Surplus lines insurance is typically provided to insureds who, for various reasons, are not able to secure insurance from an “admitted” or “authorized” carrier in a state. Legal issues surrounding surplus line coverage sometimes involve whether or not a particular statute applies to surplus lines carriers or only “admitted” or “authorized” carriers within a state.
In Florida, an “authorized” insurer is one duly authorized by a certificate of authority issued by the Florida Office of Insurance Regulation to transact insurance in Florida. An “unauthorized” insurer is one not so authorized. Surplus lines insurers are considered to be unauthorized insurers, but are eligible to transact surplus lines as “eligible surplus insurers.” While “authorized” insurers must meet certain Florida requirements (e.g., policy forms and rates), an “unauthorized” surplus lines insurer may not be subject to the same requirements. Policyholders thus obtain access to markets with manuscript or non-standardized coverages, but without certain Florida protections (e.g., protection of the Florida Insurance Guaranty Act).
In 2008, the Florida Supreme Court held in Essex Ins. Co. v. Zota, 985 So.2d 1250 (Fla. 2008) that surplus lines insurers were exempt only from Part I of Chapter 627 (Insurance Rates and Contracts). The Legislature amended Fla. Stat. s. 626.913 in 2009 to clarify that none of Chapter 627 applied to surplus lines insurers: “Except as may be specifically stated to apply to surplus lines insurers, the provisions of chapter 627 do not apply to surplus lines insurance authorized under . . . the Surplus Lines Law.” The 2009 amendments to s. 626.913 stated explicitly that they were remedial in nature and operated retroactively to surplus lines insurers from October 1, 1988, except with regard to lawsuits filed on or before May 15, 2009.
Recently, in Fourth Tee, LLC v. Axis Surplus Insurance Company, 2013 U.S. Dist. LEXIS 20829 (M.D. Fla., Feb. 15, 2013), the court dismissed the plaintiff’s claim that the surplus lines insurer (“Axis”) was obligated to provide sinkhole coverage pursuant to Fla. Stat. s. 627.706(1).
Florida statutorily mandates sinkhole coverage in property insurance policies as set forth in Fla. Stat. s. 627.706(1):
Every insurer authorized to transact property insurance in this state shall provide coverage for catastrophic ground cover collapse and shall make available… coverage for sinkhole losses on any structure…
Under the Florida Insurance Code, “authorized” insurers must make sinkhole loss coverage available pursuant to Fla. Stat. s. 627.706(a).
The policies in Fourth Tee contained sinkhole exclusions and the mandated surplus lines language under Fla. Stat. s. 626.924(1), which states in part “This insurance is issued pursuant to the Florida Surplus Lines Law. Persons insured by surplus lines carriers do not have the protection of the Florida Insurance Guaranty Act…”
Axis moved to dismiss for failure to state a cause of action on the basis that (1) it is a surplus lines insurer and not subject to Florida’s sinkhole statutes pursuant to the Florida Surplus Lines law s. 626.913(4); and (2) sinkhole coverage is excluded under the Axis policies. In response, the plaintiff (“Fourth Tee”) made multiple arguments, including that Axis had an affirmative duty to provide coverage for sinkhole losses as set forth in Fla. Stat. s. 627.706(1). The court, relying on the 2009 amendments to s. 626.913, ultimately determined that the duty to provide coverage applies to every insurer authorized to transact property insurance in Florida, not to unauthorized insurers. As an “eligible” surplus lines insurer, i.e., an insurer not authorized to transact property insurance in the State of Florida, Axis was not required to provide coverage for sinkhole losses.
The court also rejected Fourth Tee’s argument that the policies did not contain the stamped or written statement regarding the surplus lines nature of the policy in all capital letters as required by s. 626.924(1) and therefore were not issued pursuant to the Surplus Lines law. First, the court recognized that the required statutory language was set forth on the declarations pages of the policies and those words conveyed the message intended to alert the public to a risk associated with a surplus lines policy. This constituted substantial compliance by Axis. Second, the court found that the Legislature did not specify a penalty for noncompliance with the statute (i.e., the absence of capital letters or a particular font). Further, relying on QBE Insurance Corp. v. Chalfonte Condominium Assoc., 94 So.3d 541, 552-553 (Fla. 2012), Fla. Stat. s. 627.418(1) supported a finding that the absence of capital letters or a particular font did not void the policy.
This case represents the first published decision finding that Florida’s sinkhole statute does not apply to surplus lines insurers with respect to post-May 2009 lawsuits after the 2009 amendments to s. 626.913.