Fla. Supreme Court rules on policy delivery; expands rules applying to surplus lines

In a case where the Florida Supreme Court ruled that delivery by a surplus lines company to the broker is delivery to the insured, the court also ruled that all but one section of Florida insurance code section 627 applies to surplus lines, potentially expanding the rules applying to surplus lines.

In the case Essex Insurance Co. v. Zota, the court said that Part 1 of Section 627 dealing with rates and rating organizations does not apply to surplus lines, however all other parts of 627 do apply to surplus lines.

The court said that the term "chapter" in 627.021(2)e in stating that "this chapter does not apply...to surplus lines," meant "part" (Part I, Rates and Rating Organization) so that the rest of chapter 627 does apply to surplus lines. The court stated that there was a scrivener error in the redrafting of the Florida statutes and that "chapter" was never intended to mean "chapter."

Under this ruling surplus lines insurers could potentially be subjected to all the state's rules in chapter 627 relating to insurance contracts including those involving notices of nonrenewal, imposition of attorneys fees, and valued policy laws. The most problematic issue could be the validity of surplus lines forms, since the court held that only rating is exempt.

A rehearing on the case is possible and if there is no change the industry may lobby the legislature next session on this issue.

The case arose from an incident where the customer did not receive a copy of the policy and sued to prevent Essex from denying coverage because it did not receive a copy. In the court's decision, it found no language present precluding a surplus-lines insurer or its direct surplus-lines agent from delivering a copy of the coverage documents to the insured’s independent representative-broker instead of directly to the insured.