When can a business purchase insurance from a nonadmitted insurer?

A business can purchase insurance from a nonadmitted insurer primarily when the insurance coverage is unavailable in the admitted market. This situation arises typically when a specific type of coverage or certain risks are not offered by insurers that are licensed (or admitted) in the state. Nonadmitted insurers provide flexibility for businesses that may be facing unique or high-risk scenarios that standard admitted insurers are unwilling to cover.

The rationale behind this is rooted in the regulations governing the insurance market. Admitted insurers are subject to state regulations, including rate controls, which can limit their ability to provide coverage for all types of risks. Nonadmitted insurers, however, can operate outside these strict regulations, allowing them to offer coverage options that may be more tailored to the unique needs of businesses, particularly for risks that are considered unconventional or excessively risky.

Choosing to engage with a nonadmitted insurer also requires businesses to understand that these insurers do not fall under the same state regulation protections (like state guarantee funds), thus there is an element of risk involved. This makes option D the correct choice, as it aligns with the regulatory framework that permits businesses to seek alternative coverage when necessary.