The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site -



Opinion No. 5612

December 20, 1979


Surplus Lines Carriers

The Commissioner of Insurance may remove an unlicensed insurance company from a list of approved surplus lines carriers without a hearing.

William F. McLaughlin


Department of Commerce

Law Building

Lansing, Michigan 48913

My opinion has been requested as to whether the Commissioner of Insurance is required to give notice and an opportunity for a hearing to a surplus lines carrier before the Commissioner determines whether the carrier is in a financially sound condition. If it is determined that the surplus lines carrier is not financially sound, licensed surplus lines insurance agents may not place coverage with such an insurer.

Surplus lines carriers are insurance companies which are neither chartered nor licensed to sell insurance in the State of Michigan. The purpose of such carriers has been expressed as follows:

'. . . Historically, the function of surplus lines insurance was to provide lines of insurance that were in excess of the lines, or amounts of a particular line, which could be absorbed by the insurance companies admitted to do business within a state. Today it has come to mean any insurance placed with insurance companies not admitted to do business in a particular state. Non-admitted insurers provide valuable services in addition to their historic function. First, non-admitted insurers are often responsible for the introduction of wholly new lines of insurance coverage in areas in which admitted companies have shown little interest. Moreover, they can write insurance risk by risk, whereas their admitted counterparts, because of the restrictions imposed by state regulation and the belief that actuarial tables based on extensive sampling are necessary, are confined to writing only class insurance. The ability to so individualize insurance coverage enables such insurers, through the use of non-standard forms, to tailor their policies to the exact needs of the insured, and also to perform a valuable service in writing deductibles. Finally, the existence of surplus lines insurers provides an escape from the rigid rate and form regulations imposed by states on admitted insurers. . . .' (1)

Surplus lines carriers are permitted to conduct business in this State only under limited and restricted circumstances. Section 1843 of the Insurance Code, 1956 PA 218, Sec. 1843, as amended, MCLA 500.1843; MSA 24.11843, provides that:

'The commissioner may issue a surplus lines agent license to a licensed agent resident in this state who has maintained the standards of sections 1204 to 1206, permitting the licensee to procure policies of insurance on risks in this state in unauthorized insurers . . .'

The act further requires that within thirty days of procuring such insurance, an authorized agent is required to file with the Commissioner an affidavit that, after diligent search, he is unable to procure from authorized insurers an amount of insurance necessary to protect the risks to be insured. 1956 PA 218, Sec. 1849, MCLA 500.1849; MSA 24.11849. Thus, surplus lines carriers should be insurers of last resort. If the risk cannot be covered through a licensed insurer, then, and only then, may an authorized agent attempt to procure coverage through a surplus lines carrier. The fact that such coverage is procured through an unlicensed carrier must be conspicuously disclosed to the insured on the face of the policy. 1956 PA 218, Sec. 1856, MCLA 500.1856; MSA 24.11856. The use of surplus lines carriers by authorized agents is further limited by 1956 PA 218, Sec. 1852, MCLA 500.1852; MSA 24.11852, which provides that:

'A surplus lines agent shall offer such insurance only to insurers which for a reasonable preceding period have been in a sound and unimpaired condition as determined by the commissioner.'

The Commissioner maintains a list of sound and unimpaired surplus lines carriers from which agents may procure coverage. The Michigan Insurance Code, supra, fails to provide any procedure either for initial placement on the approved list or subsequent removal therefrom.

In Kelly Downs, Inc v Racing Commission, 16 Mich App 539; 231 NW2d 443 (1975), the court held that, in view of the fact that the race track license provisions of the Racing Act do not require a hearing when an application for a race track license is filed, the applicant is not entitled to a ruling after an opportunity for an evidentiary hearing.

Also, in 13-Southfield Associates v Department of Public Health, 82 Mich App 678; 267 NW2d 483 (1978), the court considered whether denial by the Michigan Department of Public Health of a certificate of need enabling a plaintiff to secure federal funding must be proceeded by a hearing. The court held that no statutory right to a hearing existed. In reviewing the due process question, the court reiterated the proposition that a right to a hearing only follows a 'legitimate claim of entitlement.' 82 Mich App, at 684. Absent such a finding, plaintiff is not entitled to a due process hearing.

Surplus lines carriers are permitted to do business in Michigan without being licensed and without being required to meet the prerequisites of licensure, such as maintaining minimum capital, surplus, and reserves. The activity is permitted by the legislature not for the benefit of the carriers involved, but for the protection of the citizens of the state on the theory that such insurance, however unreliable, may be better than no insurance. It is significant that surplus lines carriers are only permitted to write insurance in this state upon the filing of a sworn affidavit by the agent involved that similar coverage is unavailable through a licensed carrier. Requiring the Commissioner to conduct hearings before removing a surplus lines carrier from the approved list, and presumably before denying access to that list, would elevate the status of the surplus lines carrier and provide rights similar to that of a licensed insurance company. In my opinion, this result was not intended by the legislature.

While a right to a hearing would exist on denial of a license to act as an insurer or agent in this state, or on revocation of such a license once granted, the Commissioner may remove a surplus lines carrier from his approved list upon a finding that such a carrier is unsound and impaired, without providing an opportunity for a hearing. Accordingly, the Commissioner must clearly set forth his reasons for removal of a surplus lines carrier from his approved list in such a manner as to provide a basis for meaningful review. Kelly Downs, Inc v Racing Commissioner, supra.

Frank J. Kelley

Attorney General

(1) Lockwood, Insurance-State Regulation-Surplus Lines Insurance, 61 Mich L.R. 1171 (1963).