101ST GENERAL ASSEMBLY
State of Illinois
2019 and 2020
SB1377

 

Introduced 2/13/2019, by Sen. John G. Mulroe

 

SYNOPSIS AS INTRODUCED:
 
215 ILCS 5/534.3  from Ch. 73, par. 1065.84-3
215 ILCS 5/537.6  from Ch. 73, par. 1065.87-6
215 ILCS 5/537.7  from Ch. 73, par. 1065.87-7
215 ILCS 5/538.3  from Ch. 73, par. 1065.88-3
215 ILCS 5/538.4  from Ch. 73, par. 1065.88-4
215 ILCS 5/538.9 new
215 ILCS 5/545  from Ch. 73, par. 1065.95

    Amends the Illinois Insurance Guaranty Fund Article of the Illinois Insurance Code. Provides that a "covered claim" does not include a claim for fines and penalties paid to government authorities. Provides that the board of directors of the Illinois Insurance Guaranty Fund has the authority to assess to pay off a loan necessary to pay covered claims. Provides that if the loan is projected to be outstanding for 3 years or more, the board of directors has the authority to increase the assessment to 3% of net direct written premiums for the previous year until the loan has been paid in full. Makes changes in provisions that specify conditions under which the Fund is bound by certain settlements, releases, compromises, waivers, and final judgments. Provides that the Fund may also take legal action to recover from insurers and insureds in certain circumstances. Provides that the Fund may bring an action against certain third-party representatives of an insolvent insurer to obtain custody and control of all claim information related to the insolvent company. Provides that any person recovering under the Article and any insured whose liabilities are satisfied under the Article shall be deemed to have assigned the person's or insured's rights under the policy to the Fund to the extent of his or her recovery or satisfaction obtained from the Fund's payments. Provides that the Fund may also pay certain workers' compensation claims or any other third-party claims covered by a policy of an insolvent company on behalf of a high net worth insured and may recover from the high net worth insured through any action necessary to collect the full amount to the Fund's reimbursement. Effective immediately.


LRB101 05283 SMS 50296 b

 

 

A BILL FOR

 

SB1377LRB101 05283 SMS 50296 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 534.3, 537.6, 537.7, 538.3, 538.4, and 545
6and by adding Section 538.9 as follows:
 
7    (215 ILCS 5/534.3)  (from Ch. 73, par. 1065.84-3)
8    Sec. 534.3. Covered claim; unearned premium defined.
9    (a) "Covered claim" means an unpaid claim for a loss
10arising out of and within the coverage of an insurance policy
11to which this Article applies and which is in force at the time
12of the occurrence giving rise to the unpaid claim, including
13claims presented during any extended discovery period which was
14purchased from the company before the entry of a liquidation
15order or which is purchased or obtained from the liquidator
16after the entry of a liquidation order, made by a person
17insured under such policy or by a person suffering injury or
18damage for which a person insured under such policy is legally
19liable, and for unearned premium, if:
20        (i) The company issuing the policy becomes an insolvent
21    company as defined in Section 534.4 after the effective
22    date of this Article; and
23        (ii) The claimant or insured is a resident of this

 

 

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1    State at the time of the insured occurrence, or the
2    property from which a first party claim for damage to
3    property arises is permanently located in this State or, in
4    the case of an unearned premium claim, the policyholder is
5    a resident of this State at the time the policy was issued;
6    provided, that for entities other than an individual, the
7    residence of a claimant, insured, or policyholder is the
8    state in which its principal place of business is located
9    at the time of the insured event.
10    (b) "Covered claim" does not include:
11        (i) any amount in excess of the applicable limits of
12    liability provided by an insurance policy to which this
13    Article applies; nor
14        (ii) any claim for punitive or exemplary damages or
15    fines and penalties paid to government authorities; nor
16        (iii) any first party claim by an insured who is an
17    affiliate of the insolvent company; nor
18        (iv) any first party or third party claim by or against
19    an insured whose net worth on December 31 of the year next
20    preceding the date the insurer becomes an insolvent insurer
21    exceeds $25,000,000; provided that an insured's net worth
22    on such date shall be deemed to include the aggregate net
23    worth of the insured and all of its affiliates as
24    calculated on a consolidated basis. However, this
25    exclusion shall not apply to third party claims against the
26    insured where the insured has applied for or consented to

 

 

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1    the appointment of a receiver, trustee, or liquidator for
2    all or a substantial part of its assets, filed a voluntary
3    petition in bankruptcy, filed a petition or an answer
4    seeking a reorganization or arrangement with creditors or
5    to take advantage of any insolvency law, or if an order,
6    judgment, or decree is entered by a court of competent
7    jurisdiction, on the application of a creditor,
8    adjudicating the insured bankrupt or insolvent or
9    approving a petition seeking reorganization of the insured
10    or of all or substantial part of its assets; nor
11        (v) any claim for any amount due any reinsurer,
12    insurer, insurance pool, or underwriting association as
13    subrogated recoveries, reinsurance recoverables,
14    contribution, indemnification or otherwise. No such claim
15    held by a reinsurer, insurer, insurance pool, or
16    underwriting association may be asserted in any legal
17    action against a person insured under a policy issued by an
18    insolvent company other than to the extent such claim
19    exceeds the Fund obligation limitations set forth in
20    Section 537.2 of this Code.
21    (c) "Unearned Premium" means the premium for the unexpired
22period of a policy which has been terminated prior to the
23expiration of the period for which premium has been paid and
24does not mean premium which is returnable to the insured for
25any other reason.
26(Source: P.A. 89-97, eff. 7-7-95; 90-499, eff. 8-19-97.)
 

 

 

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1    (215 ILCS 5/537.6)  (from Ch. 73, par. 1065.87-6)
2    Sec. 537.6. Allocation of claims; assessments. The Fund
3shall allocate covered claims paid and expenses incurred
4between the accounts established by Section 535 separately, and
5assess member companies separately for each account amounts
6necessary to pay the obligations of the Fund under Section
7537.2 subsequent to the entry of an Order of Liquidation
8against an insolvent company, the expenses of handling covered
9claims subsequent to such Order of Liquidation and other
10expenses authorized by this Article. The assessments of each
11member company shall be in the proportion that the net direct
12written premiums of the member company for the calendar year
13immediately preceding the year in which the assessment is
14levied on the kinds of insurance in the account bears to the
15net direct written premiums of all member companies for such
16preceding calendar year on the kinds of insurance in the
17account. Each member company shall be notified of the
18assessment not later than 30 days before it is due. Before
19January 1, 2002, no member company may be assessed in any year
20on any account an amount greater than 1% of that member
21company's net direct written premiums on the kinds of insurance
22in the account for the calendar year preceding the assessment.
23Beginning January 1, 2002, the amount a member company may be
24assessed in any year on any account shall be a maximum of 2% of
25that member company's net direct written premium on the kinds

 

 

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1of insurance in the account for the calendar year preceding the
2assessment. This 2% maximum shall apply regardless of the date
3of any insolvency that gives rise to the need for the
4assessment. If the maximum assessment, together with the other
5assets of the Fund in any account, does not provide, in any one
6year, in any account, an amount sufficient to make all
7necessary payments from that account, the funds available shall
8be paid in the manner determined by the Fund and approved by
9the Director and the unpaid portion shall be paid as soon
10thereafter as funds become available. If requested by a member
11company, the Director may exempt or defer the assessment of any
12member company, if the assessment would cause the member
13company's financial impairment.
14    In addition to the other assessment authority provided in
15this Section, the board of directors shall also have the
16assessment authority to pay off a loan as provided in Section
17538.3. If a loan is projected to be outstanding for 3 years or
18more, then the board of directors shall have the authority to
19increase the assessment to 3% of the net direct written
20premiums for the previous year until the loan has been paid in
21full.
22(Source: P.A. 92-77, eff. 7-12-01.)
 
23    (215 ILCS 5/537.7)  (from Ch. 73, par. 1065.87-7)
24    Sec. 537.7. Investigation of claims; disposition.
25    (a) The Fund shall investigate claims brought against the

 

 

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1Fund and adjust, compromise, settle, and pay covered claims to
2the extent of the Fund's obligation and deny all other claims.
3    (b) The Fund shall not be bound by a settlement, release,
4compromise, waiver, or final judgment executed or entered
5within 12 months prior to an order of liquidation and shall
6have the right to assert all defenses available to the Fund
7including, but not limited to, defenses applicable to
8determining and enforcing its statutory rights and obligations
9to any claim. The Fund shall be bound by a settlement, release,
10compromise, waiver, or final judgment executed or entered more
11than 12 months prior to an order of liquidation, but only
12however, if the claim is a covered claim and the settlement,
13release, compromise, waiver, or final judgment was not a result
14of fraud, collusion, default, or failure to defend. In
15addition, with respect to covered claims arising from a
16judgment under a decision, verdict, or finding based on the
17default of the insolvent insurer or its failure to defend, upon
18application by the Fund, either on its own behalf or on behalf
19of an insured, the court shall set aside the judgment, order,
20decision, verdict, or finding, and the Fund shall be permitted
21to defend against the claim on the merits. The same criteria
22determining whether the Fund will be bound, as specified in
23this subsection (b), shall apply to any settlement, release,
24compromise, waiver, or final judgment entered into by a high
25net worth insured before the date on which claims by or against
26that insured became non-exempt for reasons specified in

 

 

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1paragraph (iv) of subsection (b) of Section 534.3.
2    (c) The Fund shall have the right to appoint or approve and
3to direct legal counsel retained under liability insurance
4policies for the defense of covered claims.
5(Source: P.A. 92-77, eff. 7-12-01.)
 
6    (215 ILCS 5/538.3)  (from Ch. 73, par. 1065.88-3)
7    Sec. 538.3. The Fund may borrow an amount of money
8necessary to effect the purposes of this Article in accord with
9the plan of operation. The board of directors shall have the
10authority to pledge all or an appropriate portion of future
11assessments as necessary to secure a loan that may be needed to
12pay covered claims. Until all loans secured by assessments are
13fully satisfied, the board of directors shall assess the
14maximum allowable under Section 537.6.
15(Source: P.A. 77-305.)
 
16    (215 ILCS 5/538.4)  (from Ch. 73, par. 1065.88-4)
17    Sec. 538.4. Legal actions by Fund. The Fund may sue or be
18sued, including, but not limited to, taking any legal actions
19necessary or proper for recovery of: (i) any unpaid assessments
20under Section Sections 537.1 or 537.6; (ii) any amounts due to
21the Fund for salvage and subrogation under Section 537.4 or
22from insurers described in subsection (a) of Section 546; or
23(iii) any amounts due from an insured pursuant to subsections
24(a) and (d) of Section 545. The Fund's power to sue includes,

 

 

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1but is not limited to, the power and right to intervene as a
2party before any court that has jurisdiction over an insolvent
3insurer when the Fund is a creditor or potential creditor of
4the insolvent insurer.
5(Source: P.A. 89-97, eff. 7-7-95; 90-499, eff. 8-19-97.)
 
6    (215 ILCS 5/538.9 new)
7    Sec. 538.9. Action regarding insolvent company records.
8    (a) In this Section, "claims information" includes files,
9records, and electronic data.
10    (b) The Fund may bring an action against any third-party
11administrator, agent, attorney, or other representative of the
12insolvent insurer to obtain custody and control of all claims
13information related to an insolvent company that are
14appropriate or necessary for the Fund or a similar association
15in other states to carry out its duties under this Article. In
16such an action, the Fund shall have the absolute right through
17emergency equitable relief to obtain custody and control of
18such third-party administrator, agent, attorney or other
19representative of the insolvent insurer, regardless of where
20that claims information may be physically located. In bringing
21an action under this Section, the Fund shall not be subject to
22any defense, lien (possessory or otherwise), or other legal or
23equitable ground whatsoever for refusal to surrender such
24claims information that might be asserted against the
25liquidator of the insolvent insurers. To the extent that

 

 

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1litigation is required for the Fund to obtain custody and
2control of the claims information requested and it results in
3the relinquishment of claims information to the Fund after
4refusal to provide that information in response to a written
5demand, the court shall award the Fund its costs, expenses, and
6reasonable attorney's fees incurred in bringing the action.
7This Section shall have the same effect on the rights and
8remedies that the custodian of such claims information may have
9against the insolvent insurers, so long as these rights and
10remedies do not conflict with the rights of the Fund to custody
11and control of the claims information under this Article.
 
12    (215 ILCS 5/545)  (from Ch. 73, par. 1065.95)
13    Sec. 545. Effect of paid claims.
14    (a) Every insured or claimant seeking the protection of
15this Article shall cooperate with the Fund to the same extent
16as such person would have been required to cooperate with the
17insolvent company. The Fund shall have all the rights, duties
18and obligations under the policy to the extent of the covered
19claim payment, provided the Fund shall have no cause of action
20against the insured of the insolvent company for any sums it
21has paid out except such causes of action as the insolvent
22company would have had if such sums had been paid by the
23insolvent company and except as provided in subsection
24paragraph (d) of this Section. Any person recovering under this
25Article and any insured whose liabilities are satisfied under

 

 

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1this Article shall be deemed to have assigned the person's or
2insured's rights under the policy to the Fund to the extent of
3his or her recovery or satisfaction obtained from the Fund's
4payments.
5    (b) The Fund and any similar organization in another state
6shall be recognized as claimants in the liquidation of an
7insolvent company for any amounts paid by them on covered
8claims obligations as determined under this Article or similar
9laws in other states and shall receive dividends at the
10priority set forth in paragraph (d) of subsection (1) of
11Section 205 of this Code; provided that if, at the time that
12the liquidator issues a cut-off notice to the Fund in
13anticipation of closing the estate, a reserve has been
14established by the Fund, or any similar organization in another
15state, for the amount of their future administrative expenses
16and loss development associated with unpaid reported pending
17claims, these reserves will be deemed to have been paid as of
18the date of the notice and payment shall be made accordingly.
19The liquidator of an insolvent company shall be bound by
20determinations of covered claim eligibility under the Act and
21by settlements of claims made by the Fund or a similar
22organization in another state on the receipt of certification
23of such payments, to the extent those determinations or
24settlements satisfy obligations of the Fund, but the receiver
25shall not be bound in any way by those determinations or
26settlements to the extent that there remains a claim in the

 

 

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1estate for amounts in excess of the payments by the Fund. In
2submitting their claim for covered claim payments the Fund and
3any similar organization in another state shall not be subject
4to the requirements of Sections 208 and 209 of this Code and
5shall not be affected by the failure of the person receiving a
6covered claim payment to file a proof of claim.
7    (c) The expenses of the Fund and of any similar
8organization in any other state, other than expenses incurred
9in the performance of duties under Section 547 or similar
10duties under the statute governing a similar organization in
11another state, shall be accorded priority over all claims
12against the estate, except as provided for in paragraph (a) of
13subsection (1) of Section 205 of this Code. The liquidator
14shall make prompt reimbursement to the Fund and any similar
15organization for such expense payments.
16    (d) The Fund has the right to recover from the following
17persons the amount of any covered claims (as determined without
18regard to the exemption in paragraph (iv) of subsection (b) of
19Section 534.3) and allocated claims expenses which the Fund
20paid or incurred on behalf of such person in satisfaction, in
21whole or in part, of liability obligations of such person to
22any other person:
23        (i) any insured whose net worth on December 31 of the
24    year next preceding the date the company becomes an
25    insolvent company exceeds $25,000,000; provided that an
26    insured's net worth on such date shall be deemed to include

 

 

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1    the aggregate net worth of the insured and all of its
2    affiliates as calculated on a consolidated basis.
3        (ii) any insured who is an affiliate of the insolvent
4    company.
5    The Fund may also, at its sole discretion and without
6assumption of any ongoing duty to do so, pay any workers
7compensation claims or any other third-party claims covered by
8a policy of an insolvent company on behalf of a high net worth
9insured as defined in paragraph (iv) of subsection (b) of
10Section 534.3 and may thereafter recover from the high net
11worth insured under this Section for all amounts paid on its
12behalf, all allocated claim adjusted expenses related to such
13claims, the Fund's attorney's fees, and all court costs in any
14action necessary to collect the full amount to the Fund's
15reimbursement under this Section.
16(Source: P.A. 100-410, eff. 8-25-17.)
 
17    Section 99. Effective date. This Act takes effect upon
18becoming law.