How to Master Diligent Search Requirements By State in Your Agency

Diligent search requirements by state are the gateway to every surplus lines placement. Before a broker can place coverage with a non-admitted carrier, most states require documented proof that the broker approached admitted carriers first and those carriers declined the risk. The specifics vary sharply: some states require three written declinations, others accept one verbal decline, and some exempt certain risk categories or sophisticated insureds entirely.

AAMGA stamping office data shows that diligent search documentation failures appear in 42% of returned surplus lines filings. That rate makes this requirement the single most common source of compliance deficiency in the market. Mastering diligent search requirements by state is not optional for any agency writing surplus lines business with regularity.

Key Takeaways

• 42% of returned surplus lines filings cite diligent search documentation deficiencies per AAMGA stamping office data
• Most states require 3 admitted carrier declinations; Texas requires 2; a few states require none for exempt risks
• Exempt Commercial Purchaser (ECP) rules, established under NRRA 2010, eliminate the diligent search for qualifying sophisticated insureds
• Written declinations are required in California, Florida, New York, and most high-volume states; verbal is acceptable in Texas with broker documentation
• Declinations must come from carriers authorized to write the specific coverage type in the home state, not just any admitted carrier
• Stale declinations, obtained more than 30 days before binding in some states, do not satisfy the diligent search requirement

What the Diligent Search Is and Why It Exists

The diligent search requirement protects the admitted insurance market from losing business to surplus lines carriers without a genuine underwriting reason. The premise is that admitted carriers operate under rate and form regulation that makes their products more consumer-protective. Surplus lines carriers, which operate under far lighter state regulation, should access business only when admitted carriers genuinely cannot or will not cover the risk.

The diligent search operationalizes this principle. By requiring brokers to document admitted carrier rejections before placing in the surplus lines market, states confirm that each surplus lines placement has a legitimate reason. Without this requirement, brokers could route business to surplus lines carriers simply because they preferred those relationships or the products were more flexible, regardless of admitted market availability.

The requirement creates compliance work, but it also serves as E&O protection for the broker. A documented diligent search showing that three admitted carriers reviewed and declined a risk is strong evidence that the broker acted professionally and in the insured's interest when the placement went to the surplus lines market.

How Many Declinations Are Required: The State-by-State Standard

The most variable element of diligent search requirements by state is the number of declinations required. This number ranges from zero (for ECP and exempt risks) to three (the most common requirement) to as many as five in certain specialized lines.

Three declinations is the standard across the majority of states. California, Florida, New York, New Jersey, Georgia, Pennsylvania, Illinois, Ohio, Washington, Colorado, North Carolina, Minnesota, Michigan, and most other states require three admitted carrier declinations before surplus lines placement is permissible.

Two declinations is the standard in Texas for most risk categories. SLTX 2025 confirms that Texas Insurance Code Section 981.004 requires a good faith effort to obtain coverage from admitted carriers, which in practice the Texas DOI interprets as two declinations for most commercial lines.

One declination suffices in a few states for specific risk categories, particularly where the admitted market is very thin for the coverage type. Virginia and Louisiana have provisions allowing a single declination for certain specialty lines where admitted carrier availability is demonstrably limited.

No diligent search is required for: Exempt Commercial Purchasers who qualify under NRRA Section 527, certain types of risks specifically exempt by state statute (e.g., industrial insureds in some states, ocean marine in most states, excess and umbrella placements above a high primary limit in some states), and certain alien insurer placements.

What Counts as an Acceptable Declination

The quality of the declination matters as much as the quantity. Not every "no" from an admitted carrier satisfies the diligent search requirement.

Carrier eligibility for diligent search: The carrier approached must be authorized to write the specific coverage type in the home state. If a broker approaches a carrier that writes auto but not commercial property, that approach does not count toward the diligent search for a commercial property placement. The broker must approach carriers actually authorized to write the line in question.

Genuine review required: Most states require that the carrier actually reviewed the submission before declining. A carrier that says "we don't write that line here" without reviewing the risk is generally not acceptable as a diligent search declination. The submission must have been considered by an underwriter with authority to bind that coverage.

Written vs. verbal declinations: California, Florida, and New York require written declinations. A verbal decline from an underwriter must be followed by written confirmation before it satisfies the California or Florida diligent search requirement. Texas accepts verbal declinations documented by the broker in writing, noting the date, the underwriter's name, and the reason given. The broker's written record of a verbal decline is acceptable in Texas; the carrier does not need to produce a letter.

Timeliness: Some states specify that declinations must be obtained within a certain period before binding. California generally expects declinations to be obtained in close proximity to the effective date. Declinations obtained 60 days before binding while the submission was shopped extensively may not satisfy the California requirement if the risk or market conditions changed materially in the interim.

Reason for decline: Some states require documentation of the reason for the decline. Others accept a blanket "declined" notation. New York ELANY requires that the diligent search affidavit specify whether each declination was due to the carrier not writing the line, the risk not meeting underwriting guidelines, price uncompetitiveness, or capacity limitations.

State-by-State Diligent Search Requirements Table

Exempt Commercial Purchaser Rules: Eliminating the Diligent Search

The Nonadmitted and Reinsurance Reform Act of 2010 created the Exempt Commercial Purchaser (ECP) category, which allows sophisticated commercial buyers to waive the diligent search requirement. An ECP is an insured that meets specific financial size and insurance sophistication thresholds defined in the NRRA.

To qualify as an ECP, the insured must meet at least one of these three financial tests:

1. Net worth exceeding $20 million
2. Annual revenues exceeding $50 million
3. More than 500 full-time employees (or the insured is a nonprofit or governmental entity)

Additionally, the insured must employ or retain a full-time risk manager or a licensed insurance professional to negotiate insurance coverages.

When an insured qualifies as an ECP, the broker obtains a signed ECP waiver from the insured. The waiver acknowledges that the insured understands the coverage is from a non-admitted carrier, understands the implications for state guaranty fund protection (surplus lines carriers are generally not covered), and waives the diligent search requirement.

The ECP waiver eliminates the need to document admitted carrier declinations. The broker can proceed directly to the surplus lines market once the waiver is executed. The waiver must be retained in the policy file and is typically reviewed during stamping office audits.

WSIA 2025 estimates that ECP placements account for approximately 30% of surplus lines premium by volume, concentrated in large commercial accounts and complex specialty lines where admitted market availability is consistently limited.

Industrial Insured Exemptions and Other State-Specific Exemptions

Beyond the federal ECP exemption, many states maintain their own exempt insured categories that predate the NRRA.

Industrial insured exemptions exist in states including Texas, where a large employer meeting size thresholds can place directly in the surplus lines market without diligent search. Texas Insurance Code Section 981.005 defines the industrial insured as an entity that: employs a full-time risk manager, has at least 25 employees, and has annual premium expenditures of at least $25,000.

Ocean marine exemptions apply in most states. Ocean marine coverage, including hull, cargo, protection and indemnity (P&I), and related marine coverages, is typically exempt from diligent search requirements. The rationale is that ocean marine has traditionally been written in London markets with limited admitted carrier participation in the U.S.

Excess and umbrella exemptions exist in some states for coverages placed above a specified primary limit. The admitted carrier writing the underlying coverage is viewed as the "primary market contact," and excess placement in surplus lines is treated as a matter of capacity rather than market rejection.

Lloyd's of London and alien insurer exemptions apply in certain states that have long-standing relationships with the London market. Some states exempt Lloyd's syndicates entirely from local diligent search requirements given Lloyd's long-established role as a specialty market.

How to Document the Diligent Search for E&O Defense

The diligent search is not just a regulatory requirement. It is the broker's primary E&O defense document if a coverage dispute arises later.

A coverage dispute that reaches litigation will involve the plaintiff's attorney questioning why the coverage was placed in the surplus lines market rather than the admitted market. If the broker cannot produce a complete, contemporaneous diligent search record, the argument that the surplus lines placement was necessary and appropriate becomes difficult to sustain.

A legally defensible diligent search record contains these elements for each approached carrier:

• The carrier's full legal name and state of authorization
• The date the submission was sent or the underwriter was contacted
• The name and title of the underwriter who responded
• The response received (declined, quoted above budget, does not write line)
• The reason for the declination as stated by the underwriter
• Any written declination letter received (attached to the file)

The record should be created at the time of each contact, not reconstructed later. Stamping office auditors and DOI investigators are experienced at identifying reconstructed records. They look for: all declinations on the same date (suggesting batch reconstruction), identical wording across multiple declination entries, and absence of the specific underwriter names that contemporaneous records would include.

Storing this documentation in the policy management system, linked directly to the policy file rather than in a separate folder or spreadsheet, verifies it is available instantly at audit time and cannot be separated from the placement record it supports.

The Shift Toward simplified Diligent Search Under NRRA 2010

The NRRA's most significant practical change to diligent search was not the ECP exemption. It was the home state rule's elimination of multi-state diligent search requirements.

Before the NRRA, a placement covering risks in multiple states could require separate diligent searches in each state. A national account broker placing a commercial property policy for a retailer with stores in 20 states had to document admitted carrier contacts in each of those 20 states, under each state's individual standards. This created extraordinary documentation burdens for national account placements.

The NRRA collapsed this into a single home state diligent search. The broker identifies the home state, performs one diligent search under that state's standards, and that search applies to the entire multi-state policy. The 19 other states where the risk is located have no additional diligent search requirement.

WSIA 2025 estimated that this change reduced diligent search documentation costs by 40-60% for brokers with national account books, measured by staff time spent on diligent search documentation per placement.

For single-state placements, the NRRA made no change. Diligent search requirements in the home state apply exactly as they did before 2010.

Building a Diligent Search Workflow in Your Agency

Agencies that handle diligent search as a checklist item at policy binding rather than as an integrated step in the underwriting process consistently produce incomplete documentation.

An effective workflow starts at submission, not at binding. When a submission is first received and identified as a likely surplus lines placement, the diligent search process begins immediately. The producer contacts admitted carriers with authority to write the line in the home state. Those contacts are logged in the system the same day.

By the time the surplus lines quote is accepted and the policy is being bound, the diligent search is already complete or nearly complete. The documentation is contemporaneous because it was gathered during the actual underwriting process.

Agencies that wait until binding to begin the diligent search often find themselves trying to get retroactive written declinations from admitted carriers who have moved on to other submissions. Some carriers will not provide retroactive declination letters. This creates the documentation gap that becomes a compliance problem.

The workflow should assign diligent search responsibility clearly. The producer handles the initial outreach. An account manager or compliance coordinator tracks the log and flags when the required number of declinations has been reached and documented. A compliance review step confirms the documentation is complete before the filing is submitted.

Frequently Asked Questions

What are diligent search requirements by state and why do they differ? Diligent search requirements by state are the rules each state sets for how many admitted carrier declinations a broker must obtain before placing coverage with a non-admitted surplus lines carrier. They differ because surplus lines regulation is entirely state-based, with each state legislature setting its own standards. The NRRA 2010 established the home state principle but did not standardize the diligent search itself. California and Florida require three written declinations; Texas requires two and accepts verbal declines documented by the broker. These differences reflect each state's policy choices about how much protection admitted carriers deserve from non-admitted competition.

Does the ECP exemption apply in every state? The Exempt Commercial Purchaser (ECP) exemption under NRRA Section 527 is a federal rule that applies in all 50 states. States cannot require a diligent search for ECP insureds under the NRRA preemption. However, the broker must confirm that the insured meets the financial and sophistication thresholds, obtain a signed ECP waiver, and retain the waiver in the policy file. Some states have their own pre-NRRA exempt insured categories (like Texas industrial insured) that have different thresholds than the federal ECP standard.

Can a declination from an unauthorized carrier satisfy the diligent search? No. The carrier who declines must be authorized to write the specific coverage type in the home state. If a carrier is admitted in the state but not authorized to write the line of business at issue, its declination does not count. This is a common error: brokers sometimes approach large admitted carriers who write multiple lines, not realizing the carrier does not write that specific line in that state. Always verify that each carrier you approach for diligent search purposes actually has authority to write the coverage in question.

How old can declinations be and still satisfy the requirement? Most states do not specify a hard cutoff, but the general standard is that declinations should be obtained within 30-60 days of the effective date. California SLIP applies a practical reasonableness standard: if the submission was actively shopped and declined close to binding, the declinations are acceptable. If declinations were obtained months earlier and the risk changed substantially before binding, fresh declinations may be required. Texas SLTX does not specify a recency requirement, but recommends declinations be obtained within the policy period being placed.

What happens if the stamping office rejects a filing due to diligent search deficiency? The stamping office returns the filing with a deficiency notice specifying what is missing or inadequate. The broker must cure the deficiency, typically by obtaining supplemental documentation from the admitted carriers contacted, and resubmit. If the original declinations were properly obtained and documented but the filing was incomplete, this is usually curable. If the diligent search was genuinely inadequate (wrong carriers, insufficient number), the broker faces a more difficult correction path. In some cases, the stamping office may require evidence that a proper diligent search was performed even retroactively, or it may refer the matter to the DOI.

Does the diligent search requirement apply to policy renewals? Yes, in most states. Each policy period is treated as a new placement for diligent search purposes. A risk placed in the surplus lines market last year must be re-shopped in the admitted market at renewal before it can renew on a surplus lines basis. Some states have limited exceptions for policies that have been continuously in the surplus lines market for multiple years without admitted market availability, but these exceptions are narrow and require specific documentation of continued unavailability.

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Written by Javier Sanz, Founder of BrokerageAudit. Last updated April 2026.