P&CCaliforniamedium
A California retail broker wants to place commercial property coverage with a non-admitted surplus line carrier because the admitted market quoted excessive rates. Under Ins. Code § 1763, what must occur before the surplus line placement is lawful?
A diligent search of admitted insurers must establish that the coverage cannot be procured from admitted insurers, and the placement must be made through a licensed surplus line broker
BThe retail broker may place coverage directly with the non-admitted insurer once the insured signs a hold-harmless agreement waiving any claim arising from the carrier's non-admitted status
CThe Commissioner must individually pre-approve the specific placement in writing before the surplus line broker may bind the non-admitted carrier
DThe non-admitted insurer must first apply for, and be formally denied, a Certificate of Authority by the Commissioner before the risk can be placed
Why this is the answer
California Insurance Code § 1763 prohibits placement with a non-admitted insurer if the coverage can be procured from admitted insurers. The retail broker (or producing broker) must perform and document a diligent search of the admitted market and then route the placement through a licensed surplus line broker (Ins. Code § 1765). 'High rates' alone do not satisfy diligent search — the admitted market must be unable, not merely unwilling at the price point, to provide coverage on the terms required. See Ins. Code § 1763.
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