I get calls from insureds all the time who are concerned that because their insurance carrier is “non-admitted” in California, the carrier somehow gets to play by a different set of rules when adjusting their claim. Some policyholders assume that if the insurer is a surplus lines carrier, California’s claims-handling rules, known as the Fair Claims Settlement Practices Regulations, simply do not apply. That is not the case.
This issue is becoming increasingly important because more and more California homeowners, particularly those with larger, more expensive homes in high-risk areas, are being pushed into the surplus lines market. Traditional admitted carriers are often unwilling to write coverage in certain wildfire-prone areas, leaving insureds with fewer options and, in many cases, non-admitted coverage. As that market grows, so does the number of policyholders who may mistakenly believe they have fewer protections when a claim arises.
There are certainly important differences between admitted and non-admitted insurers in California. Surplus lines insurers are not subject to all of the same rate and policy-form requirements that apply to admitted insurers, but that does not mean they are exempt from California’s Fair Claims Settlement Practices Regulations when adjusting a California insurance claim.
The regulations themselves are pretty clear on this point. Title 10, California Code of Regulations, section 2695.2(i), defines the term “insurer” for purposes of the Fair Claims Settlement Practices Regulations and expressly includes “non-admitted insurers.” Section 2695.1 also identifies certain categories of claims that are excluded from the regulations. Surplus lines property insurance claims are not one of those exclusions.
That means a non-admitted insurer adjusting a California property insurance claim is still subject to California’s minimum claims-handling standards. Those regulations govern issues such as timely communications with the insured, reasonable investigation of the claim, timely coverage determinations, explanations for claim denials, and specific requirements concerning the adjustment of residential and commercial property losses.
There is also an important distinction between the surplus lines insurer and the surplus lines broker. The regulations exclude surplus lines brokers from the definition of “insurer.” So, the broker who helped place the coverage is not necessarily subject to the same claims-handling requirements as the insurance company that issued the policy and is responsible for adjusting the claim. But the non-admitted insurance carrier itself is expressly included.
A surplus lines insurer may have more freedom in certain areas of California insurance regulation, but when it comes to claims handling, California’s Fair Claims Settlement Practices Regulations still apply.
