98TH GENERAL ASSEMBLY
State of Illinois
2013 and 2014
SB3324

 

Introduced 2/14/2014, by Sen. William R. Haine

 

SYNOPSIS AS INTRODUCED:
 
215 ILCS 5/121-2.08  from Ch. 73, par. 733-2.08
215 ILCS 5/412  from Ch. 73, par. 1024
215 ILCS 5/445  from Ch. 73, par. 1057
215 ILCS 5/445.4  from Ch. 73, par. 1057.4

    Amends the Illinois Insurance Code. Makes changes in the Section concerning transactions involving contracts of insurance issued to one or more industrial insureds to apply to transactions involving contracts of insurance independently procured directly from an unauthorized insurer by industrial insureds. Provides that within 90 days after the effective date of each contract of insurance issued under the Section, the insured shall file a report with the Director of Insurance by submitting the report to the Surplus Line Association of Illinois and provide information as designated by the Surplus Line Association of Illinois. Provides that within 30 days after filing the report, the insured shall pay to the Director for the use and benefit of the State a sum equal to the gross premium of the contract of insurance multiplied by the surplus line tax rate and shall pay the fire marshal tax. Includes surplus line producers and industrial insureds in the provisions concerning refunds, penalties, and collection. Sets forth requirements for when more than one insured from a group that is not affiliated are named insureds on a single surplus line insurance contract. Makes changes in the provisions concerning surplus line and examinations of the Association.


LRB098 18518 RPM 53655 b

FISCAL NOTE ACT MAY APPLY

 

 

A BILL FOR

 

SB3324LRB098 18518 RPM 53655 b

1    AN ACT concerning regulation.
 
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 121-2.08, 412, 445, and 445.4 as follows:
 
6    (215 ILCS 5/121-2.08)  (from Ch. 73, par. 733-2.08)
7    Sec. 121-2.08. Transactions in this State involving
8contracts of insurance independently procured directly from an
9unauthorized insurer by issued to one or more industrial
10insureds.
11    (a) As used in this Section:
12    "Exempt commercial purchaser" means exempt commercial
13purchaser as the term is defined in subsection (1) of Section
14445 of this Code.
15    "Home state" means home state as the term is defined in
16subsection (1) of Section 445 of this Code.
17    "Industrial For purposes of this Section "industrial
18insured" means is an insured:
19        (i) that (a) which procures the insurance of any risk
20    or risks of the kinds specified in Classes 2 and 3 of
21    Section 4 of this Code other than life and annuity
22    contracts by use of the services of a full-time full time
23    employee who is a qualified risk manager acting as an

 

 

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1    insurance manager or buyer or the services of a regularly
2    and continuously retained qualified insurance consultant
3    who is a qualified risk manager;
4        (ii) that procures the insurance directly from an
5    unauthorized insurer without the services of an
6    intermediary insurance producer (b) whose aggregate annual
7    premiums for insurance on all risks, except for life and
8    accident and health insurance, total at least $100,000; and
9        (iii) that is an exempt commercial purchaser whose home
10    state is Illinois (c) which either (i) has at least 25 full
11    time employees, (ii) has gross assets in excess of
12    $3,000,000, or (iii) has annual gross revenues in excess of
13    $5,000,000.
14    "Insurance producer" means insurance producer as the term
15is defined in Section 500-10 of this Code.
16    "Qualified risk manager" means qualified risk manager as
17the term is defined in subsection (1) of Section 445 of this
18Code.
19    "Unauthorized insurer" means unauthorized insurer as the
20term is defined in subsection (1) of Section 445 of this Code.
21    (b) Within 90 days after the effective date of each
22contract of insurance issued under this Section, the insured
23shall file a report with the Director by submitting the report
24to the Surplus Line Association of Illinois in writing or in a
25computer readable format and provide information as designated
26by the Surplus Line Association of Illinois. The information in

 

 

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1the report shall be substantially similar to that required for
2surplus line submissions as described in subsection (5) of
3Section 445 of this Code. Where applicable, the report shall
4satisfy, with respect to the subject insurance, the reporting
5requirement of Section 12 of the Fire Investigation Act.
6    (c) Within 30 days after filing the report, the insured
7shall pay to the Director for the use and benefit of the State
8a sum equal to the gross premium of the contract of insurance
9multiplied by the surplus line tax rate, as described in
10paragraph (3) of subsection (a) of Section 445 of this Code,
11and shall pay the fire marshal tax that would otherwise be due
12annually in March for insurance subject to tax under Section 12
13of the Fire Investigation Act. Within 30 days after filing the
14report, the insured shall pay to the Surplus Line Association
15of Illinois a countersigning fee that shall be assessed at the
16same rate charged to members pursuant to subsection (4) of
17Section 445.1 of this Code.
18    (d) The insured shall withhold the amount of the taxes and
19countersignature fee from the amount of premium charged by and
20otherwise payable to the insurer for the insurance. If the
21insured fails to withhold the tax and countersignature fee from
22the premium, then the insured shall be liable for the amounts
23thereof and shall pay the amounts as prescribed in subsection
24(c) of this Section.
25(Source: P.A. 90-794, eff. 8-14-98.)
 

 

 

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1    (215 ILCS 5/412)  (from Ch. 73, par. 1024)
2    Sec. 412. Refunds; penalties; collection.
3    (1)(a) Whenever it appears to the satisfaction of the
4Director that because of some mistake of fact, error in
5calculation, or erroneous interpretation of a statute of this
6or any other state, any authorized company, surplus line
7producer, or industrial insured has paid to him, pursuant to
8any provision of law, taxes, fees, or other charges in excess
9of the amount legally chargeable against it, during the 6 year
10period immediately preceding the discovery of such
11overpayment, he shall have power to refund to such company,
12surplus line producer, or industrial insured the amount of the
13excess or excesses by applying the amount or amounts thereof
14toward the payment of taxes, fees, or other charges already
15due, or which may thereafter become due from that company until
16such excess or excesses have been fully refunded, or upon a
17written request from the authorized company, surplus line
18producer, or industrial insured, the Director shall provide a
19cash refund within 120 days after receipt of the written
20request if all necessary information has been filed with the
21Department in order for it to perform an audit of the tax
22report for the transaction or period or annual return for the
23year in which the overpayment occurred or within 120 days after
24the date the Department receives all the necessary information
25to perform such audit. The Director shall not provide a cash
26refund if there are insufficient funds in the Insurance Premium

 

 

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1Tax Refund Fund to provide a cash refund, if the amount of the
2overpayment is less than $100, or if the amount of the
3overpayment can be fully offset against the taxpayer's
4estimated liability for the year following the year of the cash
5refund request. Any cash refund shall be paid from the
6Insurance Premium Tax Refund Fund, a special fund hereby
7created in the State treasury.
8    (b) Beginning January 1, 2000 and thereafter, the
9Department shall deposit a percentage of the amounts collected
10under Sections 409, 444, and 444.1 of this Code into the
11Insurance Premium Tax Refund Fund. The percentage deposited
12into the Insurance Premium Tax Refund Fund shall be the annual
13percentage. The annual percentage shall be calculated as a
14fraction, the numerator of which shall be the amount of cash
15refunds approved by the Director for payment and paid during
16the preceding calendar year as a result of overpayment of tax
17liability under Sections 121-2.08, 409, 444, and 444.1, and 445
18of this Code and the denominator of which shall be the amounts
19collected pursuant to Sections 121-2.08, 409, 444, and 444.1,
20and 445 of this Code during the preceding calendar year.
21However, if there were no cash refunds paid in a preceding
22calendar year, the Department shall deposit 5% of the amount
23collected in that preceding calendar year pursuant to Sections
24121-2.08, 409, 444, and 444.1, and 445 of this Code into the
25Insurance Premium Tax Refund Fund instead of an amount
26calculated by using the annual percentage.

 

 

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1    (c) Beginning July 1, 1999, moneys in the Insurance Premium
2Tax Refund Fund shall be expended exclusively for the purpose
3of paying cash refunds resulting from overpayment of tax
4liability under Sections 121-2.08, 409, 444, and 444.1, and 445
5of this Code as determined by the Director pursuant to
6subsection 1(a) of this Section. Cash refunds made in
7accordance with this Section may be made from the Insurance
8Premium Tax Refund Fund only to the extent that amounts have
9been deposited and retained in the Insurance Premium Tax Refund
10Fund.
11    (d) This Section shall constitute an irrevocable and
12continuing appropriation from the Insurance Premium Tax Refund
13Fund for the purpose of paying cash refunds pursuant to the
14provisions of this Section.
15    (2)(a) When any insurance company or any surplus line
16producer fails to file any tax return required under Sections
17408.1, 409, 444, and 444.1 and 445 of this Code or Section 12
18of the Fire Investigation Act on the date prescribed, including
19any extensions, there shall be added as a penalty $400 or 10%
20of the amount of such tax, whichever is greater, for each month
21or part of a month of failure to file, the entire penalty not
22to exceed $2,000 or 50% of the tax due, whichever is greater.
23    (b) When any industrial insured or surplus line producer
24fails to file any tax return or report required under Sections
25121-2.08 and 445 of this Code or Section 12 of the Fire
26Investigation Act on the date prescribed, including any

 

 

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1extensions, there shall be added:
2        (i) as a late fee, if the return or report is received
3    at least one day but not more than 7 days after the
4    prescribed due date, $400 or 10% of the tax due, whichever
5    is greater, the entire fee not to exceed $1,000;
6        (ii) as a late fee, if the return or report is received
7    at least 8 days but not more than 14 days after the
8    prescribed due date, $400 or 10% of the tax due, whichever
9    is greater, the entire fee not to exceed $1,500;
10        (iii) as a late fee, if the return or report is
11    received at least 15 days but not more than 21 days after
12    the prescribed due date, $400 or 10% of the tax due,
13    whichever is greater, the entire fee not to exceed $2,000;
14    or
15        (iv) as a penalty, if the return or report is received
16    more than 21 days after the prescribed due date, $400 or
17    10% of the tax due, whichever is greater, for each month or
18    part of a month of failure to file, the entire penalty not
19    to exceed $2,000 or 50% or the tax due, whichever is
20    greater.
21    A tax return or report shall be deemed received as of the
22date mailed as evidenced by a postmark, proof of mailing on a
23recognized United States Postal Service form or a form
24acceptable to the United States Postal Service or other
25commercial mail delivery service, or other evidence acceptable
26to the Director.

 

 

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1    (3)(a) When any insurance company or any surplus line
2producer fails to pay the full amount due under the provisions
3of this Section, Sections 408.1, 409, 444, or 444.1 or 445 of
4this Code, or Section 12 of the Fire Investigation Act, there
5shall be added to the amount due as a penalty an amount equal
6to 10% of the deficiency.
7    (a-5) When any industrial insured or surplus line producer
8fails to pay the full amount due under the provisions of this
9Section, Sections 121-2.08 or 445 of this Code, or Section 12
10of the Fire Investigation Act on the date prescribed, there
11shall be added:
12        (i) as a late fee, if the payment is received at least
13    one day but not more than 7 days after the prescribed due
14    date, 10% of the tax due, the entire fee not to exceed
15    $1,000;
16        (ii) as a late fee, if the payment is received at least
17    8 days but not more than 14 days after the prescribed due
18    date, 10% of the tax due, the entire fee not to exceed
19    $1,500;
20        (iii) as a late fee, if the payment is received at
21    least 15 days but not more than 21 days after the
22    prescribed due date, 10% of the tax due, the entire fee not
23    to exceed $2,000; or
24        (iv) as a penalty, if the return or report is received
25    more than 21 days after the prescribed due date, 10% of the
26    tax due.

 

 

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1    A tax payment shall be deemed received as of the date
2mailed as evidenced by a postmark, proof of mailing on a
3recognized United States Postal Service form or a form
4acceptable to the United States Postal Service or other
5commercial mail delivery service, or other evidence acceptable
6to the Director.
7    (b) If such failure to pay is determined by the Director to
8be wilful, after a hearing under Sections 402 and 403, there
9shall be added to the tax as a penalty an amount equal to the
10greater of 50% of the deficiency or 10% of the amount due and
11unpaid for each month or part of a month that the deficiency
12remains unpaid commencing with the date that the amount becomes
13due. Such amount shall be in lieu of any determined under
14paragraph (a) or (a-5).
15    (4) Any insurance company, industrial insured, or any
16surplus line producer that which fails to pay the full amount
17due under this Section or Sections 121-2.08, 408.1, 409, 444,
18444.1, or 445 of this Code, or Section 12 of the Fire
19Investigation Act is liable, in addition to the tax and any
20late fees and penalties, for interest on such deficiency at the
21rate of 12% per annum, or at such higher adjusted rates as are
22or may be established under subsection (b) of Section 6621 of
23the Internal Revenue Code, from the date that payment of any
24such tax was due, determined without regard to any extensions,
25to the date of payment of such amount.
26    (5) The Director, through the Attorney General, may

 

 

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1institute an action in the name of the People of the State of
2Illinois, in any court of competent jurisdiction, for the
3recovery of the amount of such taxes, fees, and penalties due,
4and prosecute the same to final judgment, and take such steps
5as are necessary to collect the same.
6    (6) In the event that the certificate of authority of a
7foreign or alien company is revoked for any cause or the
8company withdraws from this State prior to the renewal date of
9the certificate of authority as provided in Section 114, the
10company may recover the amount of any such tax paid in advance.
11Except as provided in this subsection, no revocation or
12withdrawal excuses payment of or constitutes grounds for the
13recovery of any taxes or penalties imposed by this Code.
14    (7) When an insurance company or domestic affiliated group
15fails to pay the full amount of any fee of $200 or more due
16under Section 408 of this Code, there shall be added to the
17amount due as a penalty the greater of $100 or an amount equal
18to 10% of the deficiency for each month or part of a month that
19the deficiency remains unpaid.
20    (8) The Department shall have a lien for the taxes, fees,
21charges, fines, penalties, interest, other charges, or any
22portion thereof, imposed or assessed pursuant to this Code,
23upon all the real and personal property of any company or
24person to whom the assessment or final order has been issued or
25whenever a tax return is filed without payment of the tax or
26penalty shown therein to be due, including all such property of

 

 

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1the company or person acquired after receipt of the assessment,
2issuance of the order, or filing of the return. The company or
3person is liable for the filing fee incurred by the Department
4for filing the lien and the filing fee incurred by the
5Department to file the release of that lien. The filing fees
6shall be paid to the Department in addition to payment of the
7tax, fee, charge, fine, penalty, interest, other charges, or
8any portion thereof, included in the amount of the lien.
9However, where the lien arises because of the issuance of a
10final order of the Director or tax assessment by the
11Department, the lien shall not attach and the notice referred
12to in this Section shall not be filed until all administrative
13proceedings or proceedings in court for review of the final
14order or assessment have terminated or the time for the taking
15thereof has expired without such proceedings being instituted.
16    Upon the granting of Department review after a lien has
17attached, the lien shall remain in full force except to the
18extent to which the final assessment may be reduced by a
19revised final assessment following the rehearing or review. The
20lien created by the issuance of a final assessment shall
21terminate, unless a notice of lien is filed, within 3 years
22after the date all proceedings in court for the review of the
23final assessment have terminated or the time for the taking
24thereof has expired without such proceedings being instituted,
25or (in the case of a revised final assessment issued pursuant
26to a rehearing or review by the Department) within 3 years

 

 

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1after the date all proceedings in court for the review of such
2revised final assessment have terminated or the time for the
3taking thereof has expired without such proceedings being
4instituted. Where the lien results from the filing of a tax
5return without payment of the tax or penalty shown therein to
6be due, the lien shall terminate, unless a notice of lien is
7filed, within 3 years after the date when the return is filed
8with the Department.
9    The time limitation period on the Department's right to
10file a notice of lien shall not run during any period of time
11in which the order of any court has the effect of enjoining or
12restraining the Department from filing such notice of lien. If
13the Department finds that a company or person is about to
14depart from the State, to conceal himself or his property, or
15to do any other act tending to prejudice or to render wholly or
16partly ineffectual proceedings to collect the amount due and
17owing to the Department unless such proceedings are brought
18without delay, or if the Department finds that the collection
19of the amount due from any company or person will be
20jeopardized by delay, the Department shall give the company or
21person notice of such findings and shall make demand for
22immediate return and payment of the amount, whereupon the
23amount shall become immediately due and payable. If the company
24or person, within 5 days after the notice (or within such
25extension of time as the Department may grant), does not comply
26with the notice or show to the Department that the findings in

 

 

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1the notice are erroneous, the Department may file a notice of
2jeopardy assessment lien in the office of the recorder of the
3county in which any property of the company or person may be
4located and shall notify the company or person of the filing.
5The jeopardy assessment lien shall have the same scope and
6effect as the statutory lien provided for in this Section. If
7the company or person believes that the company or person does
8not owe some or all of the tax for which the jeopardy
9assessment lien against the company or person has been filed,
10or that no jeopardy to the revenue in fact exists, the company
11or person may protest within 20 days after being notified by
12the Department of the filing of the jeopardy assessment lien
13and request a hearing, whereupon the Department shall hold a
14hearing in conformity with the provisions of this Code and,
15pursuant thereto, shall notify the company or person of its
16findings as to whether or not the jeopardy assessment lien will
17be released. If not, and if the company or person is aggrieved
18by this decision, the company or person may file an action for
19judicial review of the final determination of the Department in
20accordance with the Administrative Review Law. If, pursuant to
21such hearing (or after an independent determination of the
22facts by the Department without a hearing), the Department
23determines that some or all of the amount due covered by the
24jeopardy assessment lien is not owed by the company or person,
25or that no jeopardy to the revenue exists, or if on judicial
26review the final judgment of the court is that the company or

 

 

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1person does not owe some or all of the amount due covered by
2the jeopardy assessment lien against them, or that no jeopardy
3to the revenue exists, the Department shall release its
4jeopardy assessment lien to the extent of such finding of
5nonliability for the amount, or to the extent of such finding
6of no jeopardy to the revenue. The Department shall also
7release its jeopardy assessment lien against the company or
8person whenever the amount due and owing covered by the lien,
9plus any interest which may be due, are paid and the company or
10person has paid the Department in cash or by guaranteed
11remittance an amount representing the filing fee for the lien
12and the filing fee for the release of that lien. The Department
13shall file that release of lien with the recorder of the county
14where that lien was filed.
15    Nothing in this Section shall be construed to give the
16Department a preference over the rights of any bona fide
17purchaser, holder of a security interest, mechanics
18lienholder, mortgagee, or judgment lien creditor arising prior
19to the filing of a regular notice of lien or a notice of
20jeopardy assessment lien in the office of the recorder in the
21county in which the property subject to the lien is located.
22For purposes of this Section, "bona fide" shall not include any
23mortgage of real or personal property or any other credit
24transaction that results in the mortgagee or the holder of the
25security acting as trustee for unsecured creditors of the
26company or person mentioned in the notice of lien who executed

 

 

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1such chattel or real property mortgage or the document
2evidencing such credit transaction. The lien shall be inferior
3to the lien of general taxes, special assessments, and special
4taxes levied by any political subdivision of this State. In
5case title to land to be affected by the notice of lien or
6notice of jeopardy assessment lien is registered under the
7provisions of the Registered Titles (Torrens) Act, such notice
8shall be filed in the office of the Registrar of Titles of the
9county within which the property subject to the lien is
10situated and shall be entered upon the register of titles as a
11memorial or charge upon each folium of the register of titles
12affected by such notice, and the Department shall not have a
13preference over the rights of any bona fide purchaser,
14mortgagee, judgment creditor, or other lienholder arising
15prior to the registration of such notice. The regular lien or
16jeopardy assessment lien shall not be effective against any
17purchaser with respect to any item in a retailer's stock in
18trade purchased from the retailer in the usual course of the
19retailer's business.
20(Source: P.A. 98-158, eff. 8-2-13.)
 
21    (215 ILCS 5/445)  (from Ch. 73, par. 1057)
22    Sec. 445. Surplus line.
23    (1) Definitions. For the purposes of this Section:
24    "Affiliate" means, with respect to an insured, any entity
25that controls, is controlled by, or is under common control

 

 

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1with the insured. For the purpose of this definition, an entity
2has control over another entity if:
3        (A) the entity directly or indirectly or acting through
4    one or more other persons owns, controls, or has the power
5    to vote 25% or more of any class of voting securities of
6    the other entity; or
7        (B) the entity controls in any manner the election of a
8    majority of the directors or trustees of the other entity.
9    "Affiliated group" means any group of entities that are all
10affiliated.
11    "Authorized insurer" means an insurer that holds a
12certificate of authority issued by the Director but, for the
13purposes of this Section, does not include a domestic surplus
14line insurer as defined in Section 445a or any residual market
15mechanism.
16    "Exempt commercial purchaser" means any person purchasing
17commercial insurance that, at the time of placement, meets the
18following requirements:
19        (A) The person employs or retains a qualified risk
20    manager to negotiate insurance coverage.
21        (B) The person has paid aggregate nationwide
22    commercial property and casualty insurance premiums in
23    excess of $100,000 in the immediately preceding 12 months.
24        (C) The person meets at least one of the following
25    criteria:
26            (I) The person possesses a net worth in excess of

 

 

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1        $20,000,000, as such amount is adjusted pursuant to the
2        provision in this definition concerning percentage
3        change.
4            (II) The person generates annual revenues in
5        excess of $50,000,000, as such amount is adjusted
6        pursuant to the provision in this definition
7        concerning percentage change.
8            (III) The person employs more than 500 full-time or
9        full-time equivalent employees per individual insured
10        or is a member of an affiliated group employing more
11        than 1,000 employees in the aggregate.
12            (IV) The person is a not-for-profit organization
13        or public entity generating annual budgeted
14        expenditures of at least $30,000,000, as such amount is
15        adjusted pursuant to the provision in this definition
16        concerning percentage change.
17            (V) The person is a municipality with a population
18        in excess of 50,000 persons.
19    Effective on January 1, 2015 and each fifth January 1
20occurring thereafter, the amounts in subitems (I), (II), and
21(IV) of item (C) of this definition shall be adjusted to
22reflect the percentage change for such 5-year period in the
23Consumer Price Index for All Urban Consumers published by the
24Bureau of Labor Statistics of the Department of Labor.
25    "Home state" means the following:
26        (A) With respect to an insured, except as provided in

 

 

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1    item (B) of this definition:
2            (I) the state in which an insured maintains its
3        principal place of business or, in the case of an
4        individual, the individual's principal residence; or
5            (II) if 100% of the insured risk is located out of
6        the state referred to in subitem (I), the state to
7        which the greatest percentage of the insured's taxable
8        premium for that insurance contract is allocated.
9        (B) If more than one insured from an affiliated group
10    are named insureds on a single surplus line insurance
11    contract, then "home state" means the home state, as
12    determined pursuant to item (A) of this definition, of the
13    member of the affiliated group that has the largest
14    percentage of premium attributed to it under such insurance
15    contract.
16        If more than one insured from a group that is not
17    affiliated are named insureds on a single surplus line
18    insurance contract, then:
19            (I) if individual group members pay 100% of the
20        premium for the insurance from their own funds, "home
21        state" means the home state, as determined pursuant to
22        item (A) of this definition, of each individual group
23        member; each individual group member's coverage under
24        the surplus line insurance contract shall be treated as
25        a separate surplus line contract for the purposes of
26        this Section;

 

 

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1            (II) otherwise, "home state" means the home state,
2        as determined pursuant to item (A) of this definition,
3        of the group.
4    Nothing in this definition shall be construed to alter the
5terms of the surplus line insurance contract.
6    "Multi-State risk" means a risk with insured exposures in
7more than one State.
8    "NAIC" means the National Association of Insurance
9Commissioners or any successor entity.
10    "Qualified risk manager" means, with respect to a
11policyholder of commercial insurance, a person who meets all of
12the following requirements:
13        (A) The person is an employee of, or third-party
14    consultant retained by, the commercial policyholder.
15        (B) The person provides skilled services in loss
16    prevention, loss reduction, or risk and insurance coverage
17    analysis, and purchase of insurance.
18        (C) With regard to the person:
19            (I) the person has:
20                (a) a bachelor's degree or higher from an
21            accredited college or university in risk
22            management, business administration, finance,
23            economics, or any other field determined by the
24            Director or his designee to demonstrate minimum
25            competence in risk management; and
26                (b) the following:

 

 

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1                    (i) three years of experience in risk
2                financing, claims administration, loss
3                prevention, risk and insurance analysis, or
4                purchasing commercial lines of insurance; or
5                    (ii) alternatively has:
6                        (AA) a designation as a Chartered
7                    Property and Casualty Underwriter (in this
8                    subparagraph (ii) referred to as "CPCU")
9                    issued by the American Institute for
10                    CPCU/Insurance Institute of America;
11                        (BB) a designation as an Associate in
12                    Risk Management (ARM) issued by the
13                    American Institute for CPCU/Insurance
14                    Institute of America;
15                        (CC) a designation as Certified Risk
16                    Manager (CRM) issued by the National
17                    Alliance for Insurance Education &
18                    Research;
19                        (DD) a designation as a RIMS Fellow
20                    (RF) issued by the Global Risk Management
21                    Institute; or
22                        (EE) any other designation,
23                    certification, or license determined by
24                    the Director or his designee to
25                    demonstrate minimum competency in risk
26                    management;

 

 

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1            (II) the person has:
2                (a) at least 7 years of experience in risk
3            financing, claims administration, loss prevention,
4            risk and insurance coverage analysis, or
5            purchasing commercial lines of insurance; and
6                (b) has any one of the designations specified
7            in subparagraph (ii) of paragraph (b);
8            (III) the person has at least 10 years of
9        experience in risk financing, claims administration,
10        loss prevention, risk and insurance coverage analysis,
11        or purchasing commercial lines of insurance; or
12            (IV) the person has a graduate degree from an
13        accredited college or university in risk management,
14        business administration, finance, economics, or any
15        other field determined by the Director or his or her
16        designee to demonstrate minimum competence in risk
17        management.
18    "Residual market mechanism" means an association,
19organization, or other entity described in Article XXXIII of
20this Code or Section 7-501 of the Illinois Vehicle Code or any
21similar association, organization, or other entity.
22    "State" means any state of the United States, the District
23of Columbia, the Commonwealth of Puerto Rico, Guam, the
24Northern Mariana Islands, the Virgin Islands, and American
25Samoa.
26    "Surplus line insurance" means insurance on a risk:

 

 

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1        (A) of the kinds specified in Classes 2 and 3 of
2    Section 4 of this Code; and
3        (B) that is procured from an unauthorized insurer after
4    the insurance producer representing the insured or the
5    surplus line producer is unable, after diligent effort, to
6    procure the insurance from authorized insurers; and
7        (C) where Illinois is the home state of the insured,
8    for policies effective, renewed or extended on July 21,
9    2011 or later and for multiyear policies upon the policy
10    anniversary that falls on or after July 21, 2011; and
11        (D) that is located in Illinois, for policies effective
12    prior to July 21, 2011.
13    "Unauthorized insurer" means an insurer that does not hold
14a valid certificate of authority issued by the Director but,
15for the purposes of this Section, shall also include a domestic
16surplus line insurer as defined in Section 445a.
17    (1.5) Procuring surplus line insurance; surplus line
18insurer requirements.
19        (a) Insurance producers may procure surplus line
20    insurance only if licensed as a surplus line producer under
21    this Section.
22        (b) Licensed surplus line producers may procure
23    surplus line insurance from an unauthorized insurer
24    domiciled in the United States only if the insurer:
25            (i) is permitted in its domiciliary jurisdiction
26        to write the type of insurance involved; and

 

 

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1             (ii) has, based upon information available to the
2        surplus line producer, a policyholders surplus of not
3        less than $15,000,000 determined in accordance with
4        the laws of its domiciliary jurisdiction; and
5             (iii) has standards of solvency and management
6        that are adequate for the protection of policyholders.
7         Where an unauthorized insurer does not meet the
8    standards set forth in (ii) and (iii) above, a surplus line
9    producer may, if necessary, procure insurance from that
10    insurer only if prior written warning of such fact or
11    condition is given to the insured by the insurance producer
12    or surplus line producer.
13        (c) Licensed surplus line producers may procure
14    surplus line insurance from an unauthorized insurer
15    domiciled outside of the United States only if the insurer
16    meets the standards for unauthorized insurers domiciled in
17    the United States in paragraph (b) of this subsection (1.5)
18    or is listed on the Quarterly Listing of Alien Insurers
19    maintained by the International Insurers Department of the
20    NAIC. The Director shall make the Quarterly Listing of
21    Alien Insurers available to surplus line producers without
22    charge.
23        (d) Insurance producers shall not procure from an
24    unauthorized insurer an insurance policy:
25            (i) that is designed to satisfy the proof of
26        financial responsibility and insurance requirements in

 

 

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

 

 

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1    more underlying policies.
2        (e) Licensed surplus line producers may procure
3    surplus line insurance from an unauthorized insurer for an
4    exempt commercial purchaser without making the required
5    diligent effort to procure the insurance from authorized
6    insurers if:
7            (i) the producer has disclosed to the exempt
8        commercial purchaser that such insurance may or may not
9        be available from authorized insurers that may provide
10        greater protection with more regulatory oversight; and
11            (ii) the exempt commercial purchaser has
12        subsequently in writing requested the producer to
13        procure such insurance from an unauthorized insurer.
14    (2) Surplus line producer; license. Any licensed producer
15who is a resident of this State, or any nonresident who
16qualifies under Section 500-40, may be licensed as a surplus
17line producer upon payment of an annual license fee of $400.
18    A surplus line producer so licensed shall keep a separate
19account of the business transacted thereunder for 7 years from
20the policy effective date which shall be open at all times to
21the inspection of the Director or his representative.
22    No later than July 21, 2012, the State of Illinois shall
23participate in the national insurance producer database of the
24NAIC, or any other equivalent uniform national database, for
25the licensure of surplus line producers and the renewal of such
26licenses.

 

 

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1    (3) Taxes and reports.
2        (a) Surplus line tax and penalty for late payment. The
3    surplus line tax rate for a surplus line insurance policy
4    or contract is determined as follows:
5            (i) 3% for policies or contracts with an effective
6        date prior to July 1, 2003;
7            (ii) 3.5% for policies or contracts with an
8        effective date of July 1, 2003 or later.
9        A surplus line producer shall file with the Director on
10    or before February 1 and August 1 of each year a report in
11    the form prescribed by the Director on all surplus line
12    insurance procured from unauthorized insurers and
13    submitted to the Surplus Line Association of Illinois
14    during the preceding 6 month period ending December 31 or
15    June 30 respectively, and on the filing of such report
16    shall pay to the Director for the use and benefit of the
17    State a sum equal to the surplus line tax rate multiplied
18    by the gross premiums less returned premiums upon all
19    surplus line insurance submitted to the Surplus Line
20    Association of Illinois during the preceding 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 late fee, penalty, and interest
24    charges as are provided for under Section 412 of this Code.
25    The Director, through the Attorney General, may institute
26    an action in the name of the People of the State of

 

 

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1    Illinois, in any court of competent jurisdiction, for the
2    recovery of the amount of such taxes, late fees, interest,
3    and penalties due, and prosecute the same to final
4    judgment, and take such steps as are necessary to collect
5    the same.
6        (b) Fire Marshal Tax. Each surplus line producer shall
7    file with the Director on or before March 31 of each year a
8    report in the form prescribed by the Director on all fire
9    insurance procured from unauthorized insurers and
10    submitted to the Surplus Line Association of Illinois
11    subject to tax under Section 12 of the Fire Investigation
12    Act and shall pay to the Director the fire marshal tax
13    required thereunder.
14        (c) Taxes and fees charged to insured. The taxes
15    imposed under this subsection and the countersigning fees
16    charged by the Surplus Line Association of Illinois may be
17    charged to and collected from surplus line insureds.
18    (4) (Blank).
19    (5) Submission of documents to Surplus Line Association of
20Illinois. A surplus line producer shall submit every insurance
21contract issued under his or her license to the Surplus Line
22Association of Illinois for recording and countersignature.
23The submission and countersignature may be effected through
24electronic means. The submission shall set forth:
25        (a) the name of the insured;
26        (b) the description and location of the insured

 

 

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1    property or risk;
2        (c) the amount insured;
3        (d) the gross premiums charged or returned;
4        (e) the name of the unauthorized insurer from whom
5    coverage has been procured;
6        (f) the kind or kinds of insurance procured; and
7        (g) amount of premium subject to tax required by
8    Section 12 of the Fire Investigation Act.
9    Proposals, endorsements, and other documents which are
10incidental to the insurance but which do not affect the premium
11charged are exempted from filing and countersignature.
12    The submission of insuring contracts to the Surplus Line
13Association of Illinois constitutes a certification by the
14surplus line producer or by the insurance producer who
15presented the risk to the surplus line producer for placement
16as a surplus line risk that after diligent effort the required
17insurance could not be procured from authorized insurers and
18that such procurement was otherwise in accordance with the
19surplus line law.
20    (6) Countersignature required. It shall be unlawful for an
21insurance producer to deliver any unauthorized insurer
22contract unless such insurance contract is countersigned by the
23Surplus Line Association of Illinois.
24    (7) Inspection of records. A surplus line producer shall
25maintain separate records of the business transacted under his
26or her license for 7 years from the policy effective date,

 

 

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1including complete copies of surplus line insurance contracts
2maintained on paper or by electronic means, which records shall
3be open at all times for inspection by the Director and by the
4Surplus Line Association of Illinois.
5    (8) Violations and penalties. The Director may suspend or
6revoke or refuse to renew a surplus line producer license for
7any violation of this Code. In addition to or in lieu of
8suspension or revocation, the Director may subject a surplus
9line producer to a civil penalty of up to $2,000 for each cause
10for suspension or revocation. Such penalty is enforceable under
11subsection (5) of Section 403A of this Code.
12    (9) Director may declare insurer ineligible. If the
13Director determines that the further assumption of risks might
14be hazardous to the policyholders of an unauthorized insurer,
15the Director may order the Surplus Line Association of Illinois
16not to countersign insurance contracts evidencing insurance in
17such insurer and order surplus line producers to cease
18procuring insurance from such insurer.
19    (10) Service of process upon Director. Insurance contracts
20delivered under this Section from unauthorized insurers, other
21than domestic surplus line insurers as defined in Section 445a,
22shall contain a provision designating the Director and his
23successors in office the true and lawful attorney of the
24insurer upon whom may be served all lawful process in any
25action, suit or proceeding arising out of such insurance.
26Service of process made upon the Director to be valid hereunder

 

 

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1must state the name of the insured, the name of the
2unauthorized insurer and identify the contract of insurance.
3The Director at his option is authorized to forward a copy of
4the process to the Surplus Line Association of Illinois for
5delivery to the unauthorized insurer or the Director may
6deliver the process to the unauthorized insurer by other means
7which he considers to be reasonably prompt and certain.
8    (10.5) Insurance contracts delivered under this Section
9from unauthorized insurers, other than domestic surplus line
10insurers as defined in Section 445a, shall have stamped or
11imprinted on the first page thereof in not less than 12-pt.
12bold face type the following legend: "Notice to Policyholder:
13This contract is issued, pursuant to Section 445 of the
14Illinois Insurance Code, by a company not authorized and
15licensed to transact business in Illinois and as such is not
16covered by the Illinois Insurance Guaranty Fund." Insurance
17contracts delivered under this Section from domestic surplus
18line insurers as defined in Section 445a shall have stamped or
19imprinted on the first page thereof in not less than 12-pt.
20bold face type the following legend: "Notice to Policyholder:
21This contract is issued by a domestic surplus line insurer, as
22defined in Section 445a of the Illinois Insurance Code,
23pursuant to Section 445, and as such is not covered by the
24Illinois Insurance Guaranty Fund."
25    (11) The Illinois Surplus Line law does not apply to
26insurance of property and operations of railroads or aircraft

 

 

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1engaged in interstate or foreign commerce, insurance of
2vessels, crafts or hulls, cargoes, marine builder's risks,
3marine protection and indemnity, or other risks including
4strikes and war risks insured under ocean or wet marine forms
5of policies.
6    (12) Surplus line insurance procured under this Section,
7including insurance procured from a domestic surplus line
8insurer, is not subject to the provisions of the Illinois
9Insurance Code other than Sections 123, 123.1, 401, 401.1, 402,
10403, 403A, 408, 412, 445, 445.1, 445.2, 445.3, 445.4, and all
11of the provisions of Article XXXI to the extent that the
12provisions of Article XXXI are not inconsistent with the terms
13of this Act.
14(Source: P.A. 97-955, eff. 8-14-12.)
 
15    (215 ILCS 5/445.4)  (from Ch. 73, par. 1057.4)
16    Sec. 445.4. Examination. The Director shall, at such times
17as he deems necessary, make or cause to be made an examination
18of the Association. The reasonable cost of any such examination
19shall be paid by the Association upon presentation to it by the
20Director of a detailed account of such cost. During the course
21of such examination, the directors, officers, members, agents
22and employees of the Association may be examined under oath
23regarding the operation of the Association and shall make
24available all books, records, accounts, documents and
25agreements pertaining thereto. The Director shall furnish a

 

 

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1copy of the examination report to the Association. Within 20
2days after receipt of the report, the Association may request a
3hearing on the report or any facts or recommendations therein.
4If the Director finds the Association or any of its members to
5be in violation of this Act, he may issue an order requiring
6discontinuance of such violation. The Association shall
7annually provide for an independent financial audit of the
8books and records of the Association by a certified public
9accountant and shall provide a copy of the audit report to the
10Director.
11(Source: P.A. 83-1300.)