LL Surplus Lines Series (Entry 31): ELANY Issues Commentary on NY Cybersecurity Regulation Developments, E&S Diligent Search Modernization, Medical Malpractice E&S Reform, Punitive Damage Advocacy, Group Policy Prohibitions, Binding Authority Filing Requirements and other Topics of Note

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The Excess Line Association of New York (“ELANY”) delivered its April 2021 issue of the “E&S Empire Express,” a publication designed to provide an overview of ELANY’s recent activities, including employment changes, regulatory efforts, upcoming events, and general guidance. Some of the highlights of the April issue are as follows:

  • Cybersecurity Regulation Compliance Change: ELANY has organized a coalition of seven New York producer trade groups to ask the New York Department of Financial Services to amend Cybersecurity Regulation (23 NYCRR 500) to provide an exemption from compliance for those New York licensed producers who do not actively engage in licensed activity. Specifically, the letter sent to the DFS asks that the FAQs to the regulation be amended to fully exempt from compliance any licensed producers who “do not act or aid in any manner in soliciting, negotiating or selling any insurance, health maintenance organization or annuity contract[s,] or in placing risks or taking out insurance on behalf of an insured other than themselves, and do not maintain Nonpublic Information or Information Systems.”
  • ELANY Advocacy Efforts: ELANY is advocating for three new excess (surplus) line placement reforms: (1) The Excess Line Diligent Effort and Affidavit Modernization; (2) The Medical Malpractice Excess Line Reform; and (3) The Insurability of Punitive Damages.
  1. The Excess Line Diligent Effort and Affidavit Modernization: ELANY is supporting: (1) the elimination of the diligent search effort/declinations requirements where a retail broker places excess line commercial lines policies through an unaffiliated wholesale broker; and (2) a reduction in the number of declination reporting elements on affidavits from seven to three.
  2. The Medical Malpractice Excess Line Reform‎: With respect to medical malpractice excess line placements for doctors, dentist, and general hospitals, the reform sought would eliminate the requirement that one of the three declinations come from the Medical Malpractice Insurance Pool (residual market mechanism) because, as the market of last resort, it does not typically decline the risk—failure to decline the risk results in blocking the placement of the risk into the excess lines market.
  3. The Insurability of Punitive Damages: The insurability of punitive damages bill would allow for insurance coverage for punitive damages for non-auto commercial lines policies, except where the harm was intended.
  • Implementation of New York Surrogacy Related Coverages: ELANY notes that New York amended its insurance laws in § 1113 to authorize “donor medical expense insurance” for parents who have entered into a gametes (reproductive cells) donor agreement. Likewise, New York insurance law § 1113(17) was amended to authorize a new form of credit insurance indemnifying intended parents for financial loss incurred as a result of the failure of the person acting as the surrogate to perform under the surrogacy contract. Both of these coverages can be offered by excess line insurers and present opportunities to provide coverages to a new group of insureds.
  • Avoiding Regulatory and Excess Line Filing Issues: ELANY offered general guidance regarding placements of excess line coverages, as follows:
  1. It is unlawful in New York to deliver an excess line policy declaration page or cover note unless it has been stamped by ELANY. ELANY will only stamp binders and confirmations of coverage where the coverage is bound, placed, or being confirmed—a marked-up policy application, quote, or other document not purporting to provide coverage is not acceptable for stamping.
  2. Binding authorities between excess line brokers and insurers are permitted as long as the requirements of Regulation 41 are met and the contract is filed with ELANY. Such agreements may not categorize the broker as an agent, general agent or managing general agent of the insurer, and these agreements may not be multiparty, authorizing more than one insurer or more than one brokerage.
  3. Generally, group or master policies where unaffiliated insureds are provided property or casualty coverage under one policy are prohibited from being placed in the excess line market.
  4. All premium-bearing endorsements modifying initial premium amounts must be submitted to ELANY for stamping.
  5. Continuous until cancelled policies are prohibited. However, ELANY will process extensions for more than one year where a policy insures specific construction projects.
  6. When placing excess line policies, the broker must provide to the insured the Notice of Excess Line Placement at the time of placement.
  • Excess Line Premiums & Transactions: The article notes that New York’s excess line gross premium for 2020 exceeded $5 billion, which is a 5.3% increase over 2019. Similarly, with respect to the first quarter of 2021, although the filing of excess line transactions has decreased by 6.4% compared to Q1 of 2020, the gross premium has increased by 10% since Q1.

The April 2021 issue of the “E&S Empire Express” can be found at: https://www.elany.org/f.aspx?f=2705

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