Illinois General Assembly - Full Text of SB1753
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Full Text of SB1753  102nd General Assembly




SB1753 EnrolledLRB102 10455 BMS 15783 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 445 and 445.1 as follows:
6    (215 ILCS 5/445)  (from Ch. 73, par. 1057)
7    Sec. 445. Surplus line.
8    (1) Definitions. For the purposes of this Section:
9    "Affiliate" means, with respect to an insured, any entity
10that controls, is controlled by, or is under common control
11with the insured. For the purpose of this definition, an
12entity has control over another entity if:
13        (A) the entity directly or indirectly or acting
14    through one or more other persons owns, controls, or has
15    the power to vote 25% or more of any class of voting
16    securities of the other entity; or
17        (B) the entity controls in any manner the election of
18    a majority of the directors or trustees of the other
19    entity.
20    "Affiliated group" means any group of entities that are
21all affiliated.
22    "Authorized insurer" means an insurer that holds a
23certificate of authority issued by the Director but, for the



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1purposes of this Section, does not include a domestic surplus
2line insurer as defined in Section 445a or any residual market
4    "Exempt commercial purchaser" means any person purchasing
5commercial insurance that, at the time of placement, meets the
6following requirements:
7        (A) The person employs or retains a qualified risk
8    manager to negotiate insurance coverage.
9        (B) The person has paid aggregate nationwide
10    commercial property and casualty insurance premiums in
11    excess of $100,000 in the immediately preceding 12 months.
12        (C) The person meets at least one of the following
13    criteria:
14            (I) The person possesses a net worth in excess of
15        $20,000,000, as such amount is adjusted pursuant to
16        the provision in this definition concerning percentage
17        change.
18            (II) The person generates annual revenues in
19        excess of $50,000,000, as such amount is adjusted
20        pursuant to the provision in this definition
21        concerning percentage change.
22            (III) The person employs more than 500 full-time
23        or full-time equivalent employees per individual
24        insured or is a member of an affiliated group
25        employing more than 1,000 employees in the aggregate.
26            (IV) The person is a not-for-profit organization



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1        or public entity generating annual budgeted
2        expenditures of at least $30,000,000, as such amount
3        is adjusted pursuant to the provision in this
4        definition concerning percentage change.
5            (V) The person is a municipality with a population
6        in excess of 50,000 persons.
7    Effective on January 1, 2015 and each fifth January 1
8occurring thereafter, the amounts in subitems (I), (II), and
9(IV) of item (C) of this definition shall be adjusted to
10reflect the percentage change for such 5-year period in the
11Consumer Price Index for All Urban Consumers published by the
12Bureau of Labor Statistics of the Department of Labor.
13    "Home state" means the following:
14        (A) With respect to an insured, except as provided in
15    item (B) of this definition:
16            (I) the state in which an insured maintains its
17        principal place of business or, in the case of an
18        individual, the individual's principal residence; or
19            (II) if 100% of the insured risk is located out of
20        the state referred to in subitem (I), the state to
21        which the greatest percentage of the insured's taxable
22        premium for that insurance contract is allocated.
23        (B) If more than one insured from an affiliated group
24    are named insureds on a single surplus line insurance
25    contract, then "home state" means the home state, as
26    determined pursuant to item (A) of this definition, of the



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1    member of the affiliated group that has the largest
2    percentage of premium attributed to it under such
3    insurance contract.
4        If more than one insured from a group that is not
5    affiliated are named insureds on a single surplus line
6    insurance contract, then:
7            (I) if individual group members pay 100% of the
8        premium for the insurance from their own funds, "home
9        state" means the home state, as determined pursuant to
10        item (A) of this definition, of each individual group
11        member; each individual group member's coverage under
12        the surplus line insurance contract shall be treated
13        as a separate surplus line contract for the purposes
14        of this Section;
15            (II) otherwise, "home state" means the home state,
16        as determined pursuant to item (A) of this definition,
17        of the group.
18    Nothing in this definition shall be construed to alter the
19terms of the surplus line insurance contract.
20    "Master policy" means a surplus line insurance contract
21with a single set of general contractual terms that are
22designed to apply on a group basis to multiple insureds who may
23or may not be affiliated and who may be added to or removed
24from the contract throughout the course of the contract
25period. A master policy may include certain provisions that
26vary for each insured depending on the insured's



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1characteristics and the coverage sought.
2    "Multi-State risk" means a risk with insured exposures in
3more than one State.
4    "NAIC" means the National Association of Insurance
5Commissioners or any successor entity.
6    "Personal lines insurance" means insurance as defined in
7subsection (a), (b), or (c) of Section 143.13 of this Code.
8    "Premium" means any amount designated as premium on the
9declarations page or elsewhere in a policy and on any
10endorsement, but does not include taxes, the Surplus Line
11Association of Illinois recording fee, or any other fee.
12    "Program business" means a clearly defined group of
13insurance contracts procured by a licensed surplus line
14producer from an unauthorized insurer, under a single
15agreement between the producer and insurer, for insureds with
16the same or similar characteristics and containing the same or
17similar contract terms.
18    "Qualified risk manager" means, with respect to a
19policyholder of commercial insurance, a person who meets all
20of the following requirements:
21        (A) The person is an employee of, or third-party
22    consultant retained by, the commercial policyholder.
23        (B) The person provides skilled services in loss
24    prevention, loss reduction, or risk and insurance coverage
25    analysis, and purchase of insurance.
26        (C) With regard to the person:



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1            (I) the person has:
2                (a) a bachelor's degree or higher from an
3            accredited college or university in risk
4            management, business administration, finance,
5            economics, or any other field determined by the
6            Director or his designee to demonstrate minimum
7            competence in risk management; and
8                (b) the following:
9                    (i) three years of experience in risk
10                financing, claims administration, loss
11                prevention, risk and insurance analysis, or
12                purchasing commercial lines of insurance; or
13                    (ii) alternatively has:
14                        (AA) a designation as a Chartered
15                    Property and Casualty Underwriter (in this
16                    subparagraph (ii) referred to as "CPCU")
17                    issued by the American Institute for
18                    CPCU/Insurance Institute of America;
19                        (BB) a designation as an Associate in
20                    Risk Management (ARM) issued by the
21                    American Institute for CPCU/Insurance
22                    Institute of America;
23                        (CC) a designation as Certified Risk
24                    Manager (CRM) issued by the National
25                    Alliance for Insurance Education &
26                    Research;



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1                        (DD) a designation as a RIMS Fellow
2                    (RF) issued by the Global Risk Management
3                    Institute; or
4                        (EE) any other designation,
5                    certification, or license determined by
6                    the Director or his designee to
7                    demonstrate minimum competency in risk
8                    management;
9            (II) the person has:
10                (a) at least 7 years of experience in risk
11            financing, claims administration, loss prevention,
12            risk and insurance coverage analysis, or
13            purchasing commercial lines of insurance; and
14                (b) has any one of the designations specified
15            in subparagraph (ii) of paragraph (b);
16            (III) the person has at least 10 years of
17        experience in risk financing, claims administration,
18        loss prevention, risk and insurance coverage analysis,
19        or purchasing commercial lines of insurance; or
20            (IV) the person has a graduate degree from an
21        accredited college or university in risk management,
22        business administration, finance, economics, or any
23        other field determined by the Director or his or her
24        designee to demonstrate minimum competence in risk
25        management.
26    "Residual market mechanism" means an association,



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1organization, or other entity described in Article XXXIII of
2this Code or Section 7-501 of the Illinois Vehicle Code or any
3similar association, organization, or other entity.
4    "State" means any state of the United States, the District
5of Columbia, the Commonwealth of Puerto Rico, Guam, the
6Northern Mariana Islands, the Virgin Islands, and American
8    "Surplus line insurance" means insurance on a risk:
9        (A) of the kinds specified in Classes 2 and 3 of
10    Section 4 of this Code; and
11        (B) that is procured from an unauthorized insurer
12    after the insurance producer representing the insured or
13    the surplus line producer is unable, after diligent
14    effort, to procure the insurance from authorized insurers;
15    and
16        (C) where Illinois is the home state of the insured,
17    for policies effective, renewed or extended on July 21,
18    2011 or later and for multiyear policies upon the policy
19    anniversary that falls on or after July 21, 2011; and
20        (D) that is located in Illinois, for policies
21    effective prior to July 21, 2011.
22    "Taxable premium" means a premium for any risk that is
23located in or attributed to any state.
24    "Unauthorized insurer" means an insurer that does not hold
25a valid certificate of authority issued by the Director but,
26for the purposes of this Section, shall also include a



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1domestic surplus line insurer as defined in Section 445a.
2    (1.5) Procuring surplus line insurance; surplus line
3insurer requirements.
4        (a) License required. Insurance producers may procure
5    surplus line insurance only if licensed as a surplus line
6    producer under this Section.
7        (b) Domestic and foreign insurer eligibility. Licensed
8    surplus line producers may procure surplus line insurance
9    from an unauthorized insurer domiciled in any state the
10    United States only if the insurer:
11            (i) is permitted in its domiciliary jurisdiction
12        to write the type of insurance involved; and
13             (ii) has, based upon information available to the
14        surplus line producer, a policyholders surplus of not
15        less than $15,000,000 determined in accordance with
16        the laws of its domiciliary jurisdiction; and
17             (iii) has standards of solvency and management
18        that are adequate for the protection of policyholders.
19         Where an unauthorized insurer does not meet the
20    standards set forth in (ii) and (iii) above, a surplus
21    line producer may, if necessary, procure insurance from
22    that insurer only if prior written warning of such fact or
23    condition is given to the insured by the insurance
24    producer or surplus line producer.
25        (c) Alien insurer eligibility. Licensed surplus line
26    producers may procure surplus line insurance from an



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1    unauthorized insurer not domiciled in any state outside of
2    the United States only if the insurer meets the standards
3    for unauthorized insurers domiciled in any state the
4    United States in paragraph (b) of this subsection (1.5) or
5    is listed on the Quarterly Listing of Alien Insurers
6    maintained by the International Insurers Department of the
7    NAIC at the time of procurement. The Director shall make
8    the Quarterly Listing of Alien Insurers available to
9    surplus line producers without charge.
10        (d) Prohibited transactions. Insurance producers shall
11    not procure from an unauthorized insurer an insurance
12    policy:
13            (i) that is designed to satisfy the proof of
14        financial responsibility and insurance requirements in
15        any Illinois law where the law requires that the proof
16        of insurance is issued by an authorized insurer or
17        residual market mechanism;
18            (ii) that covers the risk of accidental injury to
19        employees arising out of and in the course of
20        employment according to the provisions of the Workers'
21        Compensation Act; or
22            (iii) that insures any Illinois personal lines
23        risk, as defined in subsection (a), (b), or (c) of
24        Section 143.13 of this Code, that is eligible for
25        residual market mechanism coverage, unless the insured
26        or prospective insured requests limits of liability



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1        greater than the limits provided by the residual
2        market mechanism. In the course of making a diligent
3        effort to procure insurance from authorized insurers,
4        an insurance producer shall not be required to submit
5        a risk to a residual market mechanism when the risk is
6        not eligible for coverage or exceeds the limits
7        available in the residual market mechanism.
8        Where there is an insurance policy issued by an
9    authorized insurer or residual market mechanism insuring a
10    risk described in item (i), (ii), or (iii) above, nothing
11    in this paragraph shall be construed to prohibit a surplus
12    line producer from procuring from an unauthorized insurer
13    a policy insuring the risk on an excess or umbrella basis
14    where the excess or umbrella policy is written over one or
15    more underlying policies.
16        (e) Exempt commercial purchaser diligent effort.
17    Licensed surplus line producers may procure surplus line
18    insurance from an unauthorized insurer for an exempt
19    commercial purchaser without making the required diligent
20    effort to procure the insurance from authorized insurers
21    if:
22            (i) the producer has disclosed to the exempt
23        commercial purchaser that such insurance may or may
24        not be available from authorized insurers that may
25        provide greater protection with more regulatory
26        oversight; and



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1            (ii) the exempt commercial purchaser has
2        subsequently in writing requested the producer to
3        procure such insurance from an unauthorized insurer.
4        (f) Commercial wholesale transaction diligent effort.
5    A licensed surplus line producer may procure a surplus
6    line insurance contract, other than a personal lines
7    insurance contract, from an unauthorized insurer without
8    making the required diligent effort to procure the
9    insurance from authorized insurers if the risk was
10    referred to the surplus line producer by an
11    Illinois-licensed insurance producer who is not affiliated
12    with the surplus line producer.
13        (g) Master policy diligent effort. For a master policy
14    insurance contract, a licensed surplus line producer may
15    make the required diligent effort to procure the insurance
16    from authorized insurers annually for the master policy
17    rather than individually for each insured that is added
18    during the policy period. The diligent effort shall
19    include all variable provisions of the master policy.
20        (h) Program business diligent effort. For program
21    business, a licensed surplus line producer may make the
22    required diligent effort to procure the insurance from
23    authorized insurers annually for the program rather than
24    individually for each contract. The diligent effort shall
25    include all variable provisions of the master policy.
26    (2) Surplus line producer; license. Any licensed producer



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1who is a resident of this State, or any nonresident who
2qualifies under Section 500-40, may be licensed as a surplus
3line producer upon payment of an annual license fee of $400.
4    A surplus line producer so licensed shall keep a separate
5account of the business transacted thereunder for 7 years from
6the policy effective date which shall be open at all times to
7the inspection of the Director or his representative.
8    No later than July 21, 2012, the State of Illinois shall
9participate in the national insurance producer database of the
10NAIC, or any other equivalent uniform national database, for
11the licensure of surplus line producers and the renewal of
12such licenses.
13    (3) Taxes and reports.
14        (a) Surplus line tax and penalty for late payment. The
15    surplus line tax rate for a surplus line insurance policy
16    or contract is determined as follows:
17            (i) 3% for policies or contracts with an effective
18        date prior to July 1, 2003;
19            (ii) 3.5% for policies or contracts with an
20        effective date of July 1, 2003 or later.
21        A surplus line producer shall file with the Director
22    on or before February 1 and August 1 of each year a report
23    in the form prescribed by the Director on all surplus line
24    insurance procured from unauthorized insurers and
25    submitted to the Surplus Line Association of Illinois
26    during the preceding 6 month period ending December 31 or



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1    June 30 respectively, and on the filing of such report
2    shall pay to the Director for the use and benefit of the
3    State a sum equal to the surplus line tax rate multiplied
4    by the gross taxable premiums less returned taxable
5    premiums upon all surplus line insurance submitted to the
6    Surplus Line Association of Illinois during the preceding
7    6 months.
8        Any surplus line producer who fails to pay the full
9    amount due under this subsection is liable, in addition to
10    the amount due, for such late fee, penalty, and interest
11    charges as are provided for under Section 412 of this
12    Code. The Director, through the Attorney General, may
13    institute an action in the name of the People of the State
14    of Illinois, in any court of competent jurisdiction, for
15    the recovery of the amount of such taxes, late fees,
16    interest, and penalties due, and prosecute the same to
17    final judgment, and take such steps as are necessary to
18    collect the same.
19        (b) Fire Marshal Tax. Each surplus line producer shall
20    file with the Director on or before February 1 March 31 of
21    each year a report in the form prescribed by the Director
22    on all fire insurance procured from unauthorized insurers
23    and submitted to the Surplus Line Association of Illinois
24    during the previous year that is subject to tax under
25    Section 12 of the Fire Investigation Act and shall pay to
26    the Director the fire marshal tax required thereunder.



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1        (c) Taxes and fees charged to insured. The taxes
2    imposed under this subsection and the recording
3    countersigning fees charged by the Surplus Line
4    Association of Illinois may be charged to and collected
5    from surplus line insureds.
6    (4) (Blank).
7    (5) Submission of documents to Surplus Line Association of
8Illinois. A surplus line producer shall submit every insurance
9contract and premium-bearing endorsement issued under his or
10her license to the Surplus Line Association of Illinois for
11recording and countersignature. The submission and recording
12countersignature may be effected through electronic means. The
13submission shall set forth:
14        (a) the name of the insured;
15        (b) the description and location of the insured
16    property or risk;
17        (c) (blank); the amount insured;
18        (d) the gross premiums charged or returned;
19        (e) the name of the unauthorized insurer from whom
20    coverage has been procured;
21        (f) the kind or kinds of insurance procured; and
22        (g) amount of premium subject to tax required by
23    Section 12 of the Fire Investigation Act.
24    Proposals, endorsements, and other documents which are
25incidental to the insurance but which do not affect the
26premium charged are exempted from the submission and recording



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1requirements filing and countersignature.
2    The submission of insuring contracts to the Surplus Line
3Association of Illinois constitutes a certification by the
4surplus line producer or by the insurance producer who
5presented the risk to the surplus line producer for placement
6as a surplus line risk that after diligent effort, where
7required, the required insurance could not be procured from
8authorized insurers and that such procurement was otherwise in
9accordance with the surplus line law.
10    (6) Evidence of recording Countersignature required. It
11shall be unlawful for an insurance producer to deliver any
12unauthorized insurer contract or premium-bearing endorsement
13unless it contains evidence of recording such insurance
14contract is countersigned by the Surplus Line Association of
16    (7) Inspection of records. A surplus line producer shall
17maintain separate records of the business transacted under his
18or her license for 7 years from the policy effective date,
19including complete copies of surplus line insurance contracts
20maintained on paper or by electronic means, which records
21shall be open at all times for inspection by the Director and
22by the Surplus Line Association of Illinois.
23    (8) Violations and penalties. The Director may suspend or
24revoke or refuse to renew a surplus line producer license for
25any violation of this Code. In addition to or in lieu of
26suspension or revocation, the Director may subject a surplus



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1line producer to a civil penalty of up to $2,000 for each cause
2for suspension or revocation. Such penalty is enforceable
3under subsection (5) of Section 403A of this Code.
4    Whenever it appears to the satisfaction of the Director
5that a surplus line producer has made a documented good faith
6determination of the home state for a surplus line insurance
7contract and has paid the surplus line taxes to a state other
8than Illinois, and the Director determines that the producer's
9good faith determination was incorrect and the home state is
10Illinois, the surplus line producer may, at the discretion of
11the Director, be required to submit the contract to the
12Surplus Line Association of Illinois and pay applicable taxes
13and recording fees, but there shall be no penalty, interest,
14or late fee assessed.
15    (9) Director may declare insurer ineligible. If the
16Director determines that the further assumption of risks might
17be hazardous to the policyholders of an unauthorized insurer,
18the Director may order the Surplus Line Association of
19Illinois not to accept and record countersign insurance
20contracts evidencing insurance in such insurer and order
21surplus line producers to cease procuring insurance from such
23    (10) Service of process upon Director. Insurance contracts
24delivered under this Section from unauthorized insurers, other
25than domestic surplus line insurers as defined in Section
26445a, shall contain a provision designating the Director and



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1his successors in office the true and lawful attorney of the
2insurer upon whom may be served all lawful process in any
3action, suit or proceeding arising out of such insurance.
4Service of process made upon the Director to be valid
5hereunder must state the name of the insured, the name of the
6unauthorized insurer and identify the contract of insurance.
7The Director at his option is authorized to forward a copy of
8the process to the Surplus Line Association of Illinois for
9delivery to the unauthorized insurer or the Director may
10deliver the process to the unauthorized insurer by other means
11which he considers to be reasonably prompt and certain.
12    (10.5) Required notice to policyholder. Insurance
13contracts delivered under this Section from unauthorized
14insurers, other than domestic surplus line insurers as defined
15in Section 445a, shall have stamped or imprinted on the first
16page thereof in not less than 12-pt. bold face type the
17following legend: "Notice to Policyholder: This contract is
18issued, pursuant to Section 445 of the Illinois Insurance
19Code, by a company not authorized and licensed to transact
20business in Illinois and as such is not covered by the Illinois
21Insurance Guaranty Fund." Insurance contracts delivered under
22this Section from domestic surplus line insurers as defined in
23Section 445a shall have stamped or imprinted on the first page
24thereof in not less than 12-pt. bold face type the following
25legend: "Notice to Policyholder: This contract is issued by a
26domestic surplus line insurer, as defined in Section 445a of



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1the Illinois Insurance Code, pursuant to Section 445, and as
2such is not covered by the Illinois Insurance Guaranty Fund."
3    (11) Marine, aviation, and transportation. The Illinois
4Surplus Line law does not apply to insurance of property and
5operations of railroads or aircraft engaged in interstate or
6foreign commerce, insurance of vessels, crafts or hulls,
7cargoes, marine builder's risks, marine protection and
8indemnity, or other risks including strikes and war risks
9insured under ocean or wet marine forms of policies.
10    (12) Applicability of Illinois Insurance Code. Surplus
11line insurance procured under this Section, including
12insurance procured from a domestic surplus line insurer, is
13not subject to the provisions of the Illinois Insurance Code
14other than Sections 123, 123.1, 401, 401.1, 402, 403, 403A,
15408, 412, 445, 445a, 445.1, 445.2, 445.3, 445.4, and all of the
16provisions of Article XXXI to the extent that the provisions
17of Article XXXI are not inconsistent with the terms of this
19(Source: P.A. 97-955, eff. 8-14-12; 98-978, eff. 1-1-15.)
20    (215 ILCS 5/445.1)  (from Ch. 73, par. 1057.1)
21    Sec. 445.1. Surplus Line Association of Illinois. There is
22hereby created a non-profit association to be known as the
23Surplus Line Association of Illinois. All surplus line
24producers shall be and must remain individual members of the
25Association as a condition of their holding a license as a



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1surplus line producer in this State. The Association must
2perform its functions under the plan of operation established
3and approved under Section 445.3 and must exercise its powers
4through a board of directors established under Section 445.2
5of this Code. The Association shall be supervised by the
6Director and is subject to the applicable provisions of the
7Illinois Insurance Code. The Association shall be authorized
8and have the duty to:
9        (1) receive and , record and countersign all surplus
10    line insurance contracts that which surplus line producers
11    are required to file with the Association under subsection
12    (5) of Section 445;
13        (2) prepare monthly reports for the Director on
14    surplus line insurance procured by its members during the
15    preceding month in such form and providing such
16    information as the Director may prescribe;
17        (3) prepare and deliver to the Director and, at the
18    discretion of the Director, to each licensee the reports
19    of surplus line business prescribed in subsection (3) of
20    Section 445;
21        (4) assess its members for costs of operations in
22    accordance with a schedule adopted by the Board of
23    Directors of the Association and approved by the Director;
24        (5) employ and retain such persons as are necessary to
25    carry out the duties of the Association;
26        (6) borrow money as necessary to effect the purposes



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1    of the Association;
2        (7) enter contracts as necessary to effect the
3    purposes of the Association;
4        (8) perform such other acts as will facilitate and
5    encourage compliance by its members with the surplus line
6    law of this State and rules promulgated thereunder; and
7        (9) provide such other services to its members as are
8    incidental or related to the purposes of the Association.
9    Nothing in this Act shall be construed as giving the
10Association any discretionary authority to enforce this Act or
11to withhold or decline acceptance and recording
12countersignature of insurance contracts that which meet the
13requirements of subsection (5) of Section 445.
14(Source: P.A. 98-978, eff. 1-1-15.)
15    Section 99. Effective date. This Act takes effect January
161, 2022.