During the National Association of Insurance Commissioners ("NAIC") Fall Meeting in National Harbor, Maryland, the Surplus Lines Task Force ("Task Force") chaired by Commissioner James Donelon (LA) received a report on the status of the proposed 2007 Nonadmitted and Reinsurance Reform Act (H.R. 1065/ S. 929) (the "Bill"). If adopted, the Bill would provide regulators in the home state of the insured with authority over most aspects of surplus lines insurance, including the right to collect and allocate premium tax with respect to policies with multi-state perils. During the meeting, Commissioner Donelon was advised that in light of the current turmoil in the financial markets, it is unlikely that the Bill will pass this year. Understanding that the Bill might not pass this year, the Task Force continued with its discussions.
The Task Force proceeded to adopt the 2009 charges. It discussed adding language to the Bill requiring that surplus lines insurers report medical malpractice data to the home state of the medical professional (insured). The Task Force also considered amending the definition of "home state" within the Bill to mean either (A) the State in which a majority of the insured's officers report to work a majority of work days and where the insured's primary financial books and records are maintained or, in the case of an individual, the individual’s principal residence; or (B) if 100 percent of the insured risk is located out of the “home State” as defined in (A), the State to which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated. A number of commentators indicated confusion over Part (B) of the proposed definition. Currently, the Bill defines "home state" as "the State in which an insured maintains its principal place of business or, in the case of an individual, the individual’s principal residence."
Finally, with respect to surplus lines taxes assessed on multi-state perils, the Task Force explored creating a "clearinghouse" in lieu of a compact or model law under which states could allocate premium taxes across jurisdictions. The Task Force heard comments from a number of commentators, including the National Association of Professional Surplus Lines Officers Ltd. which expressed concern that the clearinghouse concept is voluntary and would not mandate uniform tax allocation procedures among states. Nonetheless, South Dakota moved to continue to study the clearinghouse concept and the Task Force adopted the motion. The on-going study of the clearinghouse will be discussed by teleconference next quarter.