In May 2012, in Surplus Lines Insurance; Bridging The Gap In Coverage, we wrote about surplus lines insurance and how it is regulated by the Surplus Lines Law.1 Free from the rate and form regulations which govern authorized insurers, the surplus lines industry can fill the gaps in available insurance for Florida residents. In a recent order, the U.S. District Court for the Southern District of Florida ruled that the provisions within Florida Statute 627.409 are inapplicable to surplus lines insurers.2 Florida Statute 627.409 deals with misrepresentations of material facts in policy applications, and has some insurance friendly language regarding the insurer’s burden of proof.

In River Oaks, Aspen attempted to avail itself of 627.409, despite the fact that it is a surplus lines insurer. Aspen sought a declaration that it was entitled to rescind and void the policy in place with River Oaks at the time a Hurricane Wilma loss occurred and relied upon section 627.409 of the Florida Statutes to support its argument. Aspen argued even an unintentional misrepresentation on the application for insurance allowed it to void the policy and refund the premium. The Court held that section 627.409 is inapplicable to Aspen as a surplus lines insurer.

[E]xcept as may be specifically stated to apply to surplus lines insurers, the provisions of chapter 627 do not apply to surplus lines insurance authorized under . . . the Surplus Lines Law. Fla. Stat. 626.913(4)

The Court held that Section 627.409(1), does not specifically state it applies to surplus lines insurers, so Aspen was not entitled to rescind the policy with River Oaks.

1 Fla. Stat. §§626.913-937.
2 Aspen Specialty Ins. Co. v. River Oaks of Palm Beach Homeowner’s Association, Inc., No. 11-81380 (S.D. Fla. August 8, 2012).