Illinois General Assembly - Full Text of SB2609
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Full Text of SB2609  99th General Assembly



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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 205 and 545 as follows:
6    (215 ILCS 5/205)  (from Ch. 73, par. 817)
7    Sec. 205. Priority of distribution of general assets.
8    (1) The priorities of distribution of general assets from
9the company's estate is to be as follows:
10        (a) The costs and expenses of administration,
11    including, but not limited to, the following:
12            (i) The reasonable expenses of the Illinois
13        Insurance Guaranty Fund, the Illinois Life and Health
14        Insurance Guaranty Association, and the Illinois
15        Health Maintenance Organization Guaranty Association
16        and of any similar organization in any other state,
17        including overhead, salaries, and other general
18        administrative expenses allocable to the receivership
19        (administrative and claims handling expenses and
20        expenses in connection with arrangements for ongoing
21        coverage), but excluding expenses incurred in the
22        performance of duties under Section 547 or similar
23        duties under the statute governing a similar



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1        organization in another state. For property and
2        casualty insurance guaranty associations that guaranty
3        certain obligations of any member company as defined by
4        Section 534.5, expenses shall include, but not be
5        limited to, loss adjustment expenses, which shall
6        include adjusting and other expenses and defense and
7        cost containment expenses. The expenses of such
8        property and casualty guaranty associations, including
9        the Illinois Insurance Guaranty Fund, shall be
10        reimbursed as prescribed by Section 545, but shall be
11        subordinate to all other costs and expenses of
12        administration, including the expenses reimbursed
13        pursuant to subparagraph (ii) of this paragraph (a).
14            (ii) The expenses expressly approved or ratified
15        by the Director as liquidator or rehabilitator,
16        including, but not limited to, the following:
17                (1) the actual and necessary costs of
18            preserving or recovering the property of the
19            insurer;
20                (2) reasonable compensation for all services
21            rendered on behalf of the administrative
22            supervisor or receiver;
23                (3) any necessary filing fees;
24                (4) the fees and mileage payable to witnesses;
25                (5) unsecured loans obtained by the receiver;
26            and



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1                (6) expenses approved by the conservator or
2        rehabilitator of the insurer, if any, incurred in the
3        course of the conservation or rehabilitation that are
4        unpaid at the time of the entry of the order of
5        liquidation.
6        Any unsecured loan falling under item (5) of
7    subparagraph (ii) of this paragraph (a) shall have priority
8    over all other costs and expenses of administration, unless
9    the lender agrees otherwise. Absent agreement to the
10    contrary, all other costs and expenses of administration
11    shall be shared on a pro-rata basis, except for the
12    expenses of property and casualty guaranty associations,
13    which shall have a lower priority pursuant to subparagraph
14    (i) of this paragraph (a). , including the expenses of the
15    Illinois Insurance Guaranty Fund, the Illinois Life and
16    Health Insurance Guaranty Association, the Illinois Health
17    Maintenance Organization Guaranty Association and of any
18    similar organization in any other state as prescribed in
19    subsection (c) of Section 545.
20        (b) Secured claims, including claims for taxes and
21    debts due the federal or any state or local government,
22    that are secured by liens perfected prior to the filing of
23    the complaint.
24        (c) Claims for wages actually owing to employees for
25    services rendered within 3 months prior to the date of the
26    filing of the complaint, not exceeding $1,000 to each



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1    employee unless there are claims due the federal government
2    under paragraph (f), then the claims for wages shall have a
3    priority of distribution immediately following that of
4    federal claims under paragraph (f) and immediately
5    preceding claims of general creditors under paragraph (g).
6        (d) Claims by policyholders, beneficiaries, and
7    insureds, under insurance policies, annuity contracts, and
8    funding agreements, liability claims against insureds
9    covered under insurance policies and insurance contracts
10    issued by the company, claims of obligees (and, subject to
11    the discretion of the receiver, completion contractors)
12    under surety bonds and surety undertakings (not to include
13    bail bonds, mortgage or financial guaranty, or other forms
14    of insurance offering protection against investment risk),
15    claims by principals under surety bonds and surety
16    undertakings for wrongful dissipation of collateral by the
17    insurer or its agents, and claims incurred during any
18    extension of coverage provided under subsection (5) of
19    Section 193, and claims of the Illinois Insurance Guaranty
20    Fund, the Illinois Life and Health Insurance Guaranty
21    Association, the Illinois Health Maintenance Organization
22    Guaranty Association, and any similar organization in
23    another state as prescribed in Section 545. For purposes of
24    this Section, "funding agreement" means an agreement
25    whereby an insurer authorized to write business under Class
26    1 of Section 4 of this Code may accept and accumulate funds



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1    and make one or more payments at future dates in amounts
2    that are not based upon mortality or morbidity
3    contingencies.
4        (e) Claims by policyholders, beneficiaries, and
5    insureds, the allowed values of which were determined by
6    estimation under paragraph (b) of subsection (4) of Section
7    209.
8        (f) Any other claims due the federal government.
9        (g) All other claims of general creditors not falling
10    within any other priority under this Section including
11    claims for taxes and debts due any state or local
12    government which are not secured claims and claims for
13    attorneys' fees incurred by the company in contesting its
14    conservation, rehabilitation, or liquidation.
15        (h) Claims of guaranty fund certificate holders,
16    guaranty capital shareholders, capital note holders, and
17    surplus note holders.
18        (i) Proprietary claims of shareholders, members, or
19    other owners.
20    Every claim under a written agreement, statute, or rule
21providing that the assets in a separate account are not
22chargeable with the liabilities arising out of any other
23business of the insurer shall be satisfied out of the funded
24assets in the separate account equal to, but not to exceed, the
25reserves maintained in the separate account under the separate
26account agreement, and to the extent, if any, the claim is not



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1fully discharged thereby, the remainder of the claim shall be
2treated as a priority level (d) claim under paragraph (d) of
3this subsection to the extent that reserves have been
4established in the insurer's general account pursuant to
5statute, rule, or the separate account agreement.
6    For purposes of this provision, "separate account
7policies, contracts, or agreements" means any policies,
8contracts, or agreements that provide for separate accounts as
9contemplated by Section 245.21.
10    To the extent that any assets of an insurer, other than
11those assets properly allocated to and maintained in a separate
12account, have been used to fund or pay any expenses, taxes, or
13policyholder benefits that are attributable to a separate
14account policy, contract, or agreement that should have been
15paid by a separate account prior to the commencement of
16receivership proceedings, then upon the commencement of
17receivership proceedings, the separate accounts that benefited
18from this payment or funding shall first be used to repay or
19reimburse the company's general assets or account for any
20unreimbursed net sums due at the commencement of receivership
21proceedings prior to the application of the separate account
22assets to the satisfaction of liabilities or the corresponding
23separate account policies, contracts, and agreements.
24    To the extent, if any, reserves or assets maintained in the
25separate account are in excess of the amounts needed to satisfy
26claims under the separate account contracts, the excess shall



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1be treated as part of the general assets of the insurer's
3    (2) Within 120 days after the issuance of an Order of
4Liquidation with a finding of insolvency against a domestic
5company, the Director shall make application to the court
6requesting authority to disburse funds to the Illinois
7Insurance Guaranty Fund, the Illinois Life and Health Insurance
8Guaranty Association, the Illinois Health Maintenance
9Organization Guaranty Association, and similar organizations
10in other states from time to time out of the company's
11marshaled assets as funds become available in amounts equal to
12disbursements made by the Illinois Insurance Guaranty Fund, the
13Illinois Life and Health Insurance Guaranty Association, the
14Illinois Health Maintenance Organization Guaranty Association,
15and similar organizations in other states for covered claims
16obligations on the presentation of evidence that such
17disbursements have been made by the Illinois Insurance Guaranty
18Fund, the Illinois Life and Health Insurance Guaranty
19Association, the Illinois Health Maintenance Organization
20Guaranty Association, and similar organizations in other
22    The Director shall establish procedures for the ratable
23allocation and distribution of disbursements to the Illinois
24Insurance Guaranty Fund, the Illinois Life and Health Insurance
25Guaranty Association, the Illinois Health Maintenance
26Organization Guaranty Association, and similar organizations



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1in other states. In determining the amounts available for
2disbursement, the Director shall reserve sufficient assets for
3the payment of the expenses of administration described in
4paragraph (1)(a) of this Section. All funds available for
5disbursement after the establishment of the prescribed reserve
6shall be promptly distributed. As a condition to receipt of
7funds in reimbursement of covered claims obligations, the
8Director shall secure from the Illinois Insurance Guaranty
9Fund, the Illinois Life and Health Insurance Guaranty
10Association, the Illinois Health Maintenance Organization
11Guaranty Association, and each similar organization in other
12states, an agreement to return to the Director on demand funds
13previously received as may be required to pay claims of secured
14creditors and claims falling within the priorities established
15in paragraphs (a), (b), (c), and (d) of subsection (1) of this
16Section in accordance with such priorities.
17    (3) The changes made in this Section by this amendatory Act
18of the 99th General Assembly apply to all liquidation,
19rehabilitation, or conservation proceedings that are pending
20on the effective date of this amendatory Act of the 99th
21General Assembly and to all future liquidation,
22rehabilitation, or conservation proceedings.
23    (4) The provisions of this Section are severable under
24Section 1.31 of the Statute on Statutes.
25(Source: P.A. 92-65, eff. 7-12-01; 92-875, eff. 1-3-03.)



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1    (215 ILCS 5/545)  (from Ch. 73, par. 1065.95)
2    Sec. 545. Effect of paid claims.
3    (a) Every insured or claimant seeking the protection of
4this Article shall cooperate with the Fund to the same extent
5as such person would have been required to cooperate with the
6insolvent company. The Fund shall have all the rights, duties
7and obligations under the policy to the extent of the covered
8claim payment, provided the Fund shall have no cause of action
9against the insured of the insolvent company for any sums it
10has paid out except such causes of action as the insolvent
11company would have had if such sums had been paid by the
12insolvent company and except as provided in paragraph (d) of
13this Section.
14    (b) The Fund and any similar organization in another state
15shall be recognized as claimants in the liquidation of an
16insolvent company for any amounts paid by them on covered
17claims obligations as determined under this Article or similar
18laws in other states and shall receive dividends at the
19priority set forth in paragraph (d) of subsection (1) of
20Section 205 of this Code; provided that if, at the time that
21the liquidator Liquidator issues a cut-off notice to the Fund
22in anticipation of closing the estate, a reserve has been
23established by the Fund, or any similar organization in another
24state, for the amount of their future administrative expenses
25and loss development associated with unpaid reported pending
26claims, these reserves will be deemed to have been paid as of



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1the date of the notice and payment shall be made accordingly.
2The liquidator of an insolvent company shall be bound by
3determinations of covered claim eligibility under the Act and
4by settlements of claims made by the Fund or a similar
5organization in another state on the receipt of certification
6of such payments, to the extent those determinations or
7settlements satisfy obligations of the Fund, but the receiver
8shall not be bound in any way by those determinations or
9settlements to the extent that there remains a claim in the
10estate for amounts in excess of the payments by the Fund. In
11submitting their claim for covered claim payments the Fund and
12any similar organization in another state shall not be subject
13to the requirements of Sections 208 and 209 of this Code and
14shall not be affected by the failure of the person receiving a
15covered claim payment to file a proof of claim.
16    (c) The expenses of the Fund and of any similar
17organization in any other state, other than expenses incurred
18in the performance of duties under Section 547 or similar
19duties under the statute governing a similar organization in
20another state, shall be accorded the same priority over all
21claims against the estate, except as provided for in paragraph
22(a) of subsection (1) of Section 205 of this Code as the
23liquidator's expenses. The liquidator shall make prompt
24reimbursement to the Fund and any similar organization for such
25expense payments.
26    (d) The Fund has the right to recover from the following



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1persons the amount of any covered claims and allocated claims
2expenses which the Fund paid or incurred on behalf of such
3person in satisfaction, in whole or in part, of liability
4obligations of such person to any other person:
5        (i) any insured whose net worth on December 31 of the
6    year next preceding the date the company becomes an
7    insolvent company exceeds $25,000,000; provided that an
8    insured's net worth on such date shall be deemed to include
9    the aggregate net worth of the insured and all of its
10    affiliates as calculated on a consolidated basis.
11        (ii) any insured who is an affiliate of the insolvent
12    company.
13(Source: P.A. 96-1450, eff. 8-20-10.)
14    Section 99. Effective date. This Act takes effect upon
15becoming law.