the Notice and Total Cost Form as one document;
Put the insured’s name and address on the Notice for each transaction; and
Include the name and address of the broker who sent it.
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ELANY DISCLAIMER:
This is not intended to be nor should it be construed as legal advice. Consult with your own legal counsel.
Last Reviewed/Revised: September 21, 2022