Financial Responsibility in the Surplus Lines Market

Episode: Financial Responsibility in the Surplus Lines Market
Hosts: John Emmanuel and Zachary Lerner
Aired: January 13, 2026

John Emmanuel (00:16):
Welcome back. I’m John. This is Zach. Today we’re gonna talk about an area that we’ve seen a lot of questions about, which is financial responsibility and how that can be written in the surplus lines market.

Zachary Lerner (00:27):
Thanks, John. So satisfying financial responsibility requirements in surplus lines market really differs among the various states. There are different forms of financial responsibility; IE: insurance that’s required to perform a certain activity in the state. But obviously the most popular one is satisfaction of motor vehicle liability coverage through the admitted or surplus alliance market.

Satisfaction of financial responsibility requirements, particularly automobile coverage is prohibited in a number of states and it really emanates from the motor vehicle codes that say, “In order to satisfy financial responsibility requirements through an insurance policy, it needs to be through an authorized insurance carrier in the state.”

What does the term “authorized” mean? Maybe for a non-insurance professional, they would interpret it to be an eligible surplus lines insurer. Unfortunately, under the insurance codes of most states, surplus lines insurers are considered unauthorized, but eligible to write insurance on a surplus lines basis.

So how does this all shake out? Well, there are some states like New York, that have promulgated guidance on their insurance department website indicating that satisfaction of financial responsibility is not permitted to the surplus lines markets. Then there are some states that are silent on the matter in the insurance codes and essentially allows surplus lines carriers to write any property casualty coverage to the surplus lines market. But that doesn’t mean it’s necessarily permissible under the motor vehicle code.

So if there is an accident, it’s quite possible that Department of Motor Vehicles will say, “Okay, this is permissible insurance coverage under your insurance code, but we’re not going to recognize it as permissible financial responsibility because it’s through an unauthorized but eligible surplus lines carrier.

John Emmanuel (02:14):
And a lot of that stems from the fact that a lot of these laws in the motor vehicle code are very old and didn’t contemplate not admitted versus admitted coverage, which is not the case in the TNC world or the peer-to-peer coverage, where these new statutes, such as for Uber and Lyft, actually contemplate writing financial responsibility in the surplus lines market. And so it’s very clear and express coverage where that can be done in that market.

Zachary Lerner (02:42):
Right. I’ll just finally add that while most individuals for the personal coverage get coverage through admitted carriers with the explosion of these new commercial types of auto coverages, particularly these peer-to-peer car share type of structures, if there’s not a specific law in place allowing for the surplus lines market to satisfy those requirements, you’re kind of in a nebulous world where you have to make sure it’s still satisfying those age old requirements in the motor vehicle code that were drafted to really think about the generic personal lines financial responsibility requirements, but often do apply in the commercial context as well.

Copyright, Troutman Pepper Locke LLP. These recorded materials are designed for educational purposes only. This podcast is not legal advice and does not create an attorney-client relationship. The views and opinions expressed in this podcast are solely those of the individual participants. Troutman does not make any representations or warranties, express or implied, regarding the contents of this podcast. Information on previous case results does not guarantee a similar future result. Users of this podcast may save and use the podcast only for personal or other non-commercial, educational purposes. No other use, including, without limitation, reproduction, retransmission or editing of this podcast may be made without the prior written permission of Troutman Pepper Locke. If you have any questions, please contact us at troutman.com.

DISCLAIMER: This transcript was generated using artificial intelligence technology and may contain inaccuracies or errors. The transcript is provided “as is,” with no warranty as to the accuracy or reliability. Please listen to the podcast for complete and accurate content. You may contact us to ask questions or to provide feedback if you believe that something is inaccurately transcribed.