What happens if a surplus lines policy is issued for a risk eligible for placement with an admitted insurer?

When a surplus lines policy is issued for a risk that is actually eligible to be placed with an admitted insurer, that policy may be deemed invalid and unenforceable in New Jersey. This stems from regulations that require certain risks to be placed with admitted carriers that are licensed to operate in the state. Admitted insurers are subject to state regulations, including rate approval and financial stability standards, which are designed to protect policyholders.

Surplus lines insurance is meant for risks that cannot be adequately covered by admitted insurers. If a surplus lines policy is issued when it shouldn't be, it violates the statutes regarding insurance placement in New Jersey. This can result in the policy lacking legal standing, meaning that if a claim arises, the insurer may deny coverage, citing that the policy was improperly issued in the first place.

Therefore, it's critical for agents and brokers to understand the eligibility of risks and ensure they are placed correctly in compliance with state laws, particularly to avoid problems with policy validity and enforcement.