The national guides cover the specialty coverages in this area: inland marine, crime, surety bonds, professional liability, umbrellas, flood and similar lines. Many of these risks end up in the surplus lines market, and that is where Vermont's state rules apply. This guide covers Vermont's surplus lines law (8 V.S.A. chapter 138).

When surplus lines may be used (8 V.S.A. § 5024)

• A licensed surplus lines broker may place coverage with a nonadmitted insurer only if the full amount isn't reasonably available from admitted insurers. Only the part admitted insurers won't write may be placed in the surplus lines market.
• The Commissioner may declare whole classes of coverage eligible for export when the admitted market is inadequate in acceptance, terms or premium.
• For an exempt commercial purchaser, no diligent search is needed. The broker discloses that admitted coverage may be available, and the purchaser asks in writing for a nonadmitted placement.

Eligible insurers (8 V.S.A. § 5026)

A surplus lines insurer needs capital and surplus of at least the greater of Vermont's minimum or $15,000,000. An alien insurer must be on the NAIC's quarterly listing of alien insurers.

The policy notice (8 V.S.A. § 5028)

Each surplus lines policy carries a notice that:

• the company is a surplus lines insurer
• its rates have not been approved by the Commissioner
• a default by the insurer is not covered by the guaranty association

Brokers (8 V.S.A. §§ 5030 to 5035)

• A licensed producer the Commissioner finds trustworthy and competent may be licensed as a surplus lines broker. The licensing bulletin requires at least one year of experience as a producer, or comparable work, in the three years before applying.
• Once the broker receives the premium, the insurer is treated as having received it. The insurer is liable for covered losses and return premiums even if the broker doesn't pay it over (§ 5030).
• The broker keeps a record of each contract, open to examination without notice until three years after the contract ends (§ 5033(b)).
• Surplus lines tax: 3% of gross premiums less return premiums. The broker collects it from the insured at delivery (§ 5035(a)).

Common exam traps

• Surplus lines is allowed only when coverage isn't reasonably available from admitted insurers. Exempt commercial purchasers are the exception to the search.
• The surplus lines tax is 3%. The regular premium tax on admitted insurers is 2%.
• Surplus lines insurers need at least $15 million of capital and surplus.
• Premium paid to the broker counts as paid to the insurer.
• Surplus lines insurers aren't covered by the guaranty association, and the policy must say so.
• Broker records are kept for 3 years after the contract ends.