Episode: Home State Definition
Hosts: John Emmanuel and Zachary Lerner
Aired: April 2, 2026
Zachary Lerner (00:16):
Hi, I’m Zach Lerner and I’m here with my partner John Emmanuel. And today we’re going to talk about the definition of home state on the Nonadmitted and Reinsurance Reform Act for purposes of surplus lines regulation.
John Emmanuel (00:28):
Now we originally talked about the NRRA as kind of providing a sea change in how surplus lines was regulated. Prior to that, the regulation of surplus lines was handled where the risk was and if state had an opportunity to regulate that placement. Under the NRRA, however, they introduced what’s called the home state, and the home state of the insured is the only state that regulates that placement.
Now, what is the home state? If you’re an individual, it’s pretty clear. It’s where that individual has their primary residence. If you’re an entity, it’s typically the principal place of business. However, there are nuances. You can have an entity, for example, that’s principally based in New York, but if 100% of that risk is outside of New York, it’s where the most of that premium is allocated. That’s the state that would regulate that transaction.
Zachary Lerner (01:14):
Right. And there are some other nuances that come up on a daily basis for our clients. So let’s talk about group policies. If it’s an affiliated group, you really look to where the greatest amount of premium is allocated as to the largest group member. If it’s an unaffiliated group, it really becomes a state-by-state analysis as to whether the state is going to treat every member of that group as a separately situated home state insured.
But let’s go to all policies, whether individual or group. How could that home state test get complicated? It can get complicated pretty quickly. As an initial matter, it’s not the state where you’re incorporated, so it’s not Delaware 99% of the time. It’s really, for commercial policies, your principal place of business. Where is that? Some states define that term. Some states say it’s where your headquarters are located or where your decision making officers reside.
Some other factors that will come up here is what if, for example, you are located in another jurisdiction, non-U.S. jurisdiction, but 100% of your risk is in the U.S.? Well, without getting into too much legal nuance, the federal act is not clear as to whether that is a totally exempt policy, or if you would default to the states with the most amount of risk under that contract.
Another issue that comes up is international risk and how that is treated. Well, even if you have some international risk, a state is usually going to say we’re the home state of the insured if there is risk in the U.S. But some states like New York and others say that that international piece is not going to be subject to surplus lines premium tax.
What about if you want to take the position that 100% of the risk is outside of the principal place of business state? When can you say that? Well, it often will come down to what kind of risk you’re insuring. If it’s a property risk – for example, if I’m in New York and I have a homeowner’s policy on a piece of property in Florida – it would seem pretty clear that Florida would be the home state. But what if it’s a liability policy, not only a property cover? Well, if you could still be sued in your principal place of business or principal place of residence state, it’s a tougher argument to say that 100% of the risk is outside of that state where you reside.
John Emmanuel (03:27):
Thanks, Zach. So the home state rule does simplify how the placement of surplus lines is regulated. Typically, just the one state, the home state of the insured, but not always easy to figure out. Thanks for joining us.
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