Surplus Lines Bill Passes La. House, Senate Battle Next

The Louisiana Surplus Lines Association is urging its members to keep the pressure on state lawmakers to pass House Bill 1476, which would exempt certain surplus lines insurers from a decades old, largely un-enforced law requiring surplus lines carriers to post a bond before being able to contest a claim against them in court.

The bill passed the Louisiana House of Representatives and now will be sent to the Senate Insurance Committee for consideration. According to the National Association of Independent Insurers, the bill would operate retroactively to any pending litigation where no bond has been required as of May 5, 2003.

The New Orleans Times Picayune reported the bill, which has the support of the Louisiana Department of Insurance, was drafted by an attorney contracted by the LDI. The department maintains a list of surplus lines insurers it considers to be fit to operate in the state. In order to make the list, an “out-of-state surplus lines insurer must deposit $100,000 with the state agency, demonstrate that it has at least $15 million in liquid assets to pay claims and disclose annually its financial condition,” the Picayune reported.

The LSLA and other supporters of the bill, including Representatives Troy Hebert, D-Jeanerette and Shirley Bowler, R-Harahan, believe that unless HB 1476 is passed surplus lines carriers will begin leaving the state, and many businesses and commercial properties will have trouble finding insurance.

“This legislation is needed in response to a recent court decision that overturned more than 60 years of established practice in Louisiana,” said Mike Koziol, NAII senior director and counsel. “HB 1476 ensures that Louisiana maintains an insurance climate similar to the rest of the nation and will prevent withdrawal of vital surplus lines insurance companies from the state.”

The NAII said more than $500 million in annual premium are generated by Louisiana surplus lines insurers, $25 million of which is premium tax revenue to the state each year. The association noted that surplus lines insurers already are required to have at least five times more capital and surplus than standard carriers operating in the state.

“Requiring surplus lines carriers to file pre-answer bonds in addition to already strict requirements is sure to drive surplus lines companies from the state and further intensify the insurance availability crisis facing Louisiana,” Koziol said. “Supply and demand will significantly drive up the cost of insurance in the remaining insurance market, if any, and certain risks will not be able to obtain insurance at any cost.”

The 1940 law requiring the posting of the bond by surplus lines insurers was meant to keep high-risk insurers from collecting premiums then leaving the state when a claim is made. Courts however have largely ignored the law and allowed insurers to contest claims without posting the bond. It emerged in a recent mold and asbestos lawsuit involving the Plaza Tower building in New Orleans, which was insured by several out of state surplus lines carriers.

Attorneys for the plaintiffs challenged the courts’ practice of ignoring the law and won a ruling in the state Supreme Court requiring the Plaza Towers insurers to post $300,000 to cover a $9.5 million bond. The insurers had argued that they did not need to post the bond because they had met the requirements of the LDI regarding alien surplus lines insurers. But Insurance Commissioner Robert Wooley wrote an opinion for the court in January stating that being on the commission’s list does not exempt insurers from posting the bond. The bill passed by the House would not apply retroactively to the Plaza case.

In an interesting twist, one of the lobbyists for the bill is attorney Julie Fusilier, Commissioner Wooley’s wife. However, Wooley has reportedly said that his wife has been a lobbyist for years and as long as she doesn’t directly represent clients to the insurance department no conflict of interest exists.