In this subtitle the following words have the meanings indicated. “Act” means the federal Nonadmitted and Reinsurance Reform Act of 2010. “Admitted insurer” means an insurer that is authorized to engage in the business of insurance in the State. “Exempt commercial purchaser” has the meaning stated in § 527 of the Act. “Home state” has the meaning stated in § 527 of the Act. “Nonadmitted insurance” means property and casualty insurance that may be placed directly or through a surplus lines broker with a nonadmitted insurer that is eligible to accept the insurance. “Nonadmitted insurer” means an insurer that is not authorized to engage in the business of insurance in the State. “Nonadmitted insurer” does not include a risk retention group. “Qualified surplus lines broker” means a person that has obtained a certificate of qualification from the Commissioner to act as a surplus lines broker under this subtitle.

This subtitle does not apply to: life insurance; health insurance, except as provided in subsection (c) of this section; annuities; reinsurance; wet marine and transportation insurance, except as provided in subsection (b) of this section; insurance on a subject that is located, resident, or to be performed wholly outside the State; insurance on vehicles or aircraft owned and principally garaged outside the State; insurance on property or operation of railroads engaged in interstate commerce; insurance: on aircraft owned or operated by aircraft manufacturers or operated in scheduled interstate flight; on cargo of the aircraft described in item (i) of this item; or against liability arising out of the ownership, maintenance, or use of the aircraft described in item (i) of this item, other than workers’ compensation or employer’s liability; or medical stop–loss insurance, as defined in § 15–129 of this article. This subtitle applies to wet marine and transportation insurance on: a pleasure craft under 60 feet in length that is owned and used for pleasure and not for business, hire, or other commercial use; fishing vessels under 50 gross tons that are not part of a fleet of 3 or more vessels; and charter or head boats under 50 gross tons that are not part of a fleet of 3 or more vessels. Subject to § 3–306.2 of this subtitle, this subtitle applies to: disability insurance that: provides for lost income, revenue, or proceeds in the event that an illness, accident, or injury results in a disability that impairs an insured’s ability to work or otherwise generate income, revenue, or proceeds that the insurance is intended to replace; and does not include payment for medical expenses, dismemberment, or accidental death; and short–term medical insurance that provides limited health insurance benefits for a limited period of time to: residents of the United States who travel to another country within 30 days after the effective date of coverage; and residents of another country who: travel to the United States within 30 days after the effective date of coverage; and are not traveling to the United States for the purpose of attending an institution of higher education, as defined in § 10–101 of the Education Article.

The Commissioner may adopt reasonable regulations consistent with this subtitle to: carry out this subtitle; establish procedures for determining the eligibility of particular proposed coverages for placement with surplus lines insurers and maintain a list of the identified coverages; allow an exempt commercial purchaser to waive the diligent search requirement under § 3–306 of this subtitle for the procurement of a surplus lines insurance policy; provide for the content and use of the written disclosure required under § 3–308 of this subtitle; and provide for the periodic review, no less than annually, of information from surplus lines brokers, agents, and insurers and from other sources concerning the availability and affordability of insurance from authorized insurers in the State.

Surplus lines insurance may be procured from an unauthorized insurer if: for surplus lines insurance procured through a broker, the surplus lines insurance is procured through a qualified surplus lines broker; subject to the provisions of § 3–306.1 of this subtitle, a diligent search is made among the authorized insurers that are writing the particular kind and class of insurance in the State; except for insurance against liability of persons described in § 24–206(1) of this article, the amount of surplus lines insurance procured from an unauthorized insurer is only the excess over the amount that can be procured from authorized insurers; for insurance against liability of persons described in § 24–206(1) of this article, the insurance cannot be obtained from three or more authorized insurers that are writing on a broad basis that particular kind and class of insurance; except as provided in subsection (b) of this section, the surplus lines insurance is not procured: solely to obtain a lower premium rate than would be accepted by an authorized insurer; solely to obtain more favorable terms of the insurance contract; or to replace coverage on residential property which is insured by an authorized insurer and for which a renewal offer has been made on substantially the same terms and conditions as the current coverage; and there is compliance with other applicable provisions of this subtitle. This subtitle does not prohibit a lower premium rate or more favorable terms in the insurance contract of an unauthorized insurer if: the risk is eligible as surplus lines under subsection (a)(2), (3), and (4) of this section; or the applicant qualifies as an exempt commercial purchaser who may waive the diligent search that is otherwise required under this section. This section does not prohibit a surplus lines broker from renewing a risk with a surplus lines insurer if the risk was initially written on a surplus lines basis when there were fewer than three authorized insurers actually writing on a broad basis the particular kind and class of insurance to provide coverage against liability of persons described in § 24–206(1) of this article in the State. However, even if on the date of renewal three or more authorized insurers are writing on a broad basis the particular kind and class of insurance required by the insured, a risk initially eligible for surplus lines insurance may be renewed on a surplus lines basis if the surplus lines insurer, licensed insurance producer, or surplus lines broker gives to the insured appropriate notice of the possible availability of comparable types of insurance being written by three or more authorized insurers: each year; and sufficiently in advance of the renewal date to allow the insured to determine whether to renew the policy with the surplus lines insurer. The Commissioner shall participate in the National Insurance Producer Database maintained by the National Association of Insurance Commissioners and its affiliates and subsidiaries.

A diligent search required by § 3–306 of this subtitle shall be deemed completed if: the insured or the surplus lines broker or insurance producer obtains declinations of a risk from three authorized insurers that are writing the particular kind and class of insurance in this State; and the declinations are included in the affidavit required under § 3–307 of this subtitle. In addition to the requirement of paragraph (1)(i) of this subsection, an insurance producer shall obtain a declination from each insurer for which the insurance producer has been appointed that the insurance producer knows, or should know, is actually writing on a broad basis the particular kind and class of insurance sought. A diligent search may not be required: for any coverage on a list of eligible surplus lines coverages compiled by the Commissioner; or if the diligent search is waived by an exempt commercial purchaser in accordance with the Act. Notwithstanding the renewal provisions of § 3–306(c) of this subtitle, a diligent search shall be required for each renewal of a personal lines insurance policy written through a surplus lines insurer. Notwithstanding subsection (b)(2) of this section, a surplus lines broker is not required to perform a diligent search to determine whether the full amount or type of insurance can be obtained from admitted insurers when the surplus lines broker is seeking to procure or place nonadmitted insurance for an exempt commercial purchaser if: the surplus lines broker has disclosed to the exempt commercial purchaser that the insurance may or may not be available from admitted insurers that may be subject to greater protection and regulatory oversight; and the exempt commercial purchaser subsequently has requested the surplus lines broker in writing to procure nonadmitted insurance from or place the nonadmitted insurance with a nonadmitted insurer.

Subject to subsections (b) through (e) of this section, disability insurance and short–term medical insurance under § 3–302(c) of this subtitle may be procured from a nonadmitted insurer if the coverage procured is in excess of coverage available from, or is not available from, an admitted insurer that writes that particular kind and class of insurance in the State. Procurement of disability insurance under this section from a nonadmitted insurer is subject to: the diligent search requirements of §§ 3–306 and 3–306.1 of this subtitle; and all other requirements of this subtitle. Procurement of short–term medical insurance under this section from a nonadmitted insurer is subject to: a policy term that: is less than 3 months; and may not be extended or renewed; the provision of written notice to the applicant, on a form approved by the Commissioner: stating that coverage may be available under the Affordable Care Act without medical underwriting; providing contact information for the Maryland Health Benefit Exchange; stating that the short–term medical insurance may be available from an admitted insurer; stating that similar coverage may be available from an admitted insurer offering travel insurance, as defined in § 10–101 of this article; and displaying prominently in the contract and in any application materials provided in connection with enrollment in the coverage in at least 14 point type the following: “This is not qualifying health coverage (“minimum essential coverage”) that satisfies the health coverage requirements of the Affordable Care Act. If you don’t have minimum essential coverage, you may owe an additional payment with your taxes.”; the diligent search requirements of §§ 3–306 and 3–306.1 of this subtitle; and all other requirements of this subtitle. Short–term medical insurance may not be procured from a nonadmitted insurer unless: the insurance is procured through a qualified surplus lines broker; if the insurance is offered on a Web site on the Internet, the Web site identifies the qualified surplus lines broker through whom the insurance may be procured; and the diligent search required under §§ 3–306 and 3–306.1 of this subtitle includes a search of the short–term medical insurance policies offered for sale by admitted insurers. A short–term medical insurance policy procured from a nonadmitted insurer may not include: a preexisting condition exclusion, unless the exclusion relates to a condition that was first manifested, treated, or diagnosed before the effective date of the policy; or a definition of sickness or illness that excludes any sickness or illness that began, existed, or had its origin before the effective date of the policy, unless the sickness or illness was first manifested, treated, or diagnosed before the effective date of the policy. The Commissioner shall develop and make available on the Administration’s Web site a consumer guide on short–term medical insurance that includes information on: the availability of coverage from admitted insurers; and the types of coverage and provisions in short–term medical insurance policies that may be important to consumers.

Each insurance contract or confirmation procured and delivered under this subtitle shall be: endorsed or stamped conspicuously in boldface type on the first page of the insurance contract or confirmation as follows: “This insurance is issued by a nonadmitted insurer not under the jurisdiction of the Maryland Insurance Commissioner”; and accompanied by a written disclosure, as prescribed by the Commissioner, that: is written in clear, plain English; explains that the insurer does not possess a certificate of authority from the Commissioner to engage in the insurance business in the State; and includes any other information that the Commissioner requires.

Before the Commissioner issues a certificate of qualification to an applicant, the applicant shall file with the Commissioner a bond that: is subject to approval by the Commissioner; runs to the State; is executed by the applicant as principal and by a corporate surety insurer authorized to do business in the State; is in the penal sum of $10,000; and is conditioned that the broker will: conduct business in accordance with this article; and remit promptly the taxes required by § 3-324 of this subtitle. The total liability of the surety insurer under the bond may not exceed the penal sum of the bond. The surety insurer may not cancel the bond unless, at least 30 days before canceling the bond, the surety insurer files written notice of the cancellation.

Unless a certificate of qualification is renewed for a 2–year term as provided in this section, the certificate of qualification expires every other year on the date stated on the certificate of qualification. At least 1 month before a certificate of qualification expires, the Commissioner shall send to the holder of the certificate of qualification, at the last known address or electronic mail address of the holder on record a notice that states: the process for renewing the certificate of qualification; the date by which the Commissioner must receive the renewal application; and the amount of the renewal fee. Before a certificate of qualification expires, the holder periodically may renew it for an additional 2–year term, if the holder: otherwise is entitled to a certificate of qualification; submits to the Commissioner a renewal application: on the form that the Commissioner provides; or in an electronic format that the Commissioner approves; pays to the Commissioner the renewal fee required by § 2–112 of this article; and complies with the bond requirement of § 3–313 of this subtitle. For an individual, a certificate of qualification renewed under this section shall have an expiration date that is the last day of the month in which the holder of the certificate of qualification was born. If mailed, an application for renewal of a certificate of qualification shall be considered made in a timely manner if it is postmarked on or before the expiration date of the certificate of qualification. If submitted electronically, an application for renewal of a certificate of qualification shall be considered made in a timely manner if, on or before the expiration date of the certificate of qualification, the application: is addressed properly or otherwise directed properly to an information processing system that the Administration has designated or uses for the purpose of receiving electronic applications and from which the Administration is able to retrieve the application; is in a form capable of being processed by that system; and enters an information processing system outside the control of the sender or of a person that sent the electronic application on behalf of the sender; or enters a region of the information processing system designated or used by the Administration that is under the control of the Administration or an agent of the Administration. The Commissioner shall renew the certificate of qualification of each holder who meets the requirements of this section. The Commissioner may adopt regulations to carry out this section.

On or before September 30 of the renewal year, a person whose surplus lines broker’s certificate of qualification has expired may reinstate the expired certificate of qualification by: filing with the Commissioner the appropriate reinstatement application; paying to the Commissioner the applicable reinstatement fee required under subsection (b) of this section; and complying with the bond requirement of § 3-313 of this subtitle. The fee for a reinstatement under this section shall be: the amount charged for a full renewal period for the type of certificate of qualification held by the person seeking the reinstatement; and $25 for reinstatement during the period from July 1 through July 31; $50 for reinstatement during the period from August 1 through August 31; and $75 for reinstatement during the period from September 1 through September 30. The Commissioner may limit the reinstatement fee to the amount of the renewal fee in cases where the reinstatement applicant did not make timely renewal because of temporary incapacity, hospitalization, or other hardship. A person whose surplus lines broker’s certificate of qualification has expired is prohibited from acting as a surplus lines broker until the effective date of reinstatement of the certificate of qualification. A person who does not comply with subsection (a) of this section on or before September 30 of the year of expiration shall apply for a surplus lines broker’s certificate of qualification under § 3-312 of this subtitle and meet any other requirements specified by the Commissioner in regulation. The Commissioner may adopt regulations to carry out this section.

The Commissioner may suspend or revoke the certificate of qualification of a surplus lines broker: if the surplus lines broker fails to file the report required by this subtitle; if the surplus lines broker fails to remit the tax required by this subtitle; if the surplus lines broker fails to keep records required by this subtitle, or fails to allow the Commissioner to examine those records; if the surplus lines broker fails to file or falsifies the affidavit required by this subtitle; or for any applicable ground for suspending or revoking the license of an insurance producer under this article. The Commissioner may not reinstate the certificate of qualification of a surplus lines broker whose certificate has been suspended or revoked until the broker pays all penalties and delinquent taxes that are owed.

The Commissioner may not approve an insurer as a surplus lines insurer unless the insurer: is authorized in its domiciliary jurisdiction to write the type of insurance it seeks to write; has capital and surplus, or their equivalent under the laws of its domiciliary jurisdiction, equal to the greater of: the minimum capital and surplus required under the laws of its domiciliary jurisdiction; and $15,000,000; and files with the Commissioner: a written request for approval as a surplus lines insurer to write the type of insurance the insurer seeks to write; a certified copy of the insurer’s annual statement, on convention form, that shows the amount by line of surplus lines business written on risks located in the State during the period covered by the annual statement; and a certificate of compliance issued by the insurance department of the insurer’s state of domicile. For a foreign insurer, the requirements of subsection (a)(2) of this section may be satisfied by the insurer’s possessing less than the minimum capital and surplus if the Commissioner makes an affirmative finding of acceptability. The finding shall be based on the following or similar factors: quality of management; capital and surplus of any parent company; company underwriting profit and investment income trends; market availability; and company record and reputation of the foreign insurer in the industry. The Commissioner may not make an affirmative finding of acceptability if the foreign insurer’s capital and surplus is less than $4,500,000. A surplus lines insurer’s approval expires on June 30 each year unless the approval is renewed as provided in this section. Before an approval expires, an insurer may renew the approval for a 1–year term if the insurer: files with the Commissioner, in accordance with the procedures established by the Commissioner, an application for renewal of approval as a surplus lines insurer; pays to the Commissioner the applicable fee required by § 2–112 of this article; and submits to the Commissioner any additional information or documentation that the Commissioner requires, including any information or documentation necessary to determine whether the insurer meets the requirements of subsections (a) and (b) of this section. The application for renewal of approval as a surplus lines insurer shall be signed by an officer of the insurer certifying that, to the best knowledge and belief of the officer, the insurer is in compliance with all statutes and regulations of the insurer’s domiciliary jurisdiction. An unauthorized insurer shall appoint in writing the Commissioner as agent for the acceptance of service of process.

A surplus lines broker may not place surplus lines insurance with an unauthorized insurer that: has not been approved by the Commissioner as a surplus lines insurer in accordance with § 3–318 of this subtitle; for an insurer not domiciled in the State, has not qualified under § 3–303 of this subtitle; has been determined by the Commissioner to be insolvent or unsafe financially under subsection (b) of this section; or has been determined by the Commissioner to have refused to pay just claims. The Commissioner shall direct that surplus lines insurance may not be placed with a surplus lines insurer that has been approved by the Commissioner if the Commissioner determines that the surplus lines insurer: is not in a safe or solvent financial condition; or has refused to pay just claims. After written notice of a determination made by the Commissioner under paragraph (1) of this subsection is mailed by the Commissioner to qualified surplus lines brokers, surplus lines insurance may not be placed with the surplus lines insurer. Notwithstanding any other provision of this subtitle, a surplus lines broker may not place surplus lines insurance with an insurer if the broker knows, or reasonably should know, that the insurer is in an unsafe or insolvent financial condition. A qualified surplus lines broker may not place a risk in an unauthorized insurer that has not previously appointed the Commissioner as agent for the acceptance of service of process.

In any question that arises under the coverage between an unauthorized insurer and the insured, the unauthorized insurer is deemed to have received the premium due it for surplus lines insurance if: the unauthorized insurer has assumed a surplus lines risk under this subtitle; and the surplus lines broker who placed the surplus lines insurance has received the premium for the surplus lines insurance. An unauthorized insurer described in subsection (a) of this section is liable to the insured for losses covered by the surplus lines insurance and, on cancellation, for unearned premiums that may become payable to the insured, whether or not the surplus lines broker is indebted to the unauthorized insurer for the surplus lines insurance or for any other reason. This section does not affect rights between the unauthorized insurer and the surplus lines broker. Each unauthorized insurer that assumes a surplus lines direct risk under this subtitle subjects itself to the terms of this section.

On placing surplus lines coverage, a surplus lines broker promptly shall deliver to the insured: the policy issued by the insurer; or if the policy is not available, a binder or cover note that shows: the subject, coverage, conditions, and term of the insurance; and the name and address of the insurer. If a direct risk is assumed by more than one insurer, the policy, binder, or cover note shall state: the name and address of each insurer; and the proportion of the direct risk assumed by each insurer. Unless a copy of each binder or cover note has been filed with and approved by the Commissioner, the surplus lines broker, as soon as reasonably possible, shall get the policy from the insurer and deliver it to the insured to replace the binder or cover note previously delivered. A surplus lines broker promptly shall deliver to the insured an appropriate substitute for or endorsement of the original binder or cover note that accurately shows the current status of the coverage and the responsible insurer if, after issuance and delivery of the original binder or cover note, there is a change in: the identity of the insurer; the proportion of the direct risk assumed by an insurer; or any other material aspect of the insurance coverage.

This section does not apply to insurance of risks of the State or a political subdivision of the State. The premiums charged for surplus lines insurance are subject to a premium receipts tax of 3% on all gross premiums, less any returned premiums, charged for surplus lines insurance. For policies effective before July 21, 2011: if the policy covers property, risks, or exposures located or to be performed entirely in the State, the premium receipts tax shall be computed on the entire premium at the rate specified in subsection (b) of this section; and if the policy covers property, risks, or exposures located or to be performed both in and outside the State, the premium receipts tax shall be computed at the rate specified in subsection (b) of this section only on that portion of the premium that is properly allocable to the risks located in the State. For policies effective on or after July 21, 2011, if the State is the insured’s home state, the premium receipts tax shall be computed on the entire premium at the rate specified in subsection (b) of this section. For policies effective on or after July 21, 2011, only the home state of an insured may receive premium receipts tax payments and reports for nonadmitted insurance. On delivery of the cover note, certificate of insurance, policy, or other initial confirmation of insurance, a surplus lines broker shall charge the insured the amount of the premium receipts tax in addition to the full amount of the gross premium charged by the insurer for the surplus lines insurance. The surplus lines broker shall return to the insured the premium receipts tax on any unearned part of the premium. The surplus lines broker may not: absorb the premium receipts tax; or rebate all or part of the premium receipts tax or the surplus lines broker’s commission. The Commissioner shall cooperate with other states to adopt and implement uniform requirements for nonadmitted insurance in compliance with the Act. For policies effective on or after July 21, 2011, the regulation of nonadmitted insurance is subject to the statutory and regulatory requirements solely of the home state of the insured.

On or before March 15 and September 15 of each year, or at another interval that the Commissioner directs, each surplus lines broker that has transacted surplus lines business in the State during the reporting period shall: file with the Commissioner a report, on a form the Commissioner prescribes, on business subject to tax during the preceding half calendar year or other interval that the Commissioner directs; and pay to the Commissioner the total amount of tax stated in the report. By regulation, the Commissioner shall determine the required content and filing deadlines of the report. Each report shall be open to public inspection. A qualified surplus lines broker may credit any examination expense paid or assessed under § 2–208 of this article against the premium receipts tax due to the State. With respect to surplus lines premium receipts tax due to the State, a surplus lines broker is subject to the provisions of Title 6, Subtitle 1 of this article relating to penalties, interest, audits, assessments, limitations, appeals, and refunds.