Illinois General Assembly - Full Text of SB2560
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Full Text of SB2560  93rd General Assembly



SB2560 Enrolled LRB093 15798 SAS 41413 b

1     AN ACT concerning insurance.
2     Be it enacted by the People of the State of Illinois,
3 represented in the General Assembly:
4     Section 5. The Illinois Insurance Code is amended by
5 changing Section 445 as follows:
6     (215 ILCS 5/445)  (from Ch. 73, par. 1057)
7     Sec. 445. Surplus line.
8     (1) Surplus line defined; surplus line insurer
9 requirements. "Surplus line insurance" means is insurance on an
10 Illinois risk of the kinds specified in Classes 2 and 3 of
11 Section 4 of this Code procured from an unauthorized insurer or
12 a domestic surplus line insurer as defined in Section 445a
13 after the insurance producer representing the insured or the
14 surplus line producer is unable, after diligent effort, to
15 procure said insurance from authorized insurers which are
16 authorized to transact business in this State other than
17 domestic surplus line insurers as defined in Section 445a.
18     "Authorized insurer" means an insurer that holds a
19 certificate of authority issued by the Director but, for the
20 purposes of this Section, does not include a domestic surplus
21 line insurer as defined in Section 445a or any residual market
22 mechanism.
23     "Residual market mechanism" means an association,
24 organization, or other entity described in Article XXXIII of
25 this Code or Section 7-501 of the Illinois Vehicle Code or any
26 similar association, organization, or other entity.
27     "Unauthorized insurer" means an insurer that does not hold
28 a valid certificate of authority issued by the Director but,
29 for the purposes of this Section, shall also include a domestic
30 surplus line insurer as defined in Section 445a.
31     Insurance producers may procure surplus line insurance
32 only if licensed as a surplus line producer under this Section



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1 and may procure that insurance only from an unauthorized
2 insurer or from a domestic surplus line insurer as defined in
3 Section 445a:
4         (a) that based upon information available to the
5     surplus line producer has a policyholders surplus of not
6     less than $15,000,000 determined in accordance with
7     accounting rules that are applicable to authorized
8     insurers; and
9         (b) that has standards of solvency and management that
10     are adequate for the protection of policyholders; and
11         (c) where an unauthorized insurer does not meet the
12     standards set forth in (a) and (b) above, a surplus line
13     producer may, if necessary, procure insurance from that
14     insurer only if prior written warning of such fact or
15     condition is given to the insured by the insurance producer
16     or surplus line producer.
17     Insurance producers shall not procure from an unauthorized
18 insurer an insurance policy:
19         (i) that is designed to satisfy the proof of financial
20     responsibility and insurance requirements in any Illinois
21     law where the law requires that the proof of insurance is
22     issued by an authorized insurer or residual market
23     mechanism;
24         (ii) that covers the risk of accidental injury to
25     employees arising out of and in the course of employment
26     according to the provisions of the Workers' Compensation
27     Act; or
28         (iii) that insures any Illinois personal lines risk, as
29     defined in subsection (a), (b), or (c) of Section 143.13 of
30     this Code, that is eligible for residual market mechanism
31     coverage, unless the insured or prospective insured
32     requests limits of liability greater than the limits
33     provided by the residual market mechanism. In the course of
34     making a diligent effort to procure insurance from
35     authorized insurers, an insurance producer shall not be
36     required to submit a risk to a residual market mechanism



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1     when the risk is not eligible for coverage or exceeds the
2     limits available in the residual market mechanism.
3     Where there is an insurance policy issued by an authorized
4 insurer or residual market mechanism insuring a risk described
5 in item (i), (ii), or (iii) above, nothing in this paragraph
6 shall be construed to prohibit a surplus line producer from
7 procuring from an unauthorized insurer a policy insuring the
8 risk on an excess or umbrella basis where the excess or
9 umbrella policy is written over one or more underlying
10 policies.
11     (2) Surplus line producer; license. Any licensed producer
12 who is a resident of this State, or any nonresident who
13 qualifies under Section 500-40, may be licensed as a surplus
14 line producer upon:
15         (a) completing a prelicensing course of study. The
16     course provided for by this Section shall be conducted
17     under rules and regulations prescribed by the Director. The
18     Director may administer the course or may make
19     arrangements, including contracting with an outside
20     educational service, for administering the course and
21     collecting the non-refundable application fee provided for
22     in this subsection. Any charges assessed by the Director or
23     the educational service for administering the course shall
24     be paid directly by the individual applicants. Each
25     applicant required to take the course shall enclose with
26     the application a non-refundable $20 application fee
27     payable to the Director plus a separate course
28     administration fee. An applicant who fails to appear for
29     the course as scheduled, or appears but fails to complete
30     the course, shall not be entitled to any refund, and shall
31     be required to submit a new request to attend the course
32     together with all the requisite fees before being
33     rescheduled for another course at a later date; and
34         (b) payment of an annual license fee of $400; and
35         (c) procurement of the surety bond required in
36     subsection (4) of this Section.



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1     A surplus line producer so licensed shall keep a separate
2 account of the business transacted thereunder which shall be
3 open at all times to the inspection of the Director or his
4 representative.
5     The prelicensing course of study requirement in (a) above
6 shall not apply to insurance producers who were licensed under
7 the Illinois surplus line law on or before January 1, 2002 the
8 effective date of this amendatory Act of the 92nd General
9 Assembly.
10     (3) Taxes and reports.
11         (a) Surplus line tax and penalty for late payment.
12         A surplus line producer shall file with the Director on
13     or before February 1 and August 1 of each year a report in
14     the form prescribed by the Director on all surplus line
15     insurance procured from unauthorized insurers during the
16     preceding 6 month period ending December 31 or June 30
17     respectively, and on the filing of such report shall pay to
18     the Director for the use and benefit of the State a sum
19     equal to 3.5% of the gross premiums less returned premiums
20     upon all surplus line insurance procured or cancelled
21     during the preceding 6 months.
22         Any surplus line producer who fails to pay the full
23     amount due under this subsection is liable, in addition to
24     the amount due, for such penalty and interest charges as
25     are provided for under Section 412 of this Code. The
26     Director, through the Attorney General, may institute an
27     action in the name of the People of the State of Illinois,
28     in any court of competent jurisdiction, for the recovery of
29     the amount of such taxes and penalties due, and prosecute
30     the same to final judgment, and take such steps as are
31     necessary to collect the same.
32         (b) Fire Marshal Tax.
33         Each surplus line producer shall file with the Director
34     on or before March 31 of each year a report in the form
35     prescribed by the Director on all fire insurance procured
36     from unauthorized insurers subject to tax under Section 12



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1     of the Fire Investigation Act and shall pay to the Director
2     the fire marshal tax required thereunder.
3         (c) Taxes and fees charged to insured. The taxes
4     imposed under this subsection and the countersigning fees
5     charged by the Surplus Line Association of Illinois may be
6     charged to and collected from surplus line insureds.
7     (4) Bond. Each surplus line producer, as a condition to
8 receiving a surplus line producer's license, shall execute and
9 deliver to the Director a surety bond to the People of the
10 State in the penal sum of $20,000, with a surety which is
11 authorized to transact business in this State, conditioned that
12 the surplus line producer will pay to the Director the tax,
13 interest and penalties levied under subsection (3) of this
14 Section.
15     (5) Submission of documents to Surplus Line Association of
16 Illinois. A surplus line producer shall submit every insurance
17 contract issued under his or her license to the Surplus Line
18 Association of Illinois for recording and countersignature.
19 The submission and countersignature may be effected through
20 electronic means. The submission shall set forth:
21         (a) the name of the insured;
22         (b) the description and location of the insured
23     property or risk;
24         (c) the amount insured;
25         (d) the gross premiums charged or returned;
26         (e) the name of the unauthorized insurer or domestic
27     surplus line insurer as defined in Section 445a from whom
28     coverage has been procured;
29         (f) the kind or kinds of insurance procured; and
30         (g) amount of premium subject to tax required by
31     Section 12 of the Fire Investigation Act.
32         Proposals, endorsements, and other documents which are
33     incidental to the insurance but which do not affect the
34     premium charged are exempted from filing and
35     countersignature.
36         The submission of insuring contracts to the Surplus



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1     Line Association of Illinois constitutes a certification
2     by the surplus line producer or by the insurance producer
3     who presented the risk to the surplus line producer for
4     placement as a surplus line risk that after diligent effort
5     the required insurance could not be procured from
6     authorized insurers which are authorized to transact
7     business in this State other than domestic surplus line
8     insurers as defined in Section 445a and that such
9     procurement was otherwise in accordance with the surplus
10     line law.
11     (6) Countersignature required. It shall be unlawful for an
12 insurance producer to deliver any unauthorized insurer
13 contract or domestic surplus line insurer contract unless such
14 insurance contract is countersigned by the Surplus Line
15 Association of Illinois.
16     (7) Inspection of records. A surplus line producer shall
17 maintain separate records of the business transacted under his
18 or her license, including complete copies of surplus line
19 insurance contracts maintained on paper or by electronic means,
20 which records shall be open at all times for inspection by the
21 Director and by the Surplus Line Association of Illinois.
22     (8) Violations and penalties. The Director may suspend or
23 revoke or refuse to renew a surplus line producer license for
24 any violation of this Code. In addition to or in lieu of
25 suspension or revocation, the Director may subject a surplus
26 line producer to a civil penalty of up to $2,000 for each cause
27 for suspension or revocation. Such penalty is enforceable under
28 subsection (5) of Section 403A of this Code.
29     (9) Director may declare insurer ineligible. If the
30 Director determines that the further assumption of risks might
31 be hazardous to the policyholders of an unauthorized insurer,
32 the Director may order the Surplus Line Association of Illinois
33 not to countersign insurance contracts evidencing insurance in
34 such insurer and order surplus line producers to cease
35 procuring insurance from such insurer.
36     (10) Service of process upon Director. Insurance contracts



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1 delivered under this Section from unauthorized insurers, other
2 than domestic surplus line insurers as defined in Section 445a,
3 shall contain a provision designating the Director and his
4 successors in office the true and lawful attorney of the
5 insurer upon whom may be served all lawful process in any
6 action, suit or proceeding arising out of such insurance.
7 Service of process made upon the Director to be valid hereunder
8 must state the name of the insured, the name of the
9 unauthorized insurer and identify the contract of insurance.
10 The Director at his option is authorized to forward a copy of
11 the process to the Surplus Line Association of Illinois for
12 delivery to the unauthorized insurer or the Director may
13 deliver the process to the unauthorized insurer by other means
14 which he considers to be reasonably prompt and certain.
15     (10.5) Insurance contracts delivered under this Section
16 from unauthorized insurers, other than domestic surplus line
17 insurers as defined in Section 445a, shall have stamped or
18 imprinted on the first page thereof in not less than 12-pt.
19 bold face type the following legend: "Notice to Policyholder:
20 This contract is issued, pursuant to Section 445 of the
21 Illinois Insurance Code, by a company not authorized and
22 licensed to transact business in Illinois and as such is not
23 covered by the Illinois Insurance Guaranty Fund." Insurance
24 contracts delivered under this Section from domestic surplus
25 line insurers as defined in Section 445a shall have stamped or
26 imprinted on the first page thereof in not less than 12-pt.
27 bold face type the following legend: "Notice to Policyholder:
28 This contract is issued by a domestic surplus line insurer, as
29 defined in Section 445a of the Illinois Insurance Code,
30 pursuant to Section 445, and as such is not covered by the
31 Illinois Insurance Guaranty Fund."
32     (11) The Illinois Surplus Line law does not apply to
33 insurance of property and operations of railroads or aircraft
34 engaged in interstate or foreign commerce, insurance of
35 vessels, crafts or hulls, cargoes, marine builder's risks,
36 marine protection and indemnity, or other risks including



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1 strikes and war risks insured under ocean or wet marine forms
2 of policies.
3     (12) Surplus line insurance procured under this Section,
4 including insurance procured from a domestic surplus line
5 insurer, is not subject to the provisions of the Illinois
6 Insurance Code other than Sections 123, 123.1, 401, 401.1, 402,
7 403, 403A, 408, 412, 445, 445.1, 445.2, 445.3, 445.4, and all
8 of the provisions of Article XXXI to the extent that the
9 provisions of Article XXXI are not inconsistent with the terms
10 of this Act.
11 (Source: P.A. 92-386, eff. 1-1-02; 93-29, eff. 6-20-03; 93-32,
12 eff. 7-1-03.)
13     Section 99. Effective date. This Act takes effect upon
14 becoming law.