Public Act 93-0326
SB1104 Enrolled LRB093 03656 LRD 03685 b
AN ACT in relation to insurance.
Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
Section 5. The Illinois Insurance Code is amended by
changing Section 531.08 as follows:
(215 ILCS 5/531.08) (from Ch. 73, par. 1065.80-8)
Sec. 531.08. Powers and duties of the Association. In
addition to the powers and duties enumerated in other
Sections of this Article:
(1) If a domestic insurer is an impaired insurer, the
Association may, subject to any conditions imposed by the
Association other than those which impair the contractual
obligations of the impaired insurer, and approved by the
impaired insurer and the Director:
(a) Guarantee or reinsure, or cause to be guaranteed,
assumed or reinsured, any or all of the covered policies of
covered persons of the impaired insurer;
(b) Provide such monies, pledges, notes, guarantees, or
other means as are proper to effectuate paragraph (a), and
assure payment of the contractual obligations of the impaired
insurer pending action under paragraph (a);
(c) Loan money to the impaired insurer;
(2) If a domestic, foreign, or alien insurer is an
insolvent insurer, the Association shall, subject to the
approval of the Director;
(a)(i) Guarantee, assume or reinsure or cause to be
guaranteed, assumed, or reinsured the covered policies of
covered persons of the insolvent insurer;
(ii) Assure payment of the contractual obligations of
the insolvent insurer to covered persons;
(iii) Provide such monies, pledges, notes, guaranties,
or other means as are reasonably necessary to discharge such
duties; or
(b) with respect to only life and health insurance
policies, provide benefits and coverages in accordance with
Section 531.08(3).
(c) Provided however that this subsection (2) shall not
apply when the Director has determined that the foreign or
alien insurers domiciliary jurisdiction or state of entry
provides, by statute, protection substantially similar to
that provided by this Article for residents of this State and
such protection will be provided in a timely manner.
(3) When proceeding under subparagraph (2)(b) of this
Section the Association shall, with respect to only life and
health insurance policies:
(a) assure payment of benefits for premiums identical to
the premiums and benefits (except for terms of conversion and
renewability) that would have been payable under the policies
of the insolvent insurer, for claims incurred:
(i) with respect to group policies, not later than the
earlier of the next renewal date under such policies or
contracts or sixty days, but in no event less than thirty
days, after the date on which the Association becomes
obligated with respect to such policies;
(ii) with respect to non-group policies, not later than
the earlier of the next renewal date (if any) under such
policies or one year, but in no event less than thirty days,
from the date on which the Association becomes obligated with
respect to such policies;
(b) make diligent efforts to provide all known insureds
or group policyholders with respect to group policies thirty
days notice of the termination of the benefits provided; and
(c) with respect to non-group policies, make available
to each known insured, or owner if other than the insured,
and with respect to an individual formerly insured under a
group policy who is not eligible for replacement group
coverage, make available substitute coverage on an individual
basis in accordance with the provisions of subparagraph
(3)(d) of this Section, if the insureds had a right under law
or the terminated policy to convert coverage to individual
coverage or to continue a non-group policy in force until a
specified age or for a specified time, during which the
insurer has no right unilaterally to make changes in any
provision of the policy or had a right only to make changes
in premium by class.
(d)(i) In providing the substitute coverage required
under subparagraph (3)(c) of this Section, the Association
may offer either to reissue the terminated coverage or to
issue an alternative policy.
(ii) Alternative or reissued policies shall be offered
without requiring evidence of insurability, and shall not
provide for any waiting period or exclusion that would not
have applied under the terminated policy.
(iii) The Association may reinsure any alternative or
reissued policy.
(e)(i) Alternative policies adopted by the Association
shall be subject to the approval of the Director. The
Association may adopt alternative policies of various types
for future insurance without regard to any particular
impairment or insolvency.
(ii) Alternative policies shall contain at least the
minimum statutory provisions required in this State and
provide benefits that shall not be unreasonable in relation
to the premium charged. The Association shall set the
premium in accordance with a table of rates which it shall
adopt. The premium shall reflect the amount of insurance to
be provided and the age and class of risk of each insured,
but shall not reflect any changes in the health of the
insured after the original policy was last underwritten.
(iii) Any alternative policy issued by the Association
shall provide coverage of a type similar to that of the
policy issued by the impaired or insolvent insurer, as
determined by the Association.
(f) If the Association elects to reissue terminated
coverage at a premium rate different from that charged under
the terminated policy, the premium shall be set by the
Association in accordance with the amount of insurance
provided and the age and class of risk, subject to approval
of the Director or by a court of competent jurisdiction.
(g) The Association's obligations with respect to
coverage under any policy of the impaired or insolvent
insurer or under any reissued or alternative policy shall
cease on the date such coverage or policy is replaced by
another similar policy by the policyholder, the insured, or
the Association.
(4) When proceeding under subparagraph (2)(b) of this
Section with respect to any policy or contract carrying
guaranteed minimum interest rates, the Association shall
assure the payment or crediting of a rate of interest
consistent with subparagraph (2)(b)(iii)(B) of Section
531.03.
(5) Nonpayment of premiums thirty-one days after the
date required under the terms of any guaranteed, assumed,
alternative or reissued policy or contract or substitute
coverage shall terminate the Association's obligations under
such policy or coverage under this Act with respect to such
policy or coverage, except with respect to any claims
incurred or any net cash surrender value which may be due in
accordance with the provisions of this Act.
(6) Premiums due for coverage after entry of an order of
liquidation of an insolvent insurer shall belong to and be
payable at the direction of the Association, and the
Association shall be liable for unearned premiums due to
policy or contract owners arising after the entry of such
order.
(7) (a) In carrying out its duties under subsection (2),
permanent policy liens, or contract liens, may be imposed in
connection with any guarantee, assumption or reinsurance
agreement, if the court:
(i) Finds that the amounts which can be assessed under
this Act are less than the amounts needed to assure full and
prompt performance of the insolvent insurer's contractual
obligations, or that the economic or financial conditions as
they affect member insurers are sufficiently adverse to
render the imposition of policy or contract liens, to be in
the public interest; and
(ii) Approves the specific policy liens or contract
liens to be used.
(b) Before being obligated under subsection (2) the
Association may request that there be imposed temporary
moratoriums or liens on payments of cash values and policy
loans in addition to any contractual provisions for deferral
of cash or policy loan values, and such temporary moratoriums
and liens may be imposed if they are approved by the court.
(8) There shall be no liability on the part of and no
cause of action shall arise against the Association or
against any transferee from the Association in connection
with the transfer by reinsurance or otherwise of all or any
part of an impaired or insolvent insurer's business by reason
of any action taken or any failure to take any action by the
impaired or insolvent insurer at any time.
(9) If the Association fails to act within a reasonable
period of time as provided in subsection (2) of this Section
with respect to an insolvent insurer, the Director shall have
the powers and duties of the Association under this Act with
regard to such insolvent insurers.
(10) The Association or its designated representatives
may render assistance and advice to the Director, upon his
request, concerning rehabilitation, payment of claims,
continuations of coverage, or the performance of other
contractual obligations of any impaired or insolvent insurer.
(11) The Association has standing to appear before any
court concerning all matters germane to the powers and duties
of the Association, including, but not limited to, proposals
for reinsuring or guaranteeing the covered policies of the
impaired or insolvent insurer and the determination of the
covered policies and contractual obligations.
(12) (a) Any person receiving benefits under this
Article is deemed to have assigned the rights under the
covered policy to the Association to the extent of the
benefits received because of this Article whether the
benefits are payments of contractual obligations or
continuation of coverage. The Association may require an
assignment to it of such rights by any payee, policy or
contract owner, beneficiary, insured, certificate holder or
annuitant as a condition precedent to the receipt of any
rights or benefits conferred by this Article upon such
person. The Association is subrogated to these rights
against the assets of any insolvent insurer.
(b) The subrogation rights of the Association under this
subsection have the same priority against the assets of the
insolvent insurer as that possessed by the person entitled to
receive benefits under this Article.
(13) The Association may:
(a) Enter into such contracts as are necessary or proper
to carry out the provisions and purposes of this Article;
(b) Sue or be sued, including taking any legal actions
necessary or proper for recovery of any unpaid assessments
under Section 531.09. The Association shall not be liable
for punitive or exemplary damages;
(c) Borrow money to effect the purposes of this Article.
Any notes or other evidence of indebtedness of the
Association not in default are legal investments for domestic
insurers and may be carried as admitted assets.
(d) Employ or retain such persons as are necessary to
handle the financial transactions of the Association, and to
perform such other functions as become necessary or proper
under this Article.
(e) Negotiate and contract with any liquidator,
rehabilitator, conservator, or ancillary receiver to carry
out the powers and duties of the Association.
(f) Take such legal action as may be necessary to avoid
payment of improper claims.
(g) Exercise, for the purposes of this Article and to
the extent approved by the Director, the powers of a domestic
life or health insurer, but in no case may the Association
issue insurance policies or annuity contracts other than
those issued to perform the contractual obligations of the
impaired or insolvent insurer.
(h) Exercise all the rights of the Director under
Section 193(4) of this Code with respect to covered policies
after the association becomes obligated by statute.
(14) With respect to covered policies for which the
Association becomes obligated after an entry of an order of
liquidation or rehabilitation, the Association may elect to
succeed to the rights of the insolvent insurer arising after
the date of the order of liquidation or rehabilitation under
any contract of reinsurance to which the insolvent insurer
was a party, to the extent that such contract provides
coverage for losses occurring after the date of the order of
liquidation or rehabilitation. As a condition to making this
election, the Association must pay all unpaid premiums due
under the contract for coverage relating to periods before
and after the date of the order of liquidation or
rehabilitation.
(Source: P.A. 86-753.)