93RD GENERAL ASSEMBLY
State of Illinois
2003 and 2004
HB5928

 

Introduced 2/6/2004, by Frank J. Mautino

 

SYNOPSIS AS INTRODUCED:
 
215 ILCS 5/205.1 new

    Amends the Illinois Insurance Code Article concerning Rehabilitation, Liquidation, Conservation, and Dissolution of Companies. Creates a new Section pertaining to policyholder collateral, deductible reimbursements, and other policyholder obligations. Adds provisions concerning: any collateral held by, for the benefit of, or assigned to the insurer or the Director of Insurance as rehabilitator, liquidator, or conservator to secure obligations under a deductible agreement with a policyholder; non-covered claims; amounts that become assets of an estate; an insurer that has contractually agreed to allow the policyholder to fund its own claims within the deductible amount pursuant to a deductible agreement; and an insurer that has not contractually agreed to allow the policyholder to fund its own claims within the deductible amount pursuant to a deductible agreement. Defines the Director's duties and powers as rehabilitator, liquidator, or conservator. Provides that the Illinois Circuit Court having jurisdiction over the liquidation proceedings shall have jurisdiction to resolve disputes. Applies to delinquency proceedings pending on the effective date of this amendatory Act. Makes other changes.


LRB093 20938 SAS 46916 b

FISCAL NOTE ACT MAY APPLY

 

 

A BILL FOR

 

HB5928 LRB093 20938 SAS 46916 b

1     AN ACT concerning insurance.
 
2     Be it enacted by the People of the State of Illinois,
3 represented in the General Assembly:
 
4     Section 5. The Illinois Insurance Code is amended by adding
5 Section 205.1 as follows:
 
6     (215 ILCS 5/205.1 new)
7     Sec. 205.1. Policyholder collateral, deductible
8 reimbursements, and other policyholder obligations.
9     (a) Any collateral held by, for the benefit of, or assigned
10 to the insurer or the Director as rehabilitator, liquidator, or
11 conservator to secure the obligations of a policyholder under a
12 deductible agreement shall not be considered an asset of the
13 estate and shall be maintained and administered by the Director
14 as rehabilitator, liquidator, or conservator as provided in
15 this Section and notwithstanding any other provision of law or
16 contract to the contrary.
17     (b) If the collateral is being held by, for the benefit of,
18 or assigned to the insurer or subsequently the Director as
19 rehabilitator, liquidator, or conservator to secure
20 obligations under a deductible agreement with a policyholder,
21 subject to the provisions of this Section, the collateral shall
22 be used to secure the policyholder's obligation to fund or
23 reimburse claims payment within the agreed deductible amount.
24     (c) If a claim that is subject to a deductible agreement
25 and secured by collateral is not covered by any guaranty
26 association or the Illinois Insurance Guaranty Fund and the
27 policyholder is unwilling or unable to take over the handling
28 and payment of the non-covered claims, the Director as
29 rehabilitator, liquidator, or conservator shall adjust and pay
30 the non-covered claims utilizing the collateral but only to the
31 extent the available collateral after allocation under
32 subsection (d), is sufficient to pay all outstanding and

 

 

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1 anticipated claims. If the collateral is exhausted and the
2 insured is not able to provide funds to pay the remaining
3 claims within the deductible after all reasonable means of
4 collection against the insured have been exhausted, the
5 Director's obligation to pay such claims from the collateral as
6 the rehabilitator, liquidator, or conservator terminates, and
7 the remaining claims shall be claims against the insurer's
8 estate subject to complying with other provisions in this
9 Article for the filing and allowance of such claims. When the
10 liquidator determines that the collateral is insufficient to
11 pay all additional and anticipated claims, the liquidator may
12 file a plan for equitably allocating the collateral among
13 claimants, subject to court approval.
14     (d) To the extent that the Director as rehabilitator,
15 liquidator, or conservator is holding collateral provided by a
16 policyholder that was obtained to secure a deductible agreement
17 and to secure other obligations of the policyholder to pay the
18 insurer, directly or indirectly, amounts that become assets of
19 the estate, such as reinsurance obligations under a captive
20 reinsurance program or adjustable premium obligations under a
21 retrospectively rated insurance policy where the premium due is
22 subject to adjustment based upon actual loss experience, the
23 Director as rehabilitator, liquidator, or conservator shall
24 equitably allocate the collateral among such obligations and
25 administer the collateral allocated to the deductible
26 agreement pursuant to this Section. With respect to the
27 collateral allocated to obligations under the deductible
28 agreement, if the collateral secured reimbursement obligations
29 under more than one line of insurance, then the collateral
30 shall be equitably allocated among the various lines based upon
31 the estimated ultimate exposure within the deductible amount
32 for each line. The Director as rehabilitator, liquidator, or
33 conservator shall inform the guaranty association or the
34 Illinois Insurance Guaranty Fund that is or may be obligated
35 for claims against the insurer of the method and details of all
36 the foregoing allocations.

 

 

HB5928 - 3 - LRB093 20938 SAS 46916 b

1     (e) Regardless of whether there is collateral, if the
2 insurer has contractually agreed to allow the policyholder to
3 fund its own claims within the deductible amount pursuant to a
4 deductible agreement, either through the policyholder's own
5 administration of its claims or through the policyholder
6 providing funds directly to a third party administrator who
7 administers the claims, the Director as rehabilitator,
8 liquidator, or conservator shall allow such funding
9 arrangement to continue and, where applicable, will enforce
10 such arrangements to the fullest extent possible. The funding
11 of such claims by the policyholder within the deductible amount
12 will act as a bar to any claim for such amount in the
13 liquidation proceeding, including but not limited to any such
14 claim by the policyholder or the third party claimant. The
15 funding will extinguish both the obligation, if any, of any
16 guaranty association or the Illinois Insurance Guaranty Fund to
17 pay such claims within the deductible amount, as well as the
18 obligations, if any, of the policyholder or third party
19 administrator to reimburse the guaranty association or the
20 Illinois Insurance Guaranty Fund. No charge of any kind shall
21 be made by the Director as rehabilitator, liquidator, or
22 conservator against any guaranty association or the Illinois
23 Insurance Guaranty Fund on the basis of the policyholder
24 funding of claims payment made pursuant to the mechanism set
25 forth in this subsection.
26     (f) If the insurer has not contractually agreed to allow
27 the policyholder to fund its own claims within the deductible
28 amount, to the extent a guaranty association or the Illinois
29 Insurance Guaranty Fund is required by applicable state law to
30 pay any claims for which the insurer would be or would have
31 been entitled to reimbursement from the policyholder under the
32 terms of the deductible agreement and to the extent the claims
33 have not been paid by a policyholder or third party, the
34 Director as rehabilitator, liquidator, or conservator shall
35 promptly bill the policyholder for such reimbursement and the
36 policyholder will be obligated to pay such amount to the

 

 

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1 Director as rehabilitator, liquidator, or conservator for the
2 benefit of the guaranty association or the Illinois Insurance
3 Guaranty Fund that paid such claims. Neither the insolvency of
4 the insurer, nor its inability to perform any of its
5 obligations under the deductible agreement, shall be a defense
6 to the policyholder's reimbursement obligation under the
7 deductible agreement. When the policyholder reimbursements are
8 collected, the Director as rehabilitator, liquidator, or
9 conservator shall promptly reimburse the guaranty association
10 or the Illinois Insurance Guaranty Fund for claims paid that
11 were subject to the deductible. If the policyholder fails to
12 pay the amounts due within 60 days after such bill for such
13 reimbursements is due, the Director as rehabilitator,
14 liquidator, or conservator shall use the collateral to the
15 extent necessary to reimburse the guaranty association or the
16 Illinois Insurance Guaranty Fund, and, at the same time, may
17 pursue other collections efforts against the policyholder. If
18 more than one guaranty association or the Illinois Insurance
19 Guaranty Fund has a claim against the same collateral and the
20 available collateral (after allocation under subsection (d)),
21 along with billing and collection efforts, are together
22 insufficient to pay each guaranty association or the Illinois
23 Insurance Guaranty Fund in full, then the Director as
24 rehabilitator, liquidator, or conservator will pro-rate
25 payments to each guaranty association or the Illinois Insurance
26 Guaranty Fund based upon the relationship the amount of claims
27 each guaranty association or the Illinois Insurance Guaranty
28 Fund has paid bears to the total of all claims paid by such
29 guaranty association or the Illinois Insurance Guaranty Fund.
30     (g) Director's duties and powers as rehabilitator,
31 liquidator, or conservator.
32         (1) The Director as rehabilitator, liquidator, or
33     conservator is entitled to deduct from reimbursements owed
34     to guaranty associations or the Illinois Insurance
35     Guaranty Fund or collateral to be returned to a
36     policyholder reasonable actual expenses incurred in

 

 

HB5928 - 5 - LRB093 20938 SAS 46916 b

1     fulfilling the responsibilities under this provision, not
2     to exceed 3% of the collateral or the total deductible
3     reimbursements actually collected by the Director as
4     rehabilitator, liquidator, or conservator.
5         (2) With respect to claim payments made by any guaranty
6     association or the Illinois Insurance Guaranty Fund, the
7     Director as rehabilitator, liquidator, or conservator
8     shall promptly provide the court, with a copy of the
9     guaranty associations or the Illinois Insurance Guaranty
10     Fund, with a complete report of the Director's deductible
11     billing and collection activities as rehabilitator,
12     liquidator, or conservator including copies of the
13     policyholder billings when rendered, the reimbursements
14     collected, the available amounts and use of collateral for
15     each policyholder, and any pro-ration of payments when it
16     occurs. If the Director as rehabilitator, liquidator, or
17     conservator fails to make a good faith effort within 120
18     days of receipt of claims payment reports to collect
19     reimbursements due from a policyholder under a deductible
20     agreement based on claim payments made by one or more
21     guaranty associations or the Illinois Insurance Guaranty
22     Fund, then after such 120 day period such guaranty
23     associations or the Illinois Insurance Guaranty Fund may
24     pursue collection from the policyholders directly on the
25     same basis as the Director as rehabilitator, liquidator, or
26     conservator, and with the same rights and remedies, and
27     will report any amounts so collected from each policyholder
28     to the Director as rehabilitator, liquidator, or
29     conservator. To the extent that guaranty associations or
30     the Illinois Insurance Guaranty Fund pay claims within the
31     deductible amount, but are not reimbursed by either the
32     Director as rehabilitator, liquidator, or conservator
33     under this Section or by policyholder payments from the
34     guaranty associations' or the Illinois Insurance Guaranty
35     Fund's own collection efforts, the guaranty association or
36     the Illinois Insurance Guaranty Fund shall have a claim in

 

 

HB5928 - 6 - LRB093 20938 SAS 46916 b

1     the insolvent insurer's estate for such un-reimbursed
2     claims payments.
3         (3) The Director as rehabilitator, liquidator, or
4     conservator shall periodically adjust the collateral being
5     held as the claims subject to the deductible agreement are
6     run-off, provided that adequate collateral is maintained
7     to secure the entire estimated ultimate obligation of the
8     policyholder plus a reasonable safety factor, and the
9     Director as rehabilitator, liquidator, or conservator
10     shall not be required to adjust the collateral more than
11     once a year. The guaranty associations or the Illinois
12     Insurance Guaranty Fund shall be informed of all such
13     collateral reviews, including but not limited to the basis
14     for the adjustment. Once all claims covered by the
15     collateral have been paid and the Director as
16     rehabilitator, liquidator, or conservator is satisfied
17     that no new claims can be presented, the Director as
18     rehabilitator, liquidator, or conservator will release any
19     remaining collateral to the policyholder.
20     (h) The Illinois Circuit Court having jurisdiction over the
21     liquidation proceedings shall have jurisdiction to resolve
22     disputes arising under this provision.
23     (i) Nothing in this Section is intended to limit or
24     adversely affect any right the guaranty associations or the
25     Illinois Insurance Guaranty Fund may have under applicable
26     state law to obtain reimbursement from certain classes of
27     policyholders for claims payments made by such guaranty
28     associations or the Illinois Insurance Guaranty Fund under
29     policies of the insolvent insurer, or for related expenses the
30     guaranty associations or the Illinois Insurance Guaranty Fund
31     incur.
32     (j) This provision applies to all delinquency proceedings
33     which are open and pending as of the effective date of this
34     amendatory Act of the 93rd General Assembly.
35     (k) For purposes of this Section, a "deductible agreement"
36     is any combination of one or more policies, endorsements,

 

 

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1     contracts, or security agreements, which provide for the
2     policyholder to bear the risk of loss within a specified amount
3     per claim or occurrence covered under a policy of insurance,
4     and may be subject to the aggregate limit of policyholder
5     reimbursement obligations. This Section shall not apply to
6     first party claims, or to claims funded by a guaranty
7     association or the Illinois Insurance Guaranty Fund in excess
8     of the deductible unless subsection (e) above applies. The term
9     "non-covered claim" shall mean a claim that is subject to a
10     deductible agreement and is not covered by a guaranty
11     association or the Illinois Insurance Guaranty Fund.
 
12     Section 99. Effective date. This Act takes effect upon
13 becoming law.