Sen. William E. Peterson

Filed: 4/19/2004

 

 


 

 


 
09300HB5928sam001 LRB093 20938 AMC 49701 a

1
AMENDMENT TO HOUSE BILL 5928

2     AMENDMENT NO. ______. Amend House Bill 5928 by replacing
3 everything after the enacting clause with the following:
 
4     "Section 5. The Illinois Insurance Code is amended by
5 adding 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

 

 

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1 and secured by collateral is not covered by any guaranty
2 association or the Illinois Insurance Guaranty Fund and the
3 policyholder is unwilling or unable to take over the handling
4 and payment of the non-covered claims, the Director as
5 rehabilitator, liquidator, or conservator shall adjust and pay
6 the non-covered claims utilizing the collateral but only to the
7 extent the available collateral after allocation under
8 subsection (d), is sufficient to pay all outstanding and
9 anticipated claims. If the collateral is exhausted and the
10 insured is not able to provide funds to pay the remaining
11 claims within the deductible after all reasonable means of
12 collection against the insured have been exhausted, the
13 Director's obligation to pay such claims from the collateral as
14 the rehabilitator, liquidator, or conservator terminates, and
15 the remaining claims shall be claims against the insurer's
16 estate subject to complying with other provisions in this
17 Article for the filing and allowance of such claims. When the
18 liquidator determines that the collateral is insufficient to
19 pay all additional and anticipated claims, the liquidator may
20 file a plan for equitably allocating the collateral among
21 claimants, subject to court approval.
22     (d) To the extent that the Director as rehabilitator,
23 liquidator, or conservator is holding collateral provided by a
24 policyholder that was obtained to secure a deductible agreement
25 and to secure other obligations of the policyholder to pay the
26 insurer, directly or indirectly, amounts that become assets of
27 the estate, such as reinsurance obligations under a captive
28 reinsurance program or adjustable premium obligations under a
29 retrospectively rated insurance policy where the premium due is
30 subject to adjustment based upon actual loss experience, the
31 Director as rehabilitator, liquidator, or conservator shall
32 equitably allocate the collateral among such obligations and
33 administer the collateral allocated to the deductible
34 agreement pursuant to this Section. With respect to the

 

 

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1 collateral allocated to obligations under the deductible
2 agreement, if the collateral secured reimbursement obligations
3 under more than one line of insurance, then the collateral
4 shall be equitably allocated among the various lines based upon
5 the estimated ultimate exposure within the deductible amount
6 for each line. The Director as rehabilitator, liquidator, or
7 conservator shall inform the guaranty association or the
8 Illinois Insurance Guaranty Fund that is or may be obligated
9 for claims against the insurer of the method and details of all
10 the foregoing allocations.
11     (e) Regardless of whether there is collateral, if the
12 insurer has contractually agreed to allow the policyholder to
13 fund its own claims within the deductible amount pursuant to a
14 deductible agreement, either through the policyholder's own
15 administration of its claims or through the policyholder
16 providing funds directly to a third party administrator who
17 administers the claims, the Director as rehabilitator,
18 liquidator, or conservator shall allow such funding
19 arrangement to continue and, where applicable, will enforce
20 such arrangements to the fullest extent possible. The funding
21 of such claims by the policyholder within the deductible amount
22 will act as a bar to any claim for such amount in the
23 liquidation proceeding, including but not limited to any such
24 claim by the policyholder or the third party claimant. The
25 funding will extinguish both the obligation, if any, of any
26 guaranty association or the Illinois Insurance Guaranty Fund to
27 pay such claims within the deductible amount, as well as the
28 obligations, if any, of the policyholder or third party
29 administrator to reimburse the guaranty association or the
30 Illinois Insurance Guaranty Fund. No charge of any kind shall
31 be made by the Director as rehabilitator, liquidator, or
32 conservator against any guaranty association or the Illinois
33 Insurance Guaranty Fund on the basis of the policyholder
34 funding of claims payment made pursuant to the mechanism set

 

 

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1 forth in this subsection.
2     (f) If the insurer has not contractually agreed to allow
3 the policyholder to fund its own claims within the deductible
4 amount, to the extent a guaranty association or the Illinois
5 Insurance Guaranty Fund is required by applicable state law to
6 pay any claims for which the insurer would be or would have
7 been entitled to reimbursement from the policyholder under the
8 terms of the deductible agreement and to the extent the claims
9 have not been paid by a policyholder or third party, the
10 Director as rehabilitator, liquidator, or conservator shall
11 promptly bill the policyholder for such reimbursement and the
12 policyholder will be obligated to pay such amount to the
13 Director as rehabilitator, liquidator, or conservator for the
14 benefit of the guaranty association or the Illinois Insurance
15 Guaranty Fund that paid such claims. Neither the insolvency of
16 the insurer, nor its inability to perform any of its
17 obligations under the deductible agreement, shall be a defense
18 to the policyholder's reimbursement obligation under the
19 deductible agreement. When the policyholder reimbursements are
20 collected, the Director as rehabilitator, liquidator, or
21 conservator shall promptly reimburse the guaranty association
22 or the Illinois Insurance Guaranty Fund for claims paid that
23 were subject to the deductible. If the policyholder fails to
24 pay the amounts due within 60 days after such bill for such
25 reimbursements is due, the Director as rehabilitator,
26 liquidator, or conservator shall use the collateral to the
27 extent necessary to reimburse the guaranty association or the
28 Illinois Insurance Guaranty Fund, and, at the same time, may
29 pursue other collections efforts against the policyholder. If
30 more than one guaranty association or the Illinois Insurance
31 Guaranty Fund has a claim against the same collateral and the
32 available collateral (after allocation under subsection (d)),
33 along with billing and collection efforts, are together
34 insufficient to pay each guaranty association or the Illinois

 

 

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1 Insurance Guaranty Fund in full, then the Director as
2 rehabilitator, liquidator, or conservator will pro-rate
3 payments to each guaranty association or the Illinois Insurance
4 Guaranty Fund based upon the relationship the amount of claims
5 each guaranty association or the Illinois Insurance Guaranty
6 Fund has paid bears to the total of all claims paid by such
7 guaranty association or the Illinois Insurance Guaranty Fund.
8     (g) Director's duties and powers as rehabilitator,
9 liquidator, or conservator.
10         (1) The Director as rehabilitator, liquidator, or
11 conservator is entitled to deduct from reimbursements owed
12 to guaranty associations or the Illinois Insurance
13 Guaranty Fund or collateral to be returned to a
14 policyholder reasonable actual expenses incurred in
15 fulfilling the responsibilities under this provision, not
16 to exceed 3% of the collateral or the total deductible
17 reimbursements actually collected by the Director as
18 rehabilitator, liquidator, or conservator.
19         (2) With respect to claim payments made by any guaranty
20 association or the Illinois Insurance Guaranty Fund, the
21 Director as rehabilitator, liquidator, or conservator
22 shall promptly provide the court, with a copy of the
23 guaranty associations or the Illinois Insurance Guaranty
24 Fund, with a complete report of the Director's deductible
25 billing and collection activities as rehabilitator,
26 liquidator, or conservator including copies of the
27 policyholder billings when rendered, the reimbursements
28 collected, the available amounts and use of collateral for
29 each policyholder, and any pro-ration of payments when it
30 occurs. If the Director as rehabilitator, liquidator, or
31 conservator fails to make a good faith effort within 120
32 days of receipt of claims payment reports to collect
33 reimbursements due from a policyholder under a deductible
34 agreement based on claim payments made by one or more

 

 

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1 guaranty associations or the Illinois Insurance Guaranty
2 Fund, then after such 120 day period such guaranty
3 associations or the Illinois Insurance Guaranty Fund may
4 pursue collection from the policyholders directly on the
5 same basis as the Director as rehabilitator, liquidator, or
6 conservator, and with the same rights and remedies, and
7 will report any amounts so collected from each policyholder
8 to the Director as rehabilitator, liquidator, or
9 conservator. To the extent that guaranty associations or
10 the Illinois Insurance Guaranty Fund pay claims within the
11 deductible amount, but are not reimbursed by either the
12 Director as rehabilitator, liquidator, or conservator
13 under this Section or by policyholder payments from the
14 guaranty associations' or the Illinois Insurance Guaranty
15 Fund's own collection efforts, the guaranty association or
16 the Illinois Insurance Guaranty Fund shall have a claim in
17 the insolvent insurer's estate for such un-reimbursed
18 claims payments.
19         (3) The Director as rehabilitator, liquidator, or
20 conservator shall periodically adjust the collateral being
21 held as the claims subject to the deductible agreement are
22 run-off, provided that adequate collateral is maintained
23 to secure the entire estimated ultimate obligation of the
24 policyholder plus a reasonable safety factor, and the
25 Director as rehabilitator, liquidator, or conservator
26 shall not be required to adjust the collateral more than
27 once a year. The guaranty associations or the Illinois
28 Insurance Guaranty Fund shall be informed of all such
29 collateral reviews, including but not limited to the basis
30 for the adjustment. Once all claims covered by the
31 collateral have been paid and the Director as
32 rehabilitator, liquidator, or conservator is satisfied
33 that no new claims can be presented, the Director as
34 rehabilitator, liquidator, or conservator will release any

 

 

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1 remaining collateral to the policyholder.
2     (h) The Illinois Circuit Court having jurisdiction over the
3 liquidation proceedings shall have jurisdiction to resolve
4 disputes arising under this provision.
5     (i) Nothing in this Section is intended to limit or
6 adversely affect any right the guaranty associations or the
7 Illinois Insurance Guaranty Fund may have under applicable
8 state law to obtain reimbursement from certain classes of
9 policyholders for claims payments made by such guaranty
10 associations or the Illinois Insurance Guaranty Fund under
11 policies of the insolvent insurer, or for related expenses the
12 guaranty associations or the Illinois Insurance Guaranty Fund
13 incur.
14     (j) This Section applies to all receivership proceedings
15 under Article XIII that either (1) commence on or after the
16 effective date of this amendatory Act of the 93rd General
17 Assembly or (2) are on file or open on the effective date of
18 this amendatory Act of the 93rd General Assembly and in which
19 an Order of Liquidation is entered on or after May 1, 2004.
20     (k) For purposes of this Section, a "deductible agreement"
21 is any combination of one or more policies, endorsements,
22 contracts, or security agreements, which provide for the
23 policyholder to bear the risk of loss within a specified amount
24 per claim or occurrence covered under a policy of insurance,
25 and may be subject to the aggregate limit of policyholder
26 reimbursement obligations. This Section shall not apply to
27 first party claims, or to claims funded by a guaranty
28 association or the Illinois Insurance Guaranty Fund in excess
29 of the deductible unless subsection (e) above applies. The term
30 "non-covered claim" shall mean a claim that is subject to a
31 deductible agreement and is not covered by a guaranty
32 association or the Illinois Insurance Guaranty Fund.
 
33     Section 99. Effective date. This Act takes effect upon

 

 

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1 becoming law.".