Chapter 06. Surplus Lines
Regulation .01 Purpose.LinkCopy Citation
The purpose of this chapter is to establish procedures for compliance with the Surplus Line Insurance Law, Insurance Article, Title 3, Subtitle 3, Annotated Code of Maryland.
Regulation .01-1 Definitions.LinkCopy Citation
A.
In this chapter, the following terms have the meanings indicated.
B.
Terms Defined.
(1)
“Condominium” includes the common elements of a condominium.
(2)
Home State.
(a)
“Home State” means, except as provided in §B(2)(b) of this regulation, with respect to an insured:
(i)
The state in which an insured maintains its principal place of business or, in the case of any individual, the individual’s principal residence; or
(ii)
If 100 percent of the insured risk is located out of the state referred to in §B(2)(a)(i) if this regulation, the state to which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated.
(b)
If more than 1 insured from an affiliated group are named insureds on a single nonadmitted insurance contract, the term “Home State” means the Home State, as determined pursuant to §B(2)(a) of this regulation, of the member of the affiliated group that has the largest percentage of premium attributed to it under such insurance contract.
(3)
“Qualified risk manager” means, with respect to a policyholder of commercial insurance, a person who meets all of the following requirements:
(a)
The person is an employee of, or third-party consultant retained by, the commercial policyholder;
(b)
The person provides skilled services in loss prevention, loss reduction, or risk and insurance coverage analysis, and purchase of insurance; and
(c)
The person meets at least one of the following criteria:
(i)
The person has a bachelor’s degree or higher from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by the Commissioner to demonstrate minimum competence in risk management and has 3 years of experience in risk financing, claims administration, loss prevention, risk and insurance analysis, or purchasing commercial lines of insurance;
(ii)
The person has a bachelor’s degree or higher from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by the Commissioner to demonstrate minimum competence in risk management, and holds:
1.
A designation as a Chartered Property and Casualty Underwriter (in this subparagraph referred to as “CPCU”) issued by the American Institute for CPCU/Insurance Institute of America;
2.
A designation as an Associate in Risk Management (ARM) issued by the American Institute for CPCU/Insurance Institute of America;
3.
A designation as a Certified Risk Manager (CRM) issued by the National Alliance for Insurance Education and Research;
4.
A designation as a RIMS Fellow (RF) issued by the Global Risk Management Institute; or
5.
Any other designation, certification, or license determined by the Commissioner to demonstrate minimum competency in risk management;
(iii)
The person has at least 7 years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance, and has any one of the designations specified in §B(3)(c)(ii)1—5 of this regulation;
(iv)
The person has at least 10 years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance; or
(v)
The person has a graduate degree from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by the Commissioner to demonstrate minimum competence in risk management.
(4)
Residential Property.
(a)
“Residential property” means a home, townhouse, or other habitable structure that is used principally as a residence.
(b)
“Residential property” does not include:
(i)
A vacant structure;
(ii)
A structure with both commercial and residential use if more than 50 percent of the structure is devoted to commercial use;
(iii)
An apartment building that contains more than four apartment units; or
(iv)
A condominium.
Regulation .02 Maryland Surplus Lines Brokers' Licenses.LinkCopy Citation
Before placing any surplus line or otherwise acting as a surplus lines broker, where Maryland is the Home State of the insured, it will be the responsibility of each individual so acting to acquire a valid Maryland surplus lines broker’s certificate of qualification. The broker will be held responsible for securing timely renewals of the broker’s certification of qualification in order to place new business and provide a continuity of service to clients for whom the broker has previously acted. Each original surplus lines broker’s certificate of qualification shall be issued for a term expiring every other year on the date stated on the certificate of qualification and may be renewed biennially thereafter.
Regulation .03 Surplus Lines Affidavits.LinkCopy Citation
A surplus lines broker placing a surplus lines coverage shall execute the affidavit required by Insurance Article, §3-307, Annotated Code of Maryland, on a form provided by the Commissioner, or containing all of the information required by the Commissioner, and shall file the affidavit with the Commissioner on or before the 45th day after the last day of the quarter in which the insurance was placed.
Regulation .04 Residential Property — Substantially Similar Renewal Offer.LinkCopy Citation
A.
Presumption. For purposes of Insurance Article, §3-306(a)(5)(iii), Annotated Code of Maryland, a renewal offer by an authorized insurer for coverage on residential property is presumed to be made on substantially the same terms and conditions as the current coverage unless the renewal offer:
(1)
Contains an increase in premium of 20 percent or more;
(2)
Contains an increase in the deductible of 100 percent or more; or
(3)
Contains or omits any other term or condition that the Commissioner has determined in writing to result in the terms and conditions of the renewal offer not being substantially similar to the terms and conditions of the current coverage.
B.
Request for Determination.
(1)
Upon written request from the originating insurance producer or a surplus lines broker, the Commissioner shall provide a written determination of whether the terms and conditions of a renewal offer are substantially similar to the current coverage which will be expiring.
(2)
The request shall provide, at a minimum, the following information:
(a)
A description of the insured risk and the type of coverage provided;
(b)
A policy number for the expiring coverage and the date that the coverage expires;
(c)
A full explanation of the terms and conditions which differ between the renewal offer and the current coverage;
(d)
Copies of the relevant policies or specific policy terms, if needed to fully explain the differences;
(e)
The name, address, phone number, and electronic mail address for the individual who can respond to any questions from the Commissioner's staff; and
(f)
The name and address of the individual who is to receive the Commissioner's written determination.
C.
Documentation. Whenever coverage provided by an authorized insurer on residential property is replaced with coverage provided by an unauthorized insurer, the surplus lines broker or the originating insurance producer shall state in the affidavit required by Insurance Article, §3-307, Annotated Code of Maryland, or on a form approved by the Commissioner and submitted with the affidavit:
(1)
Whether the authorized insurer made a renewal offer; and
(2)
If the authorized insurer did make a renewal offer, the reason why the terms and conditions of the renewal offer were not substantially similar to the terms and conditions of the coverage previously provided.
Regulation .05 Surplus Lines Reports and Premium Receipts Tax.LinkCopy Citation
A.
Each surplus lines broker that has transacted surplus lines business in the State during the preceding half calendar year shall file with the Commissioner a semiannual statement that reports on business subject to the tax imposed by Insurance Article, §3-324, Annotated Code of Maryland, during the preceding half calendar year. The report shall be made in accordance with the form prescribed by the Commissioner and available from the Commissioner’s office.
B.
The broker shall deliver the report to the office of the Commissioner on or before March 15 and September 15 of each year.
C.
The March 15 report shall cover the business placed between July 1 and December 31, inclusive, of the preceding calendar year. The September report shall cover the business placed between January 1 and June 30, inclusive, of the calendar year in which the report is made.
D.
The reports shall be open to public inspection and shall include:
(1)
The gross amount of each kind of insurance business transacted and the aggregate gross premiums charged;
(2)
The aggregate of returned premiums and taxes paid to insureds;
(3)
The aggregate of net premiums; and
(4)
Any additional information required by the form.
E.
All premiums and taxes, including additional and return premiums and taxes, may be reported and paid on a placed or written basis but shall be paid in any case for the full term of the policy, whether or not one or more installments of premium remain unearned and payable at some future date or dates during the term of policy. In computing the tax due, the broker may deduct the expense of any examination made in accordance with Insurance Article, §§2-208 and 3-325(d), Annotated Code of Maryland, during the period covered by the report.
Regulation .06 Compliance with Filing and Premium Receipts Tax Payment Requirements.LinkCopy Citation
A.
A report, affidavit, or return that must be filed under this chapter complies with the filing requirement if the report, affidavit, or return is:
(1)
Mailed or postmarked by the United States Postal Service on or before the filing date;
(2)
Delivered on or before the filing date to a private delivery service recognized by the Commissioner, if the delivery is evidenced by a receipt; or
(3)
Transmitted electronically on or before the filing date in a manner approved by the Commissioner.
B.
Each broker shall remit the full amount of the premium receipts tax appearing on the report filed pursuant to Regulation .05 of this chapter at the time the report is filed.
C.
Each broker shall remit the full amount of the premium receipts tax in the manner directed by the Commissioner on the form prescribed by the Commissioner pursuant to Regulation .05 of this chapter.
D.
With respect to premium receipts tax due to the State, a surplus lines broker who fails to pay a tax when a report under Regulation .05 of this chapter is due, or fails to file a report, is subject to the provisions of Insurance Article, Title 6, Subtitle 1, Annotated Code of Maryland related to penalties, audits, assessments, limitations, appeals, and refunds.
Regulation .07 Books and Records.LinkCopy Citation
A.
Every surplus lines broker shall keep a separate record and account of all business transacted under the surplus lines broker's license, including a copy of each daily report, if any, and of each binder or cover note delivered by the surplus lines broker. The records shall be available for examination by the Commissioner at any reasonable time within 3 years after the issuance of the coverage to which the records relate.
B.
Every surplus lines broker shall maintain an adequate record of all return or additional premiums resulting from cancellations, adjustments made on deposit or minimum premiums, audit premiums, additional or return premiums as a result of endorsement to existing policies, additional or return premiums resulting from changes in the amount or type of coverage, and other changes resulting from any other cause.
Regulation .08 Illegal Coverage.LinkCopy Citation
A surplus lines broker may not place with an unauthorized insurer any risk, whether individual or group, including any fictitious fleet or fictitious group, which is not eligible for placement with authorized insurers under the provisions of the Insurance Article, Annotated Code of Maryland.
Regulation .09 Disclosure Form.LinkCopy Citation
A.
Printing Specifications; Provision of Form to Insured. The written disclosure required by Insurance Article, §3-308, Annotated Code of Maryland, shall be:
(1)
In the form set forth in §B of this regulation in at least 14-point type;
(2)
On a separate piece of paper that:
(a)
Contains only the disclosure; and
(b)
Is attached to the insurance contract or binder; and
(3)
Provided to the insured at the time of the initial purchase or delivery of an insurance contract or binder from a surplus lines insurer and at each renewal of the insurance contract.
B.
Form.
C.
In addition to the disclosure required by §B of this regulation, the surplus lines broker shall:
(1)
Provide a clear and conspicuous written disclosure to the prospective insured of:
(a)
Any inspection fee;
(b)
The total amount of the policy fee;
(c)
The premium tax on the policy;
(d)
Any financial interest of the person performing the inspection, if applicable;
(e)
Whether the surplus lines broker will receive compensation from the person that performs the inspection; and
(f)
Any charge for actual expenses incurred by the surplus lines broker for payment of the premium, policy fee, and any other fees and taxes relating to the policy by use of a credit card; and
(2)
Notify the prospective insured of the option to obtain the inspection from another person who meets the requirements of or is approved by the surplus lines broker.
D.
Signature of Insured on Disclosure Form for Policies Covering Residential Property or a Condominium.
(1)
This section applies only to the written disclosure form for an insurance policy covering residential property or a condominium.
(2)
In addition to the text required by §B of this regulation, the disclosure form for an insurance policy covering residential property or a condominium shall include blanks for the insured's signature, the insured's printed name, and the execution date.
(3)
Whenever residential property or condominium insurance is placed or renewed with a surplus lines insurer, the originating insurance producer shall obtain the signature of the insured, the insured's printed name, and the execution date on the disclosure form.
(4)
On execution, the originating insurance producer shall:
(a)
Send the original copy of the disclosure form to the surplus lines broker;
(b)
Provide a copy of the disclosure form to the insured; and
(c)
Keep a copy of the disclosure form in the files of the originating insurance producer for at least 3 years after the date of execution by the insured.
(5)
The surplus lines broker shall:
(a)
Retain the original copy of the disclosure form for at least 3 years after the date of execution by the insured; and
(b)
Make the disclosure form available for inspection by the Commissioner on request.
E.
Disclosure Form Requirements for Policies Not Covering Residential Property or a Condominium.
(1)
This section applies only to a written disclosure form for an insurance policy that does not cover residential property or a condominium.
(2)
The surplus lines broker or the originating insurance producer shall provide the insured with the written disclosure required by §B of this regulation in the manner specified by §A of this regulation.
(3)
The surplus lines broker or the originating insurance producer shall:
(a)
Certify on a form approved by the Commissioner that the disclosure notice required by this regulation has been delivered to the insured with the insurance policy or binder; or
(b)
Obtain from the insured written acknowledgment of receipt of the disclosure form.
(4)
If the surplus lines broker or the originating insurance producer obtains written acknowledgement of receipt of the disclosure form, the surplus lines broker or the originating insurance producer shall:
(a)
Retain for at least 3 years a copy of the written acknowledgment of receipt from the insured; and
(b)
Make the acknowledgment available for inspection by the Commissioner on request.
Regulation .10 Surplus Lines Exportable List.LinkCopy Citation
A.
Diligent Search Not Required. In accordance with Insurance Article, §3-306.1(b)(1), Annotated Code of Maryland, a coverage that is listed in §C of this regulation may be placed with a surplus lines insurer without first conducting a diligent search as defined by Insurance Article, §3-306.1(a), Annotated Code of Maryland.
B.
Affidavit Required. When a coverage that is listed in §C of this regulation is placed with a surplus lines insurer, the originating insurance producer shall execute and file an affidavit in accordance with Insurance Article, §3-307, Annotated Code of Maryland, and Regulation .03 of this chapter.
C.
The surplus lines exportable list is as follows:
(1)
Amusement devices;
(2)
Animal mortality;
(3)
Armored cars;
(4)
Auto racing and auto race tracks;
(5)
Aviation—crop dusters;
(6)
Billiard halls;
(7)
Bowling alleys—property damage only;
(8)
Builders risk—all risks form (non-Bureau form);
(9)
Building demolition—including use of explosives;
(10)
Carnivals and circuses;
(11)
Child and adult care centers, convalescent homes, or community residence facilities;
(12)
Difference in condition—parasol;
(13)
Directors' and officers' liability for the following:
(a)
Coverages:
(i)
Employment practices liability;
(ii)
Entity liability coverage;
(iii)
Non-monetary damages;
(iv)
Liability for prior acts; or
(v)
Fiduciary liability; or
(b)
Classes:
(i)
Entities involved in initial public offerings of securities;
(ii)
Nonprofit organizations with negative fund balances;
(iii)
Entities in business for less than 3 years; or
(iv)
Financially distressed risks, including risks in pending or threatened bankruptcy, risks operating under Chapter 11 of the Bankruptcy Code, or risks unable to meet their financial obligations out of current assets;
(14)
Employment practices liability for the following coverages:
(a)
Family Medical Leave Act liability;
(b)
False imprisonment;
(c)
Intentional infliction of emotional distress;
(d)
Interference with contractual relations;
(e)
Negligent supervision or hiring;
(f)
Damages for breach of express contract;
(g)
Mergers;
(h)
Prior acts;
(i)
Punitive or liquidated damages; or
(j)
Prior knowledge;
(15)
Environmental impairment liability;
(16)
Excess automobile and motorcycle;
(17)
Exercise and health clubs;
(18)
Excess liability;
(19)
Exterminators;
(20)
False arrest liability;
(21)
Fire and general liability on buildings occupied as auction markets or farmers' markets;
(22)
Fire and general liability on buildings occupied as bars, restaurants, or night clubs, with or without entertainment;
(23)
Fireworks displays;
(24)
Flood and water damage — excess of federal flood insurance programs or primary coverage that is at least as broad as the coverage available through the federal flood insurance program;
(25)
Golf driving ranges;
(26)
Holdup, theft, and robbery coverages for:
(a)
Automated teller machines;
(b)
Check cashing businesses;
(c)
Electronics stores;
(d)
Taverns;
(e)
Package stores;
(f)
Carnivals;
(g)
Fairs; and
(h)
Exhibitions;
(27)
House movers and house wreckers;
(28)
Libel and slander;
(29)
Liquor liability;
(30)
Non-appearance, event cancellation, or weather insurance;
(31)
Physical damage:
(a)
Automobile physical damage for antique vehicles, high-value vehicles, kits, replicas, and custom-made vehicles; or
(b)
Vehicle physical damage for vehicles with a gross vehicle weight classified by the Insurance Services Office (ISO) as medium or heavier;
(32)
Pollutants—first and/or third-party coverages for existence or removal, or both, of a broad range of contaminants or pollutants;
(33)
Prize indemnification;
(34)
Professional liability—miscellaneous errors and omissions, except for those professions and occupations available in the admitted market, including architects, engineers, physicians, lawyers, travel agents, real estate brokers, and insurance producers;
(35)
Riding academies and pony rides (on location or away from premises);
(36)
Risks in bankruptcy;
(37)
Securities Exchange Act liability;
(38)
Short-term events;
(39)
Short-term homeshare business multi-peril;
(40)
Skating rinks—roller and ice;
(41)
Space satellites or craft;
(42)
Sporting events;
(43)
Stop loss and excess aggregate over self-insured retention (S.I.R.)—all lines not excluded pursuant to Insurance Article, §3-302, Annotated Code of Maryland;
(44)
Substandard fire risks not eligible for Fair Plan;
(45)
Swimming clubs, water skiing clubs, and swimming pools;
(46)
Tanning beds or salons;
(47)
Tattoo parlors;
(48)
Umbrella liability:
(a)
With no self-insured retention;
(b)
With defense costs outside policy limits; or
(c)
Written by the same non-admitted insurer that provides underlying liability insurance;
(49)
Vacant or unoccupied buildings; and
(50)
Warehousepersons' legal liability.
Regulation .11 Exempt Commercial Purchaser — Waiver of Diligent Search Requirement.LinkCopy Citation
A.
Scope. This regulation does not apply to:
(1)
Professional liability insurance;
(2)
Title insurance; or
(3)
Workers' compensation insurance.
B.
In this regulation, “Exempt Commercial Purchaser” means any person purchasing commercial insurance that, at the time of placement, meets the following requirements:
(1)
The person employs or retains a qualified risk manager to negotiate insurance coverage;
(2)
The person has paid aggregate nationwide commercial property and casualty insurance premiums in excess of $100,000 in the immediately preceding 12 months; and
(3)
The person meets at least 1 of the following criteria:
(a)
The person possesses a net worth in excess of $20,000,000, as such amount is adjusted pursuant to §C of this regulation;
(b)
The person generates annual revenues in excess of $50,000,000, as such amount is adjusted pursuant to §C of this regulation;
(c)
The person employs more than 500 full-time or full-time equivalent employees per individual insured or is a member of an affiliated group employing more than 1,000 employees in the aggregate;
(d)
The person is a not-for-profit organization or public entity generating annual budgeted expenditures of at least $30,000,000, as such amount is adjusted pursuant to §C of this regulation; or
(e)
The person is a municipality with a population in excess of 50,000 persons.
C.
Effective on the fifth January 1 occurring after July 21, 2011, and each fifth January 1 occurring thereafter, the amounts in §B(3)(a), (b), and (d) of this regulation shall be adjusted to reflect the percentage change for the 5-year period in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the Department of Labor.
D.
Waiver of Diligent Search Requirement.
(1)
An Exempt Commercial Purchaser may waive the diligent search requirement of Insurance Article, §3-306, Annotated Code of Maryland, for the procurement of a surplus lines insurance policy if:
(a)
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
(b)
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.
(2)
The surplus lines broker shall:
(a)
Retain for at least 3 years a copy of the written request document signed by the Exempt Commercial Purchaser; and
(b)
Make the written request document available for inspection by the Commissioner on request.
E.
Procurement That Is Not Authorized By Regulation. This regulation does not authorize an Exempt Commercial Purchaser to procure surplus lines insurance:
(1)
Solely to obtain a lower premium rate than would be accepted by an authorized insurer;
(2)
Solely to obtain more favorable terms of the insurance contract; or
(3)
To replace coverage on residential property that 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.
F.
Premium Tax. This regulation does not exempt an Exempt Commercial Purchaser from payment of the premium tax on surplus lines insurance pursuant to Insurance Article, §3-324, Annotated Code of Maryland.
Chapter annotations
Authority: Insurance Article, §§2-109, 3-304, 3-306—3-308, 3-311—3-313, 3-316, 3-325(c), 9-301(f), 9-303(5), 9-401(j)(1) and (2), 9-405(b), and 27-216, Annotated Code of Maryland
History: Effective date: March 1, 1968
History: Amended effective January 1, 1971
History: Regulations .01—.12 repealed effective June 1, 1983 (10:9 Md. R. 790)
History: Regulations .01—.08 adopted effective June 1, 1983 (10:9 Md. R. 790)
History: Regulation .02 amended effective December 30, 1996 (23:26 Md. R. 1859)
History: Regulation .04 repealed effective December 30, 1996 (23:26 Md. R. 1859)
History: Regulation .05D amended effective December 30, 1996 (23:26 Md. R. 1859)
History: Appendix A repealed effective December 30, 1996 (23:26 Md. R. 1859)
History: Chapter recodified from COMAR 09.30.22 to COMAR 31.03.06 effective September 7, 1998 (25:18 Md. R. 1439)
History: Regulation .01-1 adopted effective January 7, 2002 (28:26 Md. R. 2275)
History: Regulation .01-1 amended as an emergency provision effective November 3, 2005 (32:25 Md. R. 1938); amended permanently effective March 13, 2006 (33:5 Md. R. 523)
History: Regulation .01-1B amended effective February 20, 2012 (39:3 Md. R. 260)
History: Regulation .02 amended effective April 10, 2006 (33:7 Md. R. 675); February 20, 2012 (39:3 Md. R. 260); October 8, 2018 (45:20 Md. R. 920)
History: Regulation .03 amended as an emergency provision effective December 15, 2007 (34:1 Md. R. 30); amended permanently effective February 12, 2007 (34:3 Md. R. 303)
History: Regulation .03 amended effective February 20, 2012 (39:3 Md. R. 260)
History: Regulation .04 adopted effective January 7, 2002 (28:26 Md. R. 2275)
History: Regulation .04 amended as an emergency provision effective November 3, 2005 (32:25 Md. R. 1938); amended permanently effective March 13, 2006 (33:5 Md. R. 523)
History: Regulation .05 amended effective February 20, 2012 (39:3 Md. R. 260)
History: Regulation .05A amended effective April 10, 2006 (33:7 Md. R. 675); October 2, 2017 (44:19 Md. R. 898)
History: Regulation .06 amended effective April 10, 2006 (33:7 Md. R. 675); February 20, 2012 (39:3 Md. R. 260)
History: Regulation .07A amended effective April 10, 2006 (33:7 Md. R. 675)
History: Regulation .09 adopted effective June 11, 2001 (28:11 Md. R. 1055)
History: Regulation .09 amended effective January 7, 2002 (28:26 Md. R. 2275)
History: Regulation .09 amended as an emergency provision effective November 3, 2005 (32:25 Md. R. 1938); amended permanently effective March 13, 2006 (33:5 Md. R. 523)
History: Regulation .09 amended effective May 18, 2016 (43:6 Md. R. 412); June 18, 2018 (45:12 Md. R. 621)
History: Regulation .09C, D amended effective April 10, 2006 (33:7 Md. R. 675)
History: Regulation .10 adopted as an emergency provision effective June 29, 1999 (26:15 Md. R. 1146); emergency status expired December 25, 1999
History: Regulation .10 adopted effective May 1, 2000 (27:8 Md. R. 806)
History: Regulation .10B, C amended effective April 10, 2006 (33:7 Md. R. 675)
History: Regulation .10C amended effective October 20, 2008 (35:21 Md. R. 1828); February 20, 2012 (39:3 Md. R. 260); February 27, 2017 (44:4 Md. R. 255); May 18, 2020 (47:10 Md. R. 520)
History: Regulation .11 adopted effective January 7, 2002 (28:26 Md. R. 2275)
History: Regulation .11 amended as an emergency provision effective November 3, 2005 (32:25 Md. R. 1938); amended permanently effective March 13, 2006 (33:5 Md. R. 523)
History: Regulation .11 amended effective February 20, 2012 (39:3 Md. R. 260)