Surplus Lines Bill Passes La. Committee

A bill that would allow surplus lines insurers to enter pleadings without posting a bond advanced from the Louisiana House Insurance Committee, according to the National Association of Independent Insurers.

“House Bill 1476’s passage is critical for the survival of the massive surplus lines market in Louisiana,” said Mike Koziol, senior director and counsel of the NAII, which testified in favor of HB 1476. “Requiring a bond is so onerous, it has the potential to eliminate the surplus lines business in the state. For example, if a $100 claim is filed and the policy contains a $5 million limit, the bond required could be as high as $10 million. Current law benefits only the trial bar lawyers, as onerous bonds are a method for forcing settlements.”

Present law mandates that before an unauthorized insurer can file a pleading in court, the insurer must either post a bond or procure a certificate of authority to transact business in the state. HB 1476 would remove the bond requirement on surplus lines insurers—or any unauthorized insurers placed on an approved list by the Department of Insurance—for each lawsuit. The bill would operate retroactively to any pending litigation where no bond has been required as of May 5, 2003.

Bond requirements are intended to relate to fly-by-night insurers, certainly not the established domestic surplus lines market, Koziol added.

A recent court decision created the current mandate that surplus lines companies must file a bond in order to answer a lawsuit. In Watters v. Dept. of Social Services, the appellate court held that for any approved unauthorized insurer-which was defined to include the Louisiana surplus lines industry-pre-answer bonds are required.