In addition, the NRRA provides that an excess line broker seeking to procure or place excess line insurance for an exempt commercial purchaser (“ECP”) need not satisfy any state requirement to make a due diligence search to determine whether the full amount or type of insurance sought by the ECP may be obtained from admitted insurers if: (1) the broker procuring or placing the excess line insurance has disclosed to the ECP that the insurance may be available from the admitted market, which may provide greater protection with more regulatory oversight; and (2) the ECP has subsequently requested in writing that the broker procure the insurance from or place the insurance with an excess line insurer.

On March 31, 2011, Governor Andrew M. Cuomo signed into law Chapter 61 of the Laws of 2011, Part I of which amended the Insurance Law to conform to the NRRA.

Insurance Regulation 41 (11 NYCRR Part 27) currently consists of 24 sections and one appendix addressing the regulation of excess line insurance placements.

The title of Section 27.0 is changed to read “Preamble and applicability,” and Section 27.0 is amended to discuss the NRRA and Chapter 61 of the Laws of 2011 and to provide that Part 27 applies only when the insured’s home state is New York.

Section 27.1 is amended to delete “eligible,” “qualified United States financial institution,” and “letter of credit” as defined terms, and to add three new defined terms: “exempt commercial purchaser,” “insured’s home state,” and “United States.”

The Department amended Section 27.2(a) to change a reference to “Insurance Department” to read “Department of Financial Services.”

Section 27.3(a) is amended to provide an exception for an ECP consistent with Insurance Law Section 2118(b)(3)(F) and to change a reference to “Insurance Department” to read “Department of Financial Services.”

Section 27.3(f) is amended to require an excess line broker and the producing broker to maintain files supporting declinations by authorized insurers where declinations are required.

A new Section 27.3(h) is added, which provides that Section 27.3(a), (b), and (c) do not apply to an excess line broker seeking to procure or place insurance in New York for an ECP if the broker discloses to the ECP that the insurance may or may not be available from the authorized market that may provide greater protection with more regulatory oversight, and the ECP has subsequently requested in writing that the licensee procure or place the insurance from an unauthorized insurer.

Section 27.4(b) is amended to delete a reference to “in this State” and Section 27.4(g) is repealed.

Section 27.5(f), (g), and (h) are amended to: (1) with regard to an ECP, require an excess line broker or the producing broker to affirm in part A or part C of the affidavit that the ECP was specifically advised in writing, prior to placement, that insurance may or may not be available from the authorized market, which may provide greater protection with more regulatory oversight; (2) require an excess line broker to affirm that the insured’s home state is New York in part A of the affidavit; and (3) clarify that the premium tax is to be allocated in accordance with Section 27.9 of Insurance Regulation 41 for insurance contracts that have an effective date prior to July 21, 2011.

Section 27.6(b) is amended to make grammatical changes and to change “the Excess Line Association of New York” to “the excess line association.”

Section 27.7(a) is amended to remove a reference to an unauthorized insurer that does not meet “eligibility standards for stamping by the excess line association” and to replace it with language that refers to an unauthorized insurer that does not “qualify to write excess line insurance in this State.”

Section 27.8 is amended to: (1) require a licensed excess line broker to file electronically an annual premium tax statement, unless the Superintendent of Financial Services (the “Superintendent”) grants the broker an exemption pursuant to Section 27.21 of Insurance Regulation 41; (2) acknowledge that payment of the premium tax may be made electronically; and (3) change a reference to “Superintendent of Insurance” to read “Superintendent of Financial Services.”

Section 27.9 is amended to clarify how an excess line broker must calculate the taxable portion of the premium for: (1) insurance contracts that have an effective date prior to July 21, 2011; and (2) insurance contracts that have an effective date on or after July 21, 2011 and that cover property or risks located both inside and outside the United States.

Section 27.10(b) is amended to make grammatical changes.

Section 27.11 is amended to prohibit an unauthorized insurer from providing coverage if the coverage is prohibited by law.

Section 27.13 is amended to remove certain information from the list of information that an excess line broker must obtain and review prior to placing insurance with an unauthorized insurer, and to delete the prohibition against an excess line broker placing business with an excess line insurer unless the insurer has filed with the Superintendent a current listing that sets forth certain individual policy details.

Current Section 27.14 is repealed and a new Section 27.14 is added entitled, “Filings by unauthorized insurers; authorization to receive premium,” which affirmatively requires an excess line insurer to file electronically with the Superintendent a current listing that sets forth certain individual policy details, and states that “pursuant to Insurance Law section 2121, any unauthorized insurer that delivers in New York to any excess line broker or any insured represented by such broker a contract of insurance pursuant to the application or request of such broker, acting for an insured other than himself or herself, will be deemed to have authorized the broker to receive on its behalf payment of any premium that is due on such contract at the time of its issuance or delivery or payment of any installment of such premium or any additional premium that becomes due or payable thereafter on such contract, provided that the broker receives the payment within 90 days after the due date of the premium or installment thereof or after the date of delivery of a statement by the insurer of the additional premium.”

Sections 27.15 and 27.16 are repealed.

Sections 27.17, 27.18, 27.19, 27.20, and 27.21 are renumbered as Sections 27.15, 27.16, 27.17, 27.18, and 27.19.

Newly renumbered Section 27.15(b) (formerly Section 27.17(b)) is amended to make grammatical changes and to change a reference to “Insurance Department” to read “Department of Financial Services.”

Newly renumbered Section 27.16(a) (formerly Section 27.18(a)) is amended to change a reference to Section 27.17(b) to read Section 27.15(b).

Newly renumbered Section 27.19(a) (formerly Section 27.21(a)) is amended to change a reference to Section 27.17(e) to read Section 27.15(e).

Section 27.22 is renumbered as Section 27.20.

Current Section 27.23 is repealed and a new Section 27.21 is added entitled, “Exemptions from electronic filing and submission requirements.”

Section 27.24 is renumbered as Section 27.22.

The excess line premium tax allocation schedule set forth in appendix four is amended to apply to insurance contracts that have an effective date prior to July 21, 2011.

A new appendix five is added, which sets forth an excess line premium tax allocation schedule to apply to insurance contracts that have an effective date on or after July 21, 2011 and that cover property and risks located both inside and outside the United States.

The revisions made to the revised proposed rule have no special bearing on the previously published RIS; therefore, changes made to the last published revised rule do not necessitate revision to the previously published RIS.

The revisions made to the revised proposed rule have no special bearing on small businesses and no bearing on local governments; therefore, changes made to the last published revised rule do not necessitate revision to the previously published RFA.

The revisions made to the revised proposed rule have no special bearing on persons located in rural areas; therefore, changes made to the last published revised rule do not necessitate revision to the previously published RAFA.

The revisions made to the revised proposed rule have no bearing on jobs or employment opportunities; therefore, changes made to the last published revised rule do not necessitate revision to the previously published JIS.

As a rule that requires a RFA, RAFA or JIS, this rule will be initially reviewed in the calendar year 2017, which is no later than the 3rd year after the year in which this rule is being adopted.

The New York State Department of Financial Services (“Department”) received comments from a national trade association representing the excess line industry, a national insurance trade organization, a property/casualty trade organization, the New York stamping office, and an excess line insurer, in response to the publication of its revised proposed rule in the New York State Register.

Many of the comments received were comments previously submitted to the Department that the Department addressed in the assessment of public comments published in the State Register on July 9, 2014. New comments on specific parts of the revised proposed rule and the Department’s responses thereto are discussed below.

Proposed Amendments to 11 NYCRR 27.13(b) (“Duty to Inquire”)

Comment

The New York stamping office stated that the requirement that an excess line broker not place coverage with an unauthorized insurer, unless the insurer’s financial statement or other evidence demonstrates certain criteria, places an excess line broker in an awkward position regarding the statutory due care standard. The New York stamping office asserted that while the amendments to 11 NYCRR 27.13(a) no longer require an excess line broker to review and retain a copy of an alien insurer’s most recent annual financial statement, the amendments to 11 NYCRR 27.13(b) require a broker to know the overall financial condition of the insurer. The New York stamping office asserted that the amendments do not provide excess line brokers with any guidance in this regard.

The New York stamping office further stated that it does not believe that excess line brokers should be required to obtain and retain insurer financial statements, and it proposed allowing excess line brokers to rely on the financial analysis and insurer reviews conducted by the New York stamping office by providing a presumption that the excess line broker has used due care in selecting a financially secure insurer if it places business with an insurer listed by the New York stamping office.

Department’s Response

Insurance Law section 2118(a)(1) requires an excess line broker to use due care in selecting an unauthorized insurer from which to procure policies. 11 NYCRR 27.13(b) prohibits an excess line broker from placing coverage with an unauthorized insurer unless the insurer’s financial statements or other evidence demonstrate that the insurer: (1) is solvent and otherwise substantially complies with solvency requirements for authorized insurers; and (2) has surplus to policyholders sufficient to support its writings, reasonable in relation to its outstanding liabilities, adequate to its financial needs, and meeting a certain minimum level.

Section 27.13(b) allows an excess line broker to rely on an insurer’s financial statements or other evidence. (Emphasis added.) Therefore, an excess line broker does not need to review an insurer’s financial statements if there is other evidence that demonstrates that the insurer is solvent and has sufficient minimum surplus to policyholders. In addition, the Insurance Law requires an excess line broker to use due care when selecting an unauthorized insurer from which to procure policies. The excess line broker may not delegate that statutory duty of care.

Therefore, the Department did not make any changes to the rule.

Proposed Deletion of 11 NYCRR 27.16 (“Exemption from Section 1213”)

Comment

The New York stamping office suggested that in light of the proposed withdrawal of 11 NYCRR 27.16, the Department should amend the rule to state clearly that insurance policies that do not expressly appoint the Superintendent of Financial Services (“Superintendent”) for service of process may be required to post pre-answer security in any litigation arising out of the policy.

Department’s Response

11 NYCRR 27.16 provides that an unauthorized insurer is not subject to Insurance Law 1213 under certain conditions, such as when it stipulates in its insurance policy that the insurer appoints the Superintendent for service of process. Insurance Law section 1213 applies to unauthorized insurers appointing the Superintendent for service of process and depositing funds with a court before filing any pleading in any proceeding against the insurer. Insurance Law section 1213(e) states that section 1213 does not apply to any proceeding against an unauthorized insurer arising out of any insurance contract that designates the Superintendent for service of process. Since section 1213(e) already so states, it is not necessary to repeat the same language in the rule. Therefore, the Department did not make any changes to the rule with respect to this comment.