Under California Insurance Code Section 703, an agent may transact insurance with a nonadmitted insurer:
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
Section 703 prohibits transacting insurance with a nonadmitted insurer, with an exception for surplus lines. A nonadmitted insurer has not been authorized by the Commissioner to transact business in California, so it is not subject to the same solvency and regulation standards. Surplus lines coverage may be placed only when the coverage cannot be obtained from admitted insurers and only through a licensed surplus line broker, not by a regular agent. This exception keeps unusual risks insurable while protecting consumers from unregulated companies.
Why the other options are wrong
- A) Client preference alone does not authorize business with a nonadmitted insurer. The surplus lines conditions must be met first. A client's preference cannot override the statutory prohibition; the surplus lines conditions must actually be satisfied.
- B) Payment method does not affect the legality of transacting with a nonadmitted insurer. Cash payment changes nothing. Paying in cash does not change the legal status of the insurer or the placement requirements.
- D) A surplus lines exception exists, so the prohibition is not absolute under all circumstances. The surplus lines exception exists, so there are circumstances in which business with a nonadmitted insurer is lawful.
Memory hook
Nonadmitted = out-of-state player. Only the surplus lines lane, only with the special license, only when nobody else can play.