We are a start-up company with several patents written up, r

Posted: Wed May 11, 2011 01:25 am Post Subject:

You're asking about something that's probably only available in the surplus lines market. You may not have an insurable interest before your patents are granted (or at least in the official "patent pending" pipeline).

Contact a local commercial insurance broker/agent to discuss your situation. If they can't handle it through their standard market carriers, they will assist you to obtain it through a surplus line broker.

Posted: Wed May 11, 2011 10:12 am Post Subject:

Hey Max, your posts truly reflect your knowledge. Now, what's the difference between a commercial insurance broker and surplus line broker?

Posted: Wed May 11, 2011 01:46 pm Post Subject:

Typically, insurance coverage not available in the standard market from "admitted" insurance companies (commonly available through your local property & casualty agents and brokers -- "commercial insurance brokers") can be obtained in the "surplus lines" market. Those insurance companies are usually "non-admitted" in most or all states. "Surplus lines" are simply property & casualty and other risks that most insurance companies are not willing to cover, such as launching a communications satellite into orbit.

An "admitted" insurer is one that is licensed to transact insurance with the public in your state. A "non-admitted" insurer is one that is not licensed to transact insurance in your state. It is not a discussion of "good" or "bad". Non-admitted insurers are not directly under the supervision of the Dept of Insurance in your state, and the coverage you obtain from them may not be covered by your state's Guaranty Association in the event of the insurer's insolvency.

States typically have a list of "approved" non-admitted insurers that they recognize and will not take regulatory action against for "transacting without a license" in the state. But ordinary property & casualty or other licensed agents and brokers are not permitted by the state to transact business with any non-admitted insurer. Lloyd's of London, for example, is non-admitted in all states of the US, but is also on every state's list of approved non-admitted insurers (even though Lloyd's is not technically an insurance "company").

The only licensed person who may lawfully transact with a non-admitted insurer on behalf of an insured is a SURPLUS LINE BROKER. That broker is "exporting" insurance risks to the non-admitted insurers and is also responsible for collecting and paying the required premium taxes to the state, so he/she must also report to the state all the coverage so exported together with the amount of premium exported.

Risks should not routinely be exported to non-admitted insurers unless there is no other affordable coverage available in the standard market. As a licensed insurance agent, I am required to try to place my client's business with an admitted insurer. But if my client has a risk that none of the companies I represent are willing to insure, it does not mean the person must remain uninsured. I can refer their risk to a non-admitted insurer. But I cannot do that directly.

When it comes to agent/broker licensing, the laws of most states identify an "insurance agent" as a person licensed to transact all forms of insurance except life (and, in many states now, also except disability) insurance. Life agents cannot transact property & casualty insurances. So, many agents have dual licensing to be able to transact both property & casualty and life & disability insurances (such as I do). But none of us, unless also licensed as a surplus line broker, are permitted to transact on behalf of a non-admitted insurer, and we could lose our licenses for doing so. So we cannot take our client's risk to the non-admitted insurer directly -- we have to use a licensed intermediary known as a surplus line broker.

So there you have it.