An agent places a client's coverage with an insurer that is not admitted to transact insurance in California. Which statement is correct?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Under CIC Section 703 and related rules, agents are generally prohibited from acting as agents for insurers that are not admitted to transact insurance in California. The sole lawful avenue for placing coverage with a nonadmitted insurer is the surplus line market, which requires a licensed surplus line broker and compliance with requirements such as making a diligent effort to place the coverage with admitted insurers before turning to the nonadmitted market. Placing business with a nonadmitted insurer outside that lawful mechanism is an unlawful act that subjects the producer to penalties, and nonadmitted insurers themselves are barred from directly soliciting California business.
Why the other options are wrong
- D) Placement with a nonadmitted insurer is not unrestricted. It must proceed through the licensed surplus line process, including the required search for coverage in the admitted market and proper documentation.
- A) Mere contact with a nonadmitted insurer is not itself the offense. The prohibition is on acting for, or placing business with, a nonadmitted insurer outside the permitted surplus line channel.
- C) Nonadmitted insurers cannot freely solicit or place insurance in California. They are barred from doing so except through the surplus line market and its licensed brokers. The controlling legal standard set out above demonstrates precisely why this option is incorrect.
Memory hook
Nonadmitted means no admission ticket. Only the surplus line broker has a key to that door.