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Public Act 102-0224 Public Act 0224 102ND GENERAL ASSEMBLY |
Public Act 102-0224 | SB1753 Enrolled | LRB102 10455 BMS 15783 b |
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| AN ACT concerning regulation.
| Be it enacted by the People of the State of Illinois,
| represented in the General Assembly:
| Section 5. The Illinois Insurance Code is amended by | changing Sections 445 and 445.1 as follows:
| (215 ILCS 5/445) (from Ch. 73, par. 1057)
| Sec. 445. Surplus line.
| (1) Definitions. For the purposes of this Section:
| "Affiliate" means, with respect to an insured, any entity | that controls, is controlled by, or is under common control | with the insured. For the purpose of this definition, an | entity has control over another entity if: | (A) the entity directly or indirectly or acting | through one or more other persons owns, controls, or has | the power to vote 25% or more of any class of voting | securities of the other entity; or | (B) the entity controls in any manner the election of | a majority of the directors or trustees of the other | entity. | "Affiliated group" means any group of entities that are | all affiliated. | "Authorized insurer" means an insurer that holds a | certificate of
authority
issued by the Director but, for the |
| purposes of this Section, does not
include a
domestic surplus | line insurer as defined in Section 445a or any
residual market
| mechanism. | "Exempt commercial purchaser" means any person purchasing | commercial insurance that, at the time of placement, meets the | following requirements: | (A) The person employs or retains a qualified risk | manager to negotiate insurance coverage. | (B) The person has paid aggregate nationwide | commercial property and casualty insurance premiums in | excess of $100,000 in the immediately preceding 12 months. | (C) The person meets at least one of the following | criteria: | (I) The person possesses a net worth in excess of | $20,000,000, as such amount is adjusted pursuant to | the provision in this definition concerning percentage | change. | (II) The person generates annual revenues in | excess of $50,000,000, as such amount is adjusted | pursuant to the provision in this definition | concerning percentage change. | (III) The person employs more than 500 full-time | or full-time equivalent employees per individual | insured or is a member of an affiliated group | employing more than 1,000 employees in the aggregate. | (IV) The person is a not-for-profit organization |
| or public entity generating annual budgeted | expenditures of at least $30,000,000, as such amount | is adjusted pursuant to the provision in this | definition concerning percentage change. | (V) The person is a municipality with a population | in excess of 50,000 persons. | Effective on January 1, 2015 and each fifth January 1 | occurring thereafter, the amounts in subitems (I), (II), and | (IV) of item (C) of this definition shall be adjusted to | reflect the percentage change for such 5-year period in the | Consumer Price Index for All Urban Consumers published by the | Bureau of Labor Statistics of the Department of Labor. | "Home state" means the following: | (A) With respect to an insured, except as provided in | item (B) of this definition: | (I) the state in which an insured maintains its | principal place of business or, in the case of an | individual, the individual's principal residence; or | (II) if 100% of the insured risk is located out of | the state referred to in subitem (I), the state to | which the greatest percentage of the insured's taxable | premium for that insurance contract is allocated. | (B) If more than one insured from an affiliated group | are named insureds on a single surplus line insurance | contract, then "home state" means the home state, as | determined pursuant to item (A) of this definition, of the |
| member of the affiliated group that has the largest | percentage of premium attributed to it under such | insurance contract. | If more than one insured from a group that is not | affiliated are named insureds on a single surplus line | insurance contract, then: | (I) if individual group members pay 100% of the | premium for the insurance from their own funds, "home | state" means the home state, as determined pursuant to | item (A) of this definition, of each individual group | member; each individual group member's coverage under | the surplus line insurance contract shall be treated | as a separate surplus line contract for the purposes | of this Section; | (II) otherwise, "home state" means the home state, | as determined pursuant to item (A) of this definition, | of the group. | Nothing in this definition shall be construed to alter the | terms of the surplus line insurance contract. | "Master policy" means a surplus line insurance contract | with a single set of general contractual terms that are | designed to apply on a group basis to multiple insureds who may | or may not be affiliated and who may be added to or removed | from the contract throughout the course of the contract | period. A master policy may include certain provisions that | vary for each insured depending on the insured's |
| characteristics and the coverage sought. | "Multi-State risk" means a risk with insured exposures in | more than one State. | "NAIC" means the National Association of Insurance | Commissioners or any successor entity. | "Personal lines insurance" means insurance as defined in | subsection (a), (b), or (c) of Section 143.13 of this Code. | "Premium" means any amount designated as premium on the | declarations page or elsewhere in a policy and on any | endorsement, but does not include taxes, the Surplus Line | Association of Illinois recording fee, or any other fee. | "Program business" means a clearly defined group of | insurance contracts procured by a licensed surplus line | producer from an unauthorized insurer, under a single | agreement between the producer and insurer, for insureds with | the same or similar characteristics and containing the same or | similar contract terms. | "Qualified risk manager" means, with respect to a | policyholder of commercial insurance, a person who meets all | of the following requirements: | (A) The person is an employee of, or third-party | consultant retained by, the commercial policyholder. | (B) The person provides skilled services in loss | prevention, loss reduction, or risk and insurance coverage | analysis, and purchase of insurance. | (C) With regard to the person: |
| (I) the person has: | (a) a bachelor's degree or higher from an | accredited college or university in risk | management, business administration, finance, | economics, or any other field determined by the | Director or his designee to demonstrate minimum | competence in risk management; and | (b) the following: | (i) three years of experience in risk | financing, claims administration, loss | prevention, risk and insurance analysis, or | purchasing commercial lines of insurance; or | (ii) alternatively has: | (AA) a designation as a Chartered | Property and Casualty Underwriter (in this | subparagraph (ii) referred to as "CPCU") | issued by the American Institute for | CPCU/Insurance Institute of America; | (BB) a designation as an Associate in | Risk Management (ARM) issued by the | American Institute for CPCU/Insurance | Institute of America; | (CC) a designation as Certified Risk | Manager (CRM) issued by the National | Alliance for Insurance Education & | Research; |
| (DD) a designation as a RIMS Fellow | (RF) issued by the Global Risk Management | Institute; or | (EE) any other designation, | certification, or license determined by | the Director or his designee to | demonstrate minimum competency in risk | management; | (II) the person has: | (a) at least 7 years of experience in risk | financing, claims administration, loss prevention, | risk and insurance coverage analysis, or | purchasing commercial lines of insurance; and | (b) has any one of the designations specified | in subparagraph (ii) of paragraph (b); | (III) the person has at least 10 years of | experience in risk financing, claims administration, | loss prevention, risk and insurance coverage analysis, | or purchasing commercial lines of insurance; or | (IV) the person has a graduate degree from an | accredited college or university in risk management, | business administration, finance, economics, or any | other field determined by the Director or his or her | designee to demonstrate minimum competence in risk | management. | "Residual market mechanism" means an association, |
| organization, or other
entity described in Article XXXIII of | this Code or Section 7-501 of the
Illinois Vehicle Code or any | similar association, organization, or other
entity. | "State" means any state of the United States, the District | of Columbia, the Commonwealth of Puerto Rico, Guam, the | Northern Mariana Islands, the Virgin Islands, and American | Samoa. | "Surplus line insurance" means insurance on a risk: | (A) of the kinds specified in Classes 2 and 3 of | Section 4 of this Code; and | (B) that is procured from an unauthorized insurer | after the insurance producer representing the insured or | the surplus line producer is unable, after diligent | effort, to procure the insurance from authorized insurers; | and | (C) where Illinois is the home state of the insured, | for policies effective, renewed or extended on July 21, | 2011 or later and for multiyear policies upon the policy | anniversary that falls on or after July 21, 2011; and | (D) that is located in Illinois, for policies | effective prior to July 21, 2011. | "Taxable premium" means a premium for any risk that is | located in or attributed to any state. | "Unauthorized insurer" means an insurer that does not hold | a valid
certificate of authority issued by the Director but, | for the purposes of this
Section, shall also include a |
| domestic surplus line insurer as defined in
Section 445a.
| (1.5) Procuring surplus line insurance; surplus line | insurer requirements. | (a) License required. Insurance producers may procure | surplus line insurance only if licensed
as a surplus line | producer under this Section. | (b) Domestic and foreign insurer eligibility. Licensed | surplus line producers may procure surplus line
insurance | from an unauthorized insurer domiciled in any state the | United States only if the insurer:
| (i) is permitted in its domiciliary jurisdiction | to write the type of insurance involved; and |
(ii) has, based upon information available to the | surplus
line producer,
a policyholders surplus of not | less than $15,000,000
determined in
accordance with | the laws of its domiciliary jurisdiction;
and
|
(iii) has standards of solvency and management | that are adequate
for the protection of policyholders.
|
Where an unauthorized insurer does not meet the
| standards set forth
in (ii) and (iii) above, a surplus | line producer may, if necessary, procure
insurance from | that insurer only if prior written warning of
such fact or
| condition is given to the insured by the insurance | producer or surplus line
producer.
| (c) Alien insurer eligibility. Licensed surplus line | producers may procure surplus line insurance from an |
| unauthorized insurer not domiciled in any state outside of | the United States only if the insurer meets the standards | for unauthorized insurers domiciled in any state the | United States in paragraph (b) of this subsection (1.5) or | is listed on the Quarterly Listing of Alien Insurers | maintained by the International Insurers Department of the | NAIC at the time of procurement . The Director shall make | the Quarterly Listing of Alien Insurers available to | surplus line producers without charge. | (d) Prohibited transactions. Insurance producers shall | not procure from an
unauthorized insurer an insurance | policy: | (i) that is designed to satisfy the
proof of | financial responsibility and insurance requirements in | any
Illinois law where the law requires that the proof | of
insurance is issued by an authorized insurer or | residual market
mechanism; | (ii) that covers the risk of accidental injury to | employees arising
out of and in the course of | employment according to the provisions of the
Workers' | Compensation Act; or | (iii) that insures any Illinois personal lines | risk , as defined in
subsection (a), (b), or (c) of | Section 143.13 of this Code, that is eligible
for | residual market mechanism coverage, unless the insured | or prospective
insured requests limits of liability |
| greater than the limits provided by the
residual | market mechanism. In the course of making a diligent | effort to
procure insurance from authorized insurers, | an insurance producer shall not be
required to submit | a risk to a residual market mechanism when the risk is | not
eligible for coverage or exceeds the limits | available in the residual market
mechanism. | Where there is an insurance policy issued by an
| authorized insurer or residual market mechanism
insuring a | risk described in item (i), (ii), or (iii)
above, nothing | in this paragraph shall be construed
to prohibit a surplus | line producer from procuring
from an unauthorized insurer | a policy insuring the
risk on an excess or umbrella basis | where the excess
or umbrella policy is written over one or | more
underlying policies.
| (e) Exempt commercial purchaser diligent effort. | Licensed surplus line producers may procure surplus line | insurance from an unauthorized insurer for an exempt | commercial purchaser without making the required diligent | effort to procure the insurance from authorized insurers | if: | (i) the producer has disclosed to the exempt | commercial purchaser that such insurance may or may | not be available from authorized insurers that may | provide greater protection with more regulatory | oversight; and |
| (ii) the exempt commercial purchaser has | subsequently in writing requested the producer to | procure such insurance from an unauthorized insurer. | (f) Commercial wholesale transaction diligent effort. | A licensed surplus line producer may procure a surplus | line insurance contract, other than a personal lines | insurance contract, from an unauthorized insurer without | making the required diligent effort to procure the | insurance from authorized insurers if the risk was | referred to the surplus line producer by an | Illinois-licensed insurance producer who is not affiliated | with the surplus line producer. | (g) Master policy diligent effort. For a master policy | insurance contract, a licensed surplus line producer may | make the required diligent effort to procure the insurance | from authorized insurers annually for the master policy | rather than individually for each insured that is added | during the policy period. The diligent effort shall | include all variable provisions of the master policy. | (h) Program business diligent effort. For program | business, a licensed surplus line producer may make the | required diligent effort to procure the insurance from | authorized insurers annually for the program rather than | individually for each contract. The diligent effort shall | include all variable provisions of the master policy. | (2) Surplus line producer; license. Any licensed producer |
| who is a
resident of this State, or any nonresident who | qualifies under Section
500-40, may be licensed as a surplus | line producer upon payment of an annual license fee of $400.
| A surplus line producer so licensed shall keep a separate
| account of
the business transacted thereunder for 7 years from | the policy effective date which shall be open at all times to | the
inspection of the Director or his representative.
| No later than July 21, 2012, the State of Illinois shall | participate in the national insurance producer database of the | NAIC, or any other equivalent uniform national database, for | the licensure of surplus line producers and the renewal of | such licenses.
| (3) Taxes and reports.
| (a) Surplus line tax and penalty for late payment. The | surplus line tax rate for a surplus line insurance policy | or contract is determined as follows: | (i) 3% for policies or contracts with an effective | date prior to July 1, 2003; | (ii) 3.5% for policies or contracts with an | effective date of July 1, 2003 or later. | A surplus line producer shall file with the Director | on or
before
February 1 and August 1 of each year a report | in the form prescribed by the
Director on all surplus line | insurance procured from unauthorized insurers and | submitted to the Surplus Line Association of Illinois
| during the preceding
6 month period ending December 31 or |
| June 30
respectively, and on the filing of such report | shall pay to the Director
for the use and benefit of the | State a sum equal to the surplus line tax rate multiplied | by the
gross taxable
premiums less returned taxable | premiums upon all surplus line insurance submitted to the | Surplus Line Association of Illinois during the preceding | 6 months.
| Any surplus line producer who fails to pay the full | amount due under this
subsection is liable, in addition to | the amount due, for such late fee,
penalty, and interest | charges as are provided for under Section 412 of
this | Code. The Director, through the
Attorney General, may
| institute an action in the name of the People of the State | of Illinois, in
any court of competent jurisdiction, for | the recovery of the amount of such
taxes, late fees, | interest, and penalties due, and prosecute the same to | final judgment, and take
such steps as are necessary to | collect the same.
| (b) Fire Marshal Tax.
Each surplus line producer shall | file with the Director on or before February 1
March 31 of | each year a report in the form prescribed by the Director | on all
fire insurance procured from unauthorized insurers | and submitted to the Surplus Line Association of Illinois | during the previous year that is subject to tax under
| Section 12 of the Fire Investigation
Act
and shall pay to | the Director the fire marshal tax required thereunder.
|
| (c) Taxes and fees charged to insured. The taxes | imposed under this
subsection and the recording | countersigning fees charged by the Surplus Line
| Association of Illinois may be charged to and collected | from surplus line
insureds.
| (4) (Blank).
| (5) Submission of documents to Surplus Line Association of | Illinois.
A surplus line producer shall submit every insurance | contract and premium-bearing endorsement
issued
under his or | her license to the Surplus Line Association of Illinois for
| recording and countersignature . The submission and recording | countersignature may be
effected through electronic means. The | submission shall set
forth:
| (a) the name of the insured;
| (b) the description and location of the insured | property or
risk;
| (c) (blank); the amount insured;
| (d) the gross premiums charged or returned;
| (e) the name of the unauthorized insurer from whom | coverage has been procured;
| (f) the kind or kinds of insurance procured; and
| (g) amount of premium subject to tax required by | Section 12 of the Fire
Investigation Act.
| Proposals, endorsements, and other documents which are
| incidental to the insurance but which do not affect the | premium
charged
are exempted from the submission and recording |
| requirements filing and countersignature .
| The submission of insuring contracts
to the Surplus Line | Association of
Illinois constitutes a certification by the | surplus line producer or by the insurance producer who | presented the risk to the surplus line producer for
placement | as a surplus line risk that
after diligent effort , where | required, the required insurance could not be procured from
| authorized insurers and that
such procurement was otherwise in | accordance with the surplus line law.
| (6) Evidence of recording Countersignature required. It | shall be unlawful for an insurance
producer to deliver any | unauthorized insurer
contract or premium-bearing endorsement | unless it contains evidence of recording such
insurance | contract is countersigned by the Surplus Line Association of
| Illinois.
| (7) Inspection of records. A surplus line producer shall
| maintain
separate records of the business transacted under his | or her license for 7 years from the policy effective date,
| including complete copies of surplus line insurance contracts | maintained on
paper or by electronic means, which
records | shall be open at all times for inspection by the Director and | by
the Surplus Line Association of Illinois.
| (8) Violations and penalties. The Director may suspend or | revoke or
refuse to renew a surplus line producer license for | any violation of this Code.
In addition to or in lieu of | suspension or revocation, the Director may
subject a surplus |
| line producer
to a civil penalty of up to $2,000 for each cause | for suspension
or
revocation. Such penalty is enforceable | under subsection (5) of Section
403A of this Code.
| Whenever it appears to the satisfaction of the Director | that a surplus line producer has made a documented good faith | determination of the home state for a surplus line insurance | contract and has paid the surplus line taxes to a state other | than Illinois, and the Director determines that the producer's | good faith determination was incorrect and the home state is | Illinois, the surplus line producer may, at the discretion of | the Director, be required to submit the contract to the | Surplus Line Association of Illinois and pay applicable taxes | and recording fees, but there shall be no penalty, interest, | or late fee assessed. | (9) Director may declare insurer ineligible. If the
| Director determines
that the further assumption of risks might | be hazardous to the
policyholders of an unauthorized insurer, | the Director may
order the
Surplus Line Association of
| Illinois not to accept and record countersign insurance | contracts evidencing insurance in
such insurer and order | surplus line producers to cease
procuring insurance
from such | insurer.
| (10) Service of process upon Director. Insurance contracts
| delivered under this Section from unauthorized insurers, other | than domestic
surplus line insurers as defined in Section | 445a,
shall contain a
provision designating the
Director and |
| his successors in office the true and lawful attorney of the
| insurer upon whom may be served all lawful process in any
| action, suit or
proceeding arising out of such insurance.
| Service of process made upon the Director to be valid | hereunder must state
the name of the insured, the name of the | unauthorized insurer
and identify
the contract of insurance. | The Director at his option is authorized to
forward a copy of | the process to the Surplus Line Association of Illinois
for | delivery to the unauthorized insurer or the Director may | deliver the process to the
unauthorized insurer by other means | which he considers to be
reasonably
prompt and certain.
| (10.5) Required notice to policyholder. Insurance | contracts delivered under this Section from unauthorized | insurers, other than domestic surplus line insurers as defined | in Section 445a, shall have stamped or imprinted on the first | page thereof in not less than 12-pt. bold face type the | following legend: "Notice to Policyholder: This contract is | issued, pursuant to Section 445 of the Illinois Insurance | Code, by a company not authorized and licensed to transact | business in Illinois and as such is not covered by the Illinois | Insurance Guaranty Fund." Insurance contracts delivered under | this Section from domestic surplus line insurers as defined in | Section 445a shall have stamped or imprinted on the first page | thereof in not less than 12-pt. bold face type the following | legend: "Notice to Policyholder: This contract is issued by a | domestic surplus line insurer, as defined in Section 445a of |
| the Illinois Insurance Code, pursuant to Section 445, and as | such is not covered by the Illinois Insurance Guaranty Fund."
| (11) Marine, aviation, and transportation. The Illinois | Surplus Line law does not apply to insurance of
property and | operations of railroads or aircraft engaged in interstate or
| foreign commerce, insurance of vessels, crafts or hulls, | cargoes, marine
builder's risks, marine protection and | indemnity, or other risks including
strikes and war risks | insured under ocean or wet marine forms of policies.
| (12) Applicability of Illinois Insurance Code. Surplus | line insurance procured under this Section, including
| insurance procured from a domestic surplus line insurer, is | not subject
to the provisions of the Illinois Insurance Code | other than Sections 123,
123.1, 401, 401.1, 402, 403, 403A, | 408, 412, 445, 445a, 445.1, 445.2, 445.3,
445.4, and all of the | provisions of Article XXXI to the extent that the
provisions | of Article XXXI are not inconsistent with the terms of this | Act.
| (Source: P.A. 97-955, eff. 8-14-12; 98-978, eff. 1-1-15 .)
| (215 ILCS 5/445.1) (from Ch. 73, par. 1057.1)
| Sec. 445.1. Surplus Line Association of Illinois. There is | hereby created a
non-profit association to be known as the | Surplus Line Association of
Illinois. All surplus line | producers shall be and must remain individual
members of the | Association as a condition of their holding a license as a
|
| surplus line producer in this State. The Association must | perform its
functions under the plan of operation established | and approved under
Section 445.3 and must exercise its powers | through a board of directors
established under Section 445.2 | of this Code. The Association shall be
supervised by the | Director and is subject to the applicable provisions of
the | Illinois Insurance Code. The Association shall be authorized | and have the
duty to:
| (1) receive and , record and countersign all surplus | line insurance
contracts that which surplus line producers | are required to file with the
Association under subsection | (5) of Section 445;
| (2) prepare monthly reports for the Director on | surplus line insurance
procured by its members during the | preceding month in such form and
providing such | information as the Director may prescribe;
| (3) prepare and deliver to the Director and, at the | discretion of the Director, to each licensee the reports
| of surplus line business prescribed in subsection (3) of | Section 445;
| (4) assess its members for costs of operations in | accordance with a
schedule adopted by the Board of | Directors of the Association and
approved by the Director;
| (5) employ and retain such persons as are necessary to | carry out the
duties of the Association;
| (6) borrow money as necessary to effect the purposes |
| of the Association;
| (7) enter contracts as necessary to effect the | purposes of the Association;
| (8) perform such other acts as will facilitate and | encourage compliance
by its members with the surplus line | law of this State and rules
promulgated thereunder; and
| (9) provide such other services to its members as are | incidental or
related to the purposes of the Association. | Nothing in this Act shall be
construed as giving the | Association any discretionary authority to enforce
this Act or | to withhold or decline acceptance and recording | countersignature of insurance contracts that which meet
the | requirements of subsection (5) of Section 445.
| (Source: P.A. 98-978, eff. 1-1-15 .)
| Section 99. Effective date. This Act takes effect January | 1, 2022.
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Effective Date: 1/1/2022
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