97TH GENERAL ASSEMBLY
State of Illinois
2011 and 2012
SB1244

 

Introduced 2/8/2011, by Sen. William R. Haine

 

SYNOPSIS AS INTRODUCED:
 
215 ILCS 5/445  from Ch. 73, par. 1057
215 ILCS 5/445.1  from Ch. 73, par. 1057.1

    Amends the Illinois Insurance Code. Deletes certain provisions concerning licensure requirements for surplus line producers. Makes changes to the provision concerning surplus line taxes and penalties for late payment. Sets forth provisions concerning multi-state agreements. Deletes provisions concerning surety bonds and application of the Illinois Surplus Line law. Makes changes to a provision concerning the Surplus Line Association of Illinois. Effective immediately.


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FISCAL NOTE ACT MAY APPLY

 

 

A BILL FOR

 

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1    AN ACT concerning insurance.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Illinois Insurance Code is amended by
5changing Sections 445 and 445.1 as follows:
 
6    (215 ILCS 5/445)  (from Ch. 73, par. 1057)
7    Sec. 445. Surplus line.
8    (1) Surplus line defined; surplus line insurer
9requirements. "Surplus line insurance" means insurance on an
10Illinois risk of the kinds specified in Classes 2 and 3 of
11Section 4 of this Code procured from an unauthorized insurer
12after the insurance producer representing the insured or the
13surplus line producer is unable, after diligent effort, to
14procure said insurance from authorized insurers.
15    "Authorized insurer" means an insurer that holds a
16certificate of authority issued by the Director but, for the
17purposes of this Section, does not include a domestic surplus
18line insurer as defined in Section 445a or any residual market
19mechanism.
20    "Residual market mechanism" means an association,
21organization, or other entity described in Article XXXIII of
22this Code or Section 7-501 of the Illinois Vehicle Code or any
23similar association, organization, or other entity.

 

 

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1    "Unauthorized insurer" means an insurer that does not hold
2a valid certificate of authority issued by the Director but,
3for the purposes of this Section, shall also include a domestic
4surplus line insurer as defined in Section 445a.
5    Insurance producers may procure surplus line insurance
6only if licensed as a surplus line producer under this Section
7and may procure that insurance only from an unauthorized
8insurer:
9        (a) that based upon information available to the
10    surplus line producer has a policyholders surplus of not
11    less than $15,000,000 determined in accordance with
12    accounting rules that are applicable to authorized
13    insurers; and
14        (b) that has standards of solvency and management that
15    are adequate for the protection of policyholders; and
16        (c) where an unauthorized insurer does not meet the
17    standards set forth in (a) and (b) above, a surplus line
18    producer may, if necessary, procure insurance from that
19    insurer only if prior written warning of such fact or
20    condition is given to the insured by the insurance producer
21    or surplus line producer.
22    Insurance producers shall not procure from an unauthorized
23insurer an insurance policy:
24        (i) that is designed to satisfy the proof of financial
25    responsibility and insurance requirements in any Illinois
26    law where the law requires that the proof of insurance is

 

 

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1    issued by an authorized insurer or residual market
2    mechanism;
3        (ii) that covers the risk of accidental injury to
4    employees arising out of and in the course of employment
5    according to the provisions of the Workers' Compensation
6    Act; or
7        (iii) that insures any Illinois personal lines risk, as
8    defined in subsection (a), (b), or (c) of Section 143.13 of
9    this Code, that is eligible for residual market mechanism
10    coverage, unless the insured or prospective insured
11    requests limits of liability greater than the limits
12    provided by the residual market mechanism. In the course of
13    making a diligent effort to procure insurance from
14    authorized insurers, an insurance producer shall not be
15    required to submit a risk to a residual market mechanism
16    when the risk is not eligible for coverage or exceeds the
17    limits available in the residual market mechanism.
18    Where there is an insurance policy issued by an authorized
19insurer or residual market mechanism insuring a risk described
20in item (i), (ii), or (iii) above, nothing in this paragraph
21shall be construed to prohibit a surplus line producer from
22procuring from an unauthorized insurer a policy insuring the
23risk on an excess or umbrella basis where the excess or
24umbrella policy is written over one or more underlying
25policies.
26    (2) Surplus line producer; license. Any licensed producer

 

 

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1who is a resident of this State, or any nonresident who
2qualifies under Section 500-40, may be licensed as a surplus
3line producer upon: (a) completing a prelicensing course of
4study. The course provided for by this Section shall be
5conducted under rules and regulations prescribed by the
6Director. The Director may administer the course or may make
7arrangements, including contracting with an outside
8educational service, for administering the course and
9collecting the non-refundable application fee provided for in
10this subsection. Any charges assessed by the Director or the
11educational service for administering the course shall be paid
12directly by the individual applicants. Each applicant required
13to take the course shall enclose with the application a
14non-refundable $20 application fee payable to the Director plus
15a separate course administration fee. An applicant who fails to
16appear for the course as scheduled, or appears but fails to
17complete the course, shall not be entitled to any refund, and
18shall be required to submit a new request to attend the course
19together with all the requisite fees before being rescheduled
20for another course at a later date; and (b) payment of an
21annual license fee of $400; and (c) procurement of the surety
22bond required in subsection (4) of this Section.
23    A surplus line producer so licensed shall keep a separate
24account of the business transacted thereunder which shall be
25open at all times to the inspection of the Director or his
26representative.

 

 

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1    The prelicensing course of study requirement in (a) above
2shall not apply to insurance producers who were licensed under
3the Illinois surplus line law on or before January 1, 2002.
4    (3) Taxes and reports.
5        (a) Surplus line tax and penalty for late payment.
6        A surplus line producer shall file with the Director or
7    the Director's clearinghouse designee on or before
8    February 15 for the quarter ending the preceding December
9    31, May 15 for the quarter ending the preceding March 31, 1
10    and August 15 for the quarter ending the preceding June 30,
11    and November 15 for the quarter ending the preceding
12    September 30 1 of each year a report in the form prescribed
13    by the Director on all surplus line insurance procured from
14    unauthorized insurers during the preceding quarter 6 month
15    period ending December 31 or June 30 respectively, and on
16    the filing of such report shall pay to the Director or the
17    Director's clearinghouse designee for the use and benefit
18    of the State a sum equal to 3.5% of the gross premiums less
19    returned premiums upon all surplus line insurance procured
20    or cancelled during the preceding quarter 6 months.
21        Any surplus line producer who fails to pay the full
22    amount due under this subsection is liable, in addition to
23    the amount due, for such penalty and interest charges as
24    are provided for under Section 412 of this Code. The
25    Director, through the Attorney General, may institute an
26    action in the name of the People of the State of Illinois,

 

 

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1    in any court of competent jurisdiction, for the recovery of
2    the amount of such taxes and penalties due, and prosecute
3    the same to final judgment, and take such steps as are
4    necessary to collect the same.
5        (b) Fire Marshal Tax.
6        Each surplus line producer shall file with the Director
7    on or before March 31 of each year a report in the form
8    prescribed by the Director on all fire insurance procured
9    from unauthorized insurers subject to tax under Section 12
10    of the Fire Investigation Act and shall pay to the Director
11    the fire marshal tax required thereunder.
12        (c) Taxes and fees charged to insured. The taxes
13    imposed under this subsection and the countersigning fees
14    charged by the Surplus Line Association of Illinois may be
15    charged to and collected from surplus line insureds.
16        (d) Multi-state agreements. Each surplus line producer
17    shall comply with the provisions of any cooperative
18    agreement or compact that the Director is hereby authorized
19    to enter into with other states for provision of a
20    clearinghouse, nationwide uniform requirements, forms, and
21    procedures that facilitate the reporting, payment,
22    collection, and allocation of taxes imposed by this State
23    and the other states on premiums for surplus line
24    insurance. The Director may contract with a
25    non-governmental entity, including the National
26    Association of Insurance commissioners (NAIC), or any of

 

 

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1    its affiliates or subsidiaries that the NAIC oversees, to
2    perform any ministerial functions that the Director deems
3    appropriate relating to the reporting, payment,
4    collection, and allocation of such taxes.
5    (4) (Blank). Bond. Each surplus line producer, as a
6condition to receiving a surplus line producer's license, shall
7execute and deliver to the Director a surety bond to the People
8of the State in the penal sum of $20,000, with a surety which
9is authorized to transact business in this State, conditioned
10that the surplus line producer will pay to the Director the
11tax, interest and penalties levied under subsection (3) of this
12Section.
13    (5) Submission of documents to Surplus Line Association of
14Illinois. A surplus line producer shall submit every insurance
15contract issued under his or her license to the Surplus Line
16Association of Illinois for recording and countersignature.
17The submission and countersignature may be effected through
18electronic means. The submission shall set forth:
19        (a) the name of the insured;
20        (b) the description and location of the insured
21    property or risk;
22        (c) the amount insured;
23        (d) the gross premiums charged or returned;
24        (e) the name of the unauthorized insurer from whom
25    coverage has been procured;
26        (f) the kind or kinds of insurance procured; and

 

 

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1        (g) amount of premium subject to tax required by
2    Section 12 of the Fire Investigation Act.
3    Proposals, endorsements, and other documents which are
4incidental to the insurance but which do not affect the premium
5charged are exempted from filing and countersignature.
6    The submission of insuring contracts to the Surplus Line
7Association of Illinois constitutes a certification by the
8surplus line producer or by the insurance producer who
9presented the risk to the surplus line producer for placement
10as a surplus line risk that after diligent effort the required
11insurance could not be procured from authorized insurers and
12that such procurement was otherwise in accordance with the
13surplus line law.
14    (6) Countersignature required. It shall be unlawful for an
15insurance producer to deliver any unauthorized insurer
16contract unless such insurance contract is countersigned by the
17Surplus Line Association of Illinois.
18    (7) Inspection of records. A surplus line producer shall
19maintain separate records of the business transacted under his
20or her license, including complete copies of surplus line
21insurance contracts maintained on paper or by electronic means,
22which records shall be open at all times for inspection by the
23Director and by the Surplus Line Association of Illinois.
24    (8) Violations and penalties. The Director may suspend or
25revoke or refuse to renew a surplus line producer license for
26any violation of this Code. In addition to or in lieu of

 

 

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1suspension or revocation, the Director may subject a surplus
2line producer to a civil penalty of up to $2,000 for each cause
3for suspension or revocation. Such penalty is enforceable under
4subsection (5) of Section 403A of this Code.
5    (9) Director may declare insurer ineligible. If the
6Director determines that the further assumption of risks might
7be hazardous to the policyholders of an unauthorized insurer,
8the Director may order the Surplus Line Association of Illinois
9not to countersign insurance contracts evidencing insurance in
10such insurer and order surplus line producers to cease
11procuring insurance from such insurer.
12    (10) Service of process upon Director. Insurance contracts
13delivered under this Section from unauthorized insurers, other
14than domestic surplus line insurers as defined in Section 445a,
15shall contain a provision designating the Director and his
16successors in office the true and lawful attorney of the
17insurer upon whom may be served all lawful process in any
18action, suit or proceeding arising out of such insurance.
19Service of process made upon the Director to be valid hereunder
20must state the name of the insured, the name of the
21unauthorized insurer and identify the contract of insurance.
22The Director at his option is authorized to forward a copy of
23the process to the Surplus Line Association of Illinois for
24delivery to the unauthorized insurer or the Director may
25deliver the process to the unauthorized insurer by other means
26which he considers to be reasonably prompt and certain.

 

 

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1    (10.5) Insurance contracts delivered under this Section
2from unauthorized insurers, other than domestic surplus line
3insurers as defined in Section 445a, shall have stamped or
4imprinted on the first page thereof in not less than 12-pt.
5bold face type the following legend: "Notice to Policyholder:
6This contract is issued, pursuant to Section 445 of the
7Illinois Insurance Code, by a company not authorized and
8licensed to transact business in Illinois and as such is not
9covered by the Illinois Insurance Guaranty Fund." Insurance
10contracts delivered under this Section from domestic surplus
11line insurers as defined in Section 445a shall have stamped or
12imprinted on the first page thereof in not less than 12-pt.
13bold face type the following legend: "Notice to Policyholder:
14This contract is issued by a domestic surplus line insurer, as
15defined in Section 445a of the Illinois Insurance Code,
16pursuant to Section 445, and as such is not covered by the
17Illinois Insurance Guaranty Fund."
18    (11) (Blank). The Illinois Surplus Line law does not apply
19to insurance of property and operations of railroads or
20aircraft engaged in interstate or foreign commerce, insurance
21of vessels, crafts or hulls, cargoes, marine builder's risks,
22marine protection and indemnity, or other risks including
23strikes and war risks insured under ocean or wet marine forms
24of policies.
25    (12) Surplus line insurance procured under this Section,
26including insurance procured from a domestic surplus line

 

 

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1insurer, is not subject to the provisions of the Illinois
2Insurance Code other than Sections 123, 123.1, 401, 401.1, 402,
3403, 403A, 408, 412, 445, 445.1, 445.2, 445.3, 445.4, and all
4of the provisions of Article XXXI to the extent that the
5provisions of Article XXXI are not inconsistent with the terms
6of this Act.
7(Source: P.A. 92-386, eff. 1-1-02; 93-29, eff. 6-20-03; 93-32,
8eff. 7-1-03; 93-876, eff. 8-6-04.)
 
9    (215 ILCS 5/445.1)  (from Ch. 73, par. 1057.1)
10    Sec. 445.1. Surplus Line Association of Illinois. There is
11hereby created a non-profit association to be known as the
12Surplus Line Association of Illinois. All surplus line
13producers shall be and must remain individual members of the
14Association as a condition of their holding a license as a
15surplus line producer in this State. The Association must
16perform its functions under the plan of operation established
17and approved under Section 445.3 and must exercise its powers
18through a board of directors established under Section 445.2 of
19this Code. The Association shall be supervised by the Director
20and is subject to the applicable provisions of the Illinois
21Insurance Code. The Association shall be authorized and have
22the duty to:
23    (1) receive, record and countersign all surplus line
24insurance contracts which surplus line producers are required
25to file with the Association under subsection (5) of Section

 

 

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1445;
2    (2) prepare quarterly monthly reports for the Director on
3surplus line insurance procured by its members during the
4preceding quarter month in such form and providing such
5information as the Director may prescribe;
6    (3) prepare and deliver to each licensee and to the
7Director the reports of surplus line business prescribed in
8subsection (3) of Section 445;
9    (4) assess its members for costs of operations in
10accordance with a schedule adopted by the Board of Directors of
11the Association and approved by the Director;
12    (5) employ and retain such persons as are necessary to
13carry out the duties of the Association;
14    (6) borrow money as necessary to effect the purposes of the
15Association;
16    (7) enter contracts as necessary to effect the purposes of
17the Association;
18    (8) perform such other acts as will facilitate and
19encourage compliance by its members with the surplus line law
20of this State and rules promulgated thereunder; and
21    (9) provide such other services to its members as are
22incidental or related to the purposes of the Association.
23Nothing in this Act shall be construed as giving the
24Association any discretionary authority to enforce this Act or
25to withhold countersignature of insurance contracts which meet
26the requirements of subsection (5) of Section 445.

 

 

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1(Source: P.A. 83-1300.)
 
2    Section 99. Effective date. This Act takes effect July 1,
32012.