Car insurance looks very different today than it did a generation ago. The means by which people (and goods) travel with motor vehicles continue to grow and evolve, as do businesses and their auto insurance needs, especially in the gig economy and now with the current COVID-19 pandemic disruptions. Individuals no longer rely solely on traditional car rental companies for their temporary travel needs as fleet-based services have grown exponentially, allowing app-based technology to be used to identify local vehicles for immediate use.
Additionally, peer-to-peer services have captured an impressive chunk of the car rental and delivery market, allowing individuals to share their vehicles and receive compensation. And of course, anyone who hasn't lived under a rock for the past decade has seen the rise of transportation network companies (TNCs), such as Uber and Lyft, which have significantly displaced traditional taxi services in many places. Even when looking at the auto insurance needs of traditional, personal motor vehicle owners, there is a growing trend towards 'dynamically based'. insurance prices, where we can save on our premiums by achieving certain driving figures, such as avoiding traffic accidents and hard-breaking patterns.
The redundant line insurance market and evolving motor vehicle trends seem at first glance a match made in heaven. Surplus insurance companies that qualify to purchase insurance on an unauthorized, surplus basis are not subject to the insurance premium rate, filing of policy forms and state approval standards and as such enjoy significant discretion to purchase specialty insurance products. develop to serve emerging markets. But auto insurance laws, in many states, were developed decades before anyone could have envisioned the current diversity of motor vehicle products, and as a result, excess line insurers face significant legal hurdles to penetrate the auto insurance market.
The & # 39; financial responsibility & # 39; barrier to redundant lines
To get behind the wheel, we need some sort of protection in case something goes wrong. This is commonly referred to as the "financial responsibility" requirement found in national motor vehicle codes. While some states actually allow a driver of a vehicle to meet this requirement by posting a bond or depositing money or securities, financial responsibility is, of course, usually met through the purchase of motor vehicle liability insurance with the minimum terms and conditions and limits as required under applicable state law.
How the term "motor vehicle liability insurance" (or similar term under state law) is actually defined can explode a well-intentioned redundant line insurance program. For example in New York, under N.Y. Veh. & Traf § 345, the term is defined as "any liability insurance policy of an owner or operator … (with the terms required for) proof of financial liability, and issued … by an insurance company duly authorized to to do business in this state to or on behalf of the person named therein as the insured person. ”(emphasis added).
The term & # 39; authorized & # 39; is generally interpreted under state law and refers to licensed or authorized insurance companies in the state, as opposed to surplus line insurers who are generally characterized as unauthorized but nonetheless eligible to write certain lines of insurance on surplus. base. As a result, most states include in their motor vehicle statutes the implicit requirement that motor vehicle liability insurance be obtained from licensed insurance companies rather than from unauthorized carriers doing business in the redundant line market and over which insurance regulators in foreign states have limited jurisdiction. .
State insurance codes and department advice provide a path for redundant lines
The fundamental tension that exists in determining whether redundant line insurers can compete in the automotive industry is created by the dichotomy between statutes promulgated under state auto codes and insurance codes. In particular, it is in the vast majority of cases that applicable state motor and traffic laws, rather than the insurance code, require auto insurance to be purchased by a licensed insurer. As a result, some states have promulgated statutes in their insurance codes or otherwise provided creative interpretive advice to provide insurers with redundant lines in their insurance policies to meet motor vehicle financial liability requirements.
For example, the Georgia Insurance Code states that "(n) nothing in this Part of the Code is deemed to prohibit an unlicensed insurer … to provide the minimum liability coverage to its insurance authorities involved in motor vehicle accidents in this state and To the extent that such coverage is provided, such policies or contracts shall be deemed to provide the minimum liability coverage required by this section. "Ga. Code Ann. § 33-4-3 (a) (3). However, Georgia's motor vehicle and traffic laws violate state insurance laws and generally require that financial liability requirements for automobiles can only be met through an authorized insurer, see Ga. Code Ann. § 40-9-37.
Oregon, on the other hand, is a state that offers more flexibility to excess line insurers under the Oregon Vehicle Code, avoiding conflict of laws. Under Or. Rev. Stat. § 806,280, "(d) the Department of Transportation may not accept an insurance certificate for future accountability filings from an insurer not authorized to do business in Oregon unless the insurer is a qualifying surplus lines insurer …." (Emphasis added).
At least one state, Arizona, has previously tried to reconcile conflicting statutes through interpretive guidelines. In particular, the Attorney General Opinion No. 74-2-L (R-2) (December 19, 1974, the & # 39; Arizona Opinion & # 39;) that redundant line insurers can meet the requirements of financial liability for automobiles because of the insurance laws of Arizona expressly acknowledge that "(i) Insurance contracts purchased to cover redundant lines are fully valid and enforceable by all parties and will be recognized in all matters in the same manner as contracts issued by licensed insurers" (see Ariz. Rev. Stat. Ann. § 20-410). The Arizona Opinion thus concluded that Ariz. Rev. Stat. Ann. § 20-410 "implicitly amended" state financial liability laws for automobiles that required the issue of an auto insurance certificate by a licensed insurer.
The logic of the Arizona Opinion could provide a back door for redundant line insurers in other U.S. jurisdictions, as many states have enacted statutes similar to Ariz's. Rev. Stat. Ann. § 20-410 recognizes redundant line coverage to the same extent as insurance policies issued by accredited insurers. Nevertheless, both formal and informal guidelines from a number of states indicate that many U.S. jurisdictions do not follow the logic of the Arizona Opinion.
"The redundant lines market and evolving motor vehicle trends seem at first glance a match made in heaven."
Nevada, for example, generally refuses to follow its neighbor's guidelines and has instead said this year that excess line insurers are prohibited from offering first-dollar auto liability insurance, although such unauthorized carriers Be able to provide excessive liability coverage if financial responsibility is met. via the authorized market.
Even more complicated, even if a state insurance department blesses an insurer's fulfillment of the financial responsibility requirements for cars for excess lines, it is often not the insurance department that has the authority to give such a blessing. Rather, it is often the Secretary of State or the Department of Transportation who has the final say on the matter, which can further frustrate efforts to secure consistent positions in the United States.
Does a Surplus Lines insurer have more flexibility for commercial auto insurance coverage?
Some states explicitly recognize the ability of redundant line insurers to meet the financial responsibility requirements of commercial vehicles.
For example, in Oklahoma, under Section 6 of Chapter 7 of the Oklahoma Highway Safety Code, the term & # 39; Ownership Policy & # 39; defined as a motor vehicle liability insurance policy that will, among other things, & # 39; be issued by a licensed insurer… or in the case of commercial auto insurance, the policy may be issued by an unlicensed insurer…. (Emphasis added).
Likewise, the National Conference of Insurance Legislators (NCOIL) in 2015 promulgated its Model Law to address the regulation of insurance requirements for TNCs, and in recent years many states have followed suit by enacting legislation that will apply on the financial responsibility requirements of drivers and owners of vehicles operated in connection with a TNC. In most cases, these statutes expressly allow a driver to meet his or her auto financial responsibility requirements through the redundant lines market during the time the driver is picking up or dropping off a customer. However, the TNC's statutes differ as to whether drivers using application-based platforms to provide goods or services (such as food) can meet their financial responsibility requirements through the redundant lines market.
Nevertheless, except for the TNC statutes promulgated in a handful of jurisdictions, most states do not distinguish between financial liability requirements for persons operating a motor vehicle in a personal or commercial capacity. In such cases, the prohibition of redundant line insurers' compliance with financial responsibility requirements would usually also apply to the commercial automotive insurance market. Even in states where flexibility exists for commercial auto insurance products, it is not always clear when an auto insurance product is commercial in nature.
For example, an insurance policy issued to a fleet owner can be thought of as a hybrid auto insurance policy that provides both personal use insurance for the driver and commercial insurance for the commercial fleet business.
With regard to peer-to-peer car-sharing programs, while NCOIL passed its Peer-to-Peer Car Sharing Program Model Act in February 2020, such a law only expressly requires that there be insurance that meets the minimum financial responsibility of the state and that insurance can be purchased by the owner of the shared vehicle, the driver or the peer-to-peer car-sharing program. However, the law does not explicitly state that excess line insurers can provide such insurance coverage.
"While redundant line insurers face significant regulatory hurdles to meet the requirements of motor vehicle financial responsibility in a permissible manner, they have ample opportunity to enter the market in other ways.
Practically speaking, states may be willing in the future to cover more forms of commercial auto insurance through the redundant lines markets.
For starters, the explosion of TNC laws in recent years is almost uniformly provoking the involvement of redundant lines, which may indicate a trend to separate commercial auto insurance from the prohibition of redundant line compliance with the requirements of financial responsibility in the general.
In the absence of an exemption under applicable law (such as inclusion on an export list of redundant lines), insurance may only be placed with redundant line insurers if the surplus line broker has a "careful examination" of the authorized market beforehand and many states have residual market mechanisms that are more likely to cover personal insurance risks than commercial programs.
What about other types of motor vehicle insurance?
While redundant line insurers face significant regulatory hurdles to permitting compliance with the requirements of motor vehicle financial responsibility, they have ample opportunity to enter the market in other ways. For example, many states recognize the option for a surplus line insurer to purchase liability insurance that crosses the financial responsibility tier. In New York, the Excess Lines Association of New York has stated that auto liability insurance “(c) can be written on a deductible (excess lines) basis, but primary coverage must be written by a licensed insurer or by a qualified self-insurer. retention. (September 2017, the “ELANY Compliance Advisor”).
Other types of motor insurance such as property insurance, rented and non-owned car (HNOA), uninsured / underinsured motorist coverage and personal injury protection (PIP) are also more widely permissible through the redundant lines market. For example, the ELANY Compliance Advisor notes that “(a) also garage liability, named non-owner, (s) physical damage. . . can be written based on redundant (redundant) rules. However, some states regulate these other forms of auto insurance coverage under the same statutes and regulations that require the issuance of a motor vehicle insurance policy by a licensed insurer, and as such it is important to examine each state's regulatory regime before concluding that a surplus lines insurer can expand its motor insurance offerings in a lawful manner.
It should also be noted that separate state and federal financial responsibility requirements apply to "motorcycle carriers" who transport property (or in some cases hazardous materials). Initially, the Federal Motor Carrier Safety Administration requires motor carriers to maintain a minimum level of liability insurance, but allows such insurance to be obtained from a surplus lines insurer licensed in at least one state. At the local level, a number of states enforce separate laws on motor vehicle financial liability, and unfortunately there is little agreement among states as to whether excess line insurers can play a role in their satisfaction, requiring state-by-state analysis for exporting insurance needs to the unauthorized market.
Weigh? Where we're going we may not need roads, but we need the Surplus Lines market
We may not have flying cars yet (one of the few ways the Back to the Future franchise missed its mark), but that doesn't mean technology hasn't completely changed the way we move around. The automotive industry looks completely different from ten years ago, and the demand for creative, innovative and tailor-made insurance products is soaring.
Still, in many states, the door remains closed to insurers with surplus lines to serve the motor vehicle insurance market, and for now only licensed insurers hold the coveted key. With the expansion of TNC legislation allowing insurers to play off redundant lines in the field of motor vehicle financial liability, it is time for legislators to take a fresh, fresh look at their financial liability laws and regulations. motor vehicles to help redundant line insurers provide the insurance backstop that businesses, motor vehicle owners, and motorists need to keep their car running on the road.