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


Sen. William R. Haine

Filed: 3/31/2016





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2    AMENDMENT NO. ______. Amend Senate Bill 2609 by replacing
3everything after the enacting clause with the following:
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,



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1        including overhead, salaries, and other general
2        administrative expenses allocable to the receivership
3        (administrative and claims handling expenses and
4        expenses in connection with arrangements for ongoing
5        coverage), but excluding expenses incurred in the
6        performance of duties under Section 547 or similar
7        duties under the statute governing a similar
8        organization in another state. For property and
9        casualty insurance guaranty associations that guaranty
10        certain obligations of any member company as defined by
11        Section 534.5, expenses shall include, but not be
12        limited to, loss adjustment expenses, which shall
13        include adjusting and other expenses and defense and
14        cost containment expenses. The expenses of such
15        property and casualty guaranty associations, including
16        the Illinois Insurance Guaranty Fund, shall be
17        reimbursed as prescribed by Section 545, but shall be
18        subordinate to all other costs and expenses of
19        administration, including the expenses reimbursed
20        pursuant to subparagraph (ii) of this paragraph (a).
21            (ii) The expenses expressly approved or ratified
22        by the Director as liquidator or rehabilitator,
23        including, but not limited to, the following:
24                (1) the actual and necessary costs of
25            preserving or recovering the property of the
26            insurer;



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1                (2) reasonable compensation for all services
2            rendered on behalf of the administrative
3            supervisor or receiver;
4                (3) any necessary filing fees;
5                (4) the fees and mileage payable to witnesses;
6                (5) unsecured loans obtained by the receiver;
7            and
8                (6) expenses approved by the conservator or
9        rehabilitator of the insurer, if any, incurred in the
10        course of the conservation or rehabilitation that are
11        unpaid at the time of the entry of the order of
12        liquidation.
13        Any unsecured loan falling under item (5) of
14    subparagraph (ii) of this paragraph (a) shall have priority
15    over all other costs and expenses of administration, unless
16    the lender agrees otherwise. Absent agreement to the
17    contrary, all other costs and expenses of administration
18    shall be shared on a pro-rata basis, except for the
19    expenses of property and casualty guaranty associations,
20    which shall have a lower priority pursuant to subparagraph
21    (i) of this paragraph (a). , including the expenses of the
22    Illinois Insurance Guaranty Fund, the Illinois Life and
23    Health Insurance Guaranty Association, the Illinois Health
24    Maintenance Organization Guaranty Association and of any
25    similar organization in any other state as prescribed in
26    subsection (c) of Section 545.



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1        (b) Secured claims, including claims for taxes and
2    debts due the federal or any state or local government,
3    that are secured by liens perfected prior to the filing of
4    the complaint.
5        (c) Claims for wages actually owing to employees for
6    services rendered within 3 months prior to the date of the
7    filing of the complaint, not exceeding $1,000 to each
8    employee unless there are claims due the federal government
9    under paragraph (f), then the claims for wages shall have a
10    priority of distribution immediately following that of
11    federal claims under paragraph (f) and immediately
12    preceding claims of general creditors under paragraph (g).
13        (d) Claims by policyholders, beneficiaries, and
14    insureds, under insurance policies, annuity contracts, and
15    funding agreements, liability claims against insureds
16    covered under insurance policies and insurance contracts
17    issued by the company, claims of obligees (and, subject to
18    the discretion of the receiver, completion contractors)
19    under surety bonds and surety undertakings (not to include
20    bail bonds, mortgage or financial guaranty, or other forms
21    of insurance offering protection against investment risk),
22    claims by principals under surety bonds and surety
23    undertakings for wrongful dissipation of collateral by the
24    insurer or its agents, and claims incurred during any
25    extension of coverage provided under subsection (5) of
26    Section 193, and claims of the Illinois Insurance Guaranty



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1    Fund, the Illinois Life and Health Insurance Guaranty
2    Association, the Illinois Health Maintenance Organization
3    Guaranty Association, and any similar organization in
4    another state as prescribed in Section 545. For purposes of
5    this Section, "funding agreement" means an agreement
6    whereby an insurer authorized to write business under Class
7    1 of Section 4 of this Code may accept and accumulate funds
8    and make one or more payments at future dates in amounts
9    that are not based upon mortality or morbidity
10    contingencies.
11        (e) Claims by policyholders, beneficiaries, and
12    insureds, the allowed values of which were determined by
13    estimation under paragraph (b) of subsection (4) of Section
14    209.
15        (f) Any other claims due the federal government.
16        (g) All other claims of general creditors not falling
17    within any other priority under this Section including
18    claims for taxes and debts due any state or local
19    government which are not secured claims and claims for
20    attorneys' fees incurred by the company in contesting its
21    conservation, rehabilitation, or liquidation.
22        (h) Claims of guaranty fund certificate holders,
23    guaranty capital shareholders, capital note holders, and
24    surplus note holders.
25        (i) Proprietary claims of shareholders, members, or
26    other owners.



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1    Every claim under a written agreement, statute, or rule
2providing that the assets in a separate account are not
3chargeable with the liabilities arising out of any other
4business of the insurer shall be satisfied out of the funded
5assets in the separate account equal to, but not to exceed, the
6reserves maintained in the separate account under the separate
7account agreement, and to the extent, if any, the claim is not
8fully discharged thereby, the remainder of the claim shall be
9treated as a priority level (d) claim under paragraph (d) of
10this subsection to the extent that reserves have been
11established in the insurer's general account pursuant to
12statute, rule, or the separate account agreement.
13    For purposes of this provision, "separate account
14policies, contracts, or agreements" means any policies,
15contracts, or agreements that provide for separate accounts as
16contemplated by Section 245.21.
17    To the extent that any assets of an insurer, other than
18those assets properly allocated to and maintained in a separate
19account, have been used to fund or pay any expenses, taxes, or
20policyholder benefits that are attributable to a separate
21account policy, contract, or agreement that should have been
22paid by a separate account prior to the commencement of
23receivership proceedings, then upon the commencement of
24receivership proceedings, the separate accounts that benefited
25from this payment or funding shall first be used to repay or
26reimburse the company's general assets or account for any



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1unreimbursed net sums due at the commencement of receivership
2proceedings prior to the application of the separate account
3assets to the satisfaction of liabilities or the corresponding
4separate account policies, contracts, and agreements.
5    To the extent, if any, reserves or assets maintained in the
6separate account are in excess of the amounts needed to satisfy
7claims under the separate account contracts, the excess shall
8be treated as part of the general assets of the insurer's
10    (2) Within 120 days after the issuance of an Order of
11Liquidation with a finding of insolvency against a domestic
12company, the Director shall make application to the court
13requesting authority to disburse funds to the Illinois
14Insurance Guaranty Fund, the Illinois Life and Health Insurance
15Guaranty Association, the Illinois Health Maintenance
16Organization Guaranty Association, and similar organizations
17in other states from time to time out of the company's
18marshaled assets as funds become available in amounts equal to
19disbursements made by the Illinois Insurance Guaranty Fund, the
20Illinois Life and Health Insurance Guaranty Association, the
21Illinois Health Maintenance Organization Guaranty Association,
22and similar organizations in other states for covered claims
23obligations on the presentation of evidence that such
24disbursements have been made by the Illinois Insurance Guaranty
25Fund, the Illinois Life and Health Insurance Guaranty
26Association, the Illinois Health Maintenance Organization



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1Guaranty Association, and similar organizations in other
3    The Director shall establish procedures for the ratable
4allocation and distribution of disbursements to the Illinois
5Insurance Guaranty Fund, the Illinois Life and Health Insurance
6Guaranty Association, the Illinois Health Maintenance
7Organization Guaranty Association, and similar organizations
8in other states. In determining the amounts available for
9disbursement, the Director shall reserve sufficient assets for
10the payment of the expenses of administration described in
11paragraph (1)(a) of this Section. All funds available for
12disbursement after the establishment of the prescribed reserve
13shall be promptly distributed. As a condition to receipt of
14funds in reimbursement of covered claims obligations, the
15Director shall secure from the Illinois Insurance Guaranty
16Fund, the Illinois Life and Health Insurance Guaranty
17Association, the Illinois Health Maintenance Organization
18Guaranty Association, and each similar organization in other
19states, an agreement to return to the Director on demand funds
20previously received as may be required to pay claims of secured
21creditors and claims falling within the priorities established
22in paragraphs (a), (b), (c), and (d) of subsection (1) of this
23Section in accordance with such priorities.
24    (3) The changes made in this Section by this amendatory Act
25of the 99th General Assembly apply to all liquidation,
26rehabilitation, or conservation proceedings that are pending



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1on the effective date of this amendatory Act of the 99th
2General Assembly and to all future liquidation,
3rehabilitation, or conservation proceedings.
4    (4) The provisions of this Section are severable under
5Section 1.31 of the Statute on Statutes.
6(Source: P.A. 92-65, eff. 7-12-01; 92-875, eff. 1-3-03.)
7    (215 ILCS 5/545)  (from Ch. 73, par. 1065.95)
8    Sec. 545. Effect of paid claims.
9    (a) Every insured or claimant seeking the protection of
10this Article shall cooperate with the Fund to the same extent
11as such person would have been required to cooperate with the
12insolvent company. The Fund shall have all the rights, duties
13and obligations under the policy to the extent of the covered
14claim payment, provided the Fund shall have no cause of action
15against the insured of the insolvent company for any sums it
16has paid out except such causes of action as the insolvent
17company would have had if such sums had been paid by the
18insolvent company and except as provided in paragraph (d) of
19this Section.
20    (b) The Fund and any similar organization in another state
21shall be recognized as claimants in the liquidation of an
22insolvent company for any amounts paid by them on covered
23claims obligations as determined under this Article or similar
24laws in other states and shall receive dividends at the
25priority set forth in paragraph (d) of subsection (1) of



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1Section 205 of this Code; provided that if, at the time that
2the liquidator Liquidator issues a cut-off notice to the Fund
3in anticipation of closing the estate, a reserve has been
4established by the Fund, or any similar organization in another
5state, for the amount of their future administrative expenses
6and loss development associated with unpaid reported pending
7claims, these reserves will be deemed to have been paid as of
8the date of the notice and payment shall be made accordingly.
9The liquidator of an insolvent company shall be bound by
10determinations of covered claim eligibility under the Act and
11by settlements of claims made by the Fund or a similar
12organization in another state on the receipt of certification
13of such payments, to the extent those determinations or
14settlements satisfy obligations of the Fund, but the receiver
15shall not be bound in any way by those determinations or
16settlements to the extent that there remains a claim in the
17estate for amounts in excess of the payments by the Fund. In
18submitting their claim for covered claim payments the Fund and
19any similar organization in another state shall not be subject
20to the requirements of Sections 208 and 209 of this Code and
21shall not be affected by the failure of the person receiving a
22covered claim payment to file a proof of claim.
23    (c) The expenses of the Fund and of any similar
24organization in any other state, other than expenses incurred
25in the performance of duties under Section 547 or similar
26duties under the statute governing a similar organization in



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1another state, shall be accorded the same priority over all
2claims against the estate, except as provided for in paragraph
3(a) of subsection (1) of Section 205 of this Code as the
4liquidator's expenses. The liquidator shall make prompt
5reimbursement to the Fund and any similar organization for such
6expense payments.
7    (d) The Fund has the right to recover from the following
8persons the amount of any covered claims and allocated claims
9expenses which the Fund paid or incurred on behalf of such
10person in satisfaction, in whole or in part, of liability
11obligations of such person to any other person:
12        (i) any insured whose net worth on December 31 of the
13    year next preceding the date the company becomes an
14    insolvent company exceeds $25,000,000; provided that an
15    insured's net worth on such date shall be deemed to include
16    the aggregate net worth of the insured and all of its
17    affiliates as calculated on a consolidated basis.
18        (ii) any insured who is an affiliate of the insolvent
19    company.
20(Source: P.A. 96-1450, eff. 8-20-10.)
21    Section 99. Effective date. This Act takes effect upon
22becoming law.".