Illinois General Assembly - Full Text of HB0724
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Full Text of HB0724  100th General Assembly



State of Illinois
2017 and 2018


Introduced 1/25/2017, by Rep. Robert Rita


215 ILCS 5/141b new
215 ILCS 5/205  from Ch. 73, par. 817
215 ILCS 5/545  from Ch. 73, par. 1065.95

    Amends the Illinois Insurance Code. Provides that any contract with a third party to provide claim services for a property and casualty company must contain specified language that provides that upon liquidation or rehabilitation of the insurer, the files and related data become the sole property of the estate with the administrator having reasonable access and right to copy files; provides that the requirement shall apply to all contracts entered into after the effective date, and any existing contracts shall have one year to comply with the requirement. In provisions concerning the distribution of general assets of a company's estate that is undergoing liquidation, rehabilitation, or conservation proceedings: Prioritizes costs and expenses of administration, including the reasonable expenses of certain funds and associations, but excluding certain other expenses, and the expenses expressly approved or ratified by the Director of Insurance as liquidator or rehabilitator, including specified costs and expenses, over all other claims. Provides that claims of obligees under surety bonds and undertakings, claims by principals under surety bonds and surety undertakings for wrongful dissipation of collateral by the insurer or its agents, and claims incurred during certain extensions of coverage are granted the same priority level as claims by policyholders, beneficiaries, and insureds, under insurance policies, annuity contracts, and funding agreements. Provides that these changes apply to all pending and future liquidation, rehabilitation, or conservation proceedings. Makes other changes. Effective immediately.

LRB100 06875 SMS 16924 b






HB0724LRB100 06875 SMS 16924 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 adding
5Section 141b and by changing Sections 205 and 545 as follows:
6    (215 ILCS 5/141b new)
7    Sec. 141b. Third party access to files. Any contract with a
8third party ("administrator") to provide claim services for a
9property and casualty company must contain the following
11        (1) Upon liquidation or rehabilitation of the insurer,
12    the files and any data related thereto become the sole
13    property of the estate. The administrator shall have
14    reasonable access and right to copy files at the
15    administrator's expense.
16        (2) In the event electronic files are used, the
17    administrator must keep all data in such a format that it
18    is easily separated from other data maintained by the
19    administrator and timely transferred to the liquidator
20    upon the entry of an order or liquidation. "Timely
21    transferred", in this context, means the claim file data
22    must be transferred to the liquidator within 10 days after
23    the entry of an order of liquidation.



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1    The provisions of this Section shall apply to all contracts
2entered into after the effective date of this amendatory Act of
3the 100th General Assembly, and any existing contracts shall
4have one year to come into compliance with this Section.
5    (215 ILCS 5/205)  (from Ch. 73, par. 817)
6    Sec. 205. Priority of distribution of general assets.
7    (1) The priorities of distribution of general assets from
8the company's estate is to be as follows:
9        (a) The costs and expenses of administration,
10    including, but not limited to, the following:
11            (i) The reasonable expenses of the Illinois
12        Insurance Guaranty Fund, the Illinois Life and Health
13        Insurance Guaranty Association, and the Illinois
14        Health Maintenance Organization Guaranty Association
15        and of any similar organization in any other state,
16        including overhead, salaries, and other general
17        administrative expenses allocable to the receivership
18        (administrative and claims handling expenses and
19        expenses in connection with arrangements for ongoing
20        coverage), but excluding expenses incurred in the
21        performance of duties under Section 547 or similar
22        duties under the statute governing a similar
23        organization in another state. For property and
24        casualty insurance guaranty associations that guaranty
25        certain obligations of any member company as defined by



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1        Section 534.5, expenses shall include, but not be
2        limited to, loss adjustment expenses, which shall
3        include adjusting and other expenses and defense and
4        cost containment expenses. The expenses of such
5        property and casualty guaranty associations, including
6        the Illinois Insurance Guaranty Fund, shall be
7        reimbursed as prescribed by Section 545, but shall be
8        subordinate to all other costs and expenses of
9        administration, including the expenses reimbursed
10        pursuant to subparagraph (ii) of this paragraph (a).
11            (ii) The expenses expressly approved or ratified
12        by the Director as liquidator or rehabilitator,
13        including, but not limited to, the following:
14                (1) the actual and necessary costs of
15            preserving or recovering the property of the
16            insurer;
17                (2) reasonable compensation for all services
18            rendered on behalf of the administrative
19            supervisor or receiver;
20                (3) any necessary filing fees;
21                (4) the fees and mileage payable to witnesses;
22                (5) unsecured loans obtained by the receiver;
23            and
24                (6) expenses approved by the conservator or
25        rehabilitator of the insurer, if any, incurred in the
26        course of the conservation or rehabilitation that are



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1        unpaid at the time of the entry of the order of
2        liquidation.
3        Any unsecured loan falling under item (5) of
4    subparagraph (ii) of this paragraph (a) shall have priority
5    over all other costs and expenses of administration, unless
6    the lender agrees otherwise. Absent agreement to the
7    contrary, all other costs and expenses of administration
8    shall be shared on a pro-rata basis, except for the
9    expenses of property and casualty guaranty associations,
10    which shall have a lower priority pursuant to subparagraph
11    (i) of this paragraph (a). , including the expenses of the
12    Illinois Insurance Guaranty Fund, the Illinois Life and
13    Health Insurance Guaranty Association, the Illinois Health
14    Maintenance Organization Guaranty Association and of any
15    similar organization in any other state as prescribed in
16    subsection (c) of Section 545.
17        (b) Secured claims, including claims for taxes and
18    debts due the federal or any state or local government,
19    that are secured by liens perfected prior to the filing of
20    the complaint.
21        (c) Claims for wages actually owing to employees for
22    services rendered within 3 months prior to the date of the
23    filing of the complaint, not exceeding $1,000 to each
24    employee unless there are claims due the federal government
25    under paragraph (f), then the claims for wages shall have a
26    priority of distribution immediately following that of



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1    federal claims under paragraph (f) and immediately
2    preceding claims of general creditors under paragraph (g).
3        (d) Claims by policyholders, beneficiaries, and
4    insureds, under insurance policies, annuity contracts, and
5    funding agreements, liability claims against insureds
6    covered under insurance policies and insurance contracts
7    issued by the company, claims of obligees (and, subject to
8    the discretion of the receiver, completion contractors)
9    under surety bonds and surety undertakings (not to include
10    bail bonds, mortgage or financial guaranty, or other forms
11    of insurance offering protection against investment risk),
12    claims by principals under surety bonds and surety
13    undertakings for wrongful dissipation of collateral by the
14    insurer or its agents, and claims incurred during any
15    extension of coverage provided under subsection (5) of
16    Section 193, and claims of the Illinois Insurance Guaranty
17    Fund, the Illinois Life and Health Insurance Guaranty
18    Association, the Illinois Health Maintenance Organization
19    Guaranty Association, and any similar organization in
20    another state as prescribed in Section 545. For purposes of
21    this Section, "funding agreement" means an agreement
22    whereby an insurer authorized to write business under Class
23    1 of Section 4 of this Code may accept and accumulate funds
24    and make one or more payments at future dates in amounts
25    that are not based upon mortality or morbidity
26    contingencies.



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1        (e) Claims by policyholders, beneficiaries, and
2    insureds, the allowed values of which were determined by
3    estimation under paragraph (b) of subsection (4) of Section
4    209.
5        (f) Any other claims due the federal government.
6        (g) All other claims of general creditors not falling
7    within any other priority under this Section including
8    claims for taxes and debts due any state or local
9    government which are not secured claims and claims for
10    attorneys' fees incurred by the company in contesting its
11    conservation, rehabilitation, or liquidation.
12        (h) Claims of guaranty fund certificate holders,
13    guaranty capital shareholders, capital note holders, and
14    surplus note holders.
15        (i) Proprietary claims of shareholders, members, or
16    other owners.
17    Every claim under a written agreement, statute, or rule
18providing that the assets in a separate account are not
19chargeable with the liabilities arising out of any other
20business of the insurer shall be satisfied out of the funded
21assets in the separate account equal to, but not to exceed, the
22reserves maintained in the separate account under the separate
23account agreement, and to the extent, if any, the claim is not
24fully discharged thereby, the remainder of the claim shall be
25treated as a priority level (d) claim under paragraph (d) of
26this subsection to the extent that reserves have been



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1established in the insurer's general account pursuant to
2statute, rule, or the separate account agreement.
3    For purposes of this provision, "separate account
4policies, contracts, or agreements" means any policies,
5contracts, or agreements that provide for separate accounts as
6contemplated by Section 245.21.
7    To the extent that any assets of an insurer, other than
8those assets properly allocated to and maintained in a separate
9account, have been used to fund or pay any expenses, taxes, or
10policyholder benefits that are attributable to a separate
11account policy, contract, or agreement that should have been
12paid by a separate account prior to the commencement of
13receivership proceedings, then upon the commencement of
14receivership proceedings, the separate accounts that benefited
15from this payment or funding shall first be used to repay or
16reimburse the company's general assets or account for any
17unreimbursed net sums due at the commencement of receivership
18proceedings prior to the application of the separate account
19assets to the satisfaction of liabilities or the corresponding
20separate account policies, contracts, and agreements.
21    To the extent, if any, reserves or assets maintained in the
22separate account are in excess of the amounts needed to satisfy
23claims under the separate account contracts, the excess shall
24be treated as part of the general assets of the insurer's
26    (2) Within 120 days after the issuance of an Order of



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1Liquidation with a finding of insolvency against a domestic
2company, the Director shall make application to the court
3requesting authority to disburse funds to the Illinois
4Insurance Guaranty Fund, the Illinois Life and Health Insurance
5Guaranty Association, the Illinois Health Maintenance
6Organization Guaranty Association, and similar organizations
7in other states from time to time out of the company's
8marshaled assets as funds become available in amounts equal to
9disbursements made by the Illinois Insurance Guaranty Fund, the
10Illinois Life and Health Insurance Guaranty Association, the
11Illinois Health Maintenance Organization Guaranty Association,
12and similar organizations in other states for covered claims
13obligations on the presentation of evidence that such
14disbursements have been made by the Illinois Insurance Guaranty
15Fund, the Illinois Life and Health Insurance Guaranty
16Association, the Illinois Health Maintenance Organization
17Guaranty Association, and similar organizations in other
19    The Director shall establish procedures for the ratable
20allocation and distribution of disbursements to the Illinois
21Insurance Guaranty Fund, the Illinois Life and Health Insurance
22Guaranty Association, the Illinois Health Maintenance
23Organization Guaranty Association, and similar organizations
24in other states. In determining the amounts available for
25disbursement, the Director shall reserve sufficient assets for
26the payment of the expenses of administration described in



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1paragraph (1)(a) of this Section. All funds available for
2disbursement after the establishment of the prescribed reserve
3shall be promptly distributed. As a condition to receipt of
4funds in reimbursement of covered claims obligations, the
5Director shall secure from the Illinois Insurance Guaranty
6Fund, the Illinois Life and Health Insurance Guaranty
7Association, the Illinois Health Maintenance Organization
8Guaranty Association, and each similar organization in other
9states, an agreement to return to the Director on demand funds
10previously received as may be required to pay claims of secured
11creditors and claims falling within the priorities established
12in paragraphs (a), (b), (c), and (d) of subsection (1) of this
13Section in accordance with such priorities.
14    (3) The changes made in this Section by this amendatory Act
15of the 100th General Assembly apply to all liquidation,
16rehabilitation, or conservation proceedings that are pending
17on the effective date of this amendatory Act of the 100th
18General Assembly and to all future liquidation,
19rehabilitation, or conservation proceedings.
20    (4) The provisions of this Section are severable under
21Section 1.31 of the Statute on Statutes.
22(Source: P.A. 92-65, eff. 7-12-01; 92-875, eff. 1-3-03.)
23    (215 ILCS 5/545)  (from Ch. 73, par. 1065.95)
24    Sec. 545. Effect of paid claims.
25    (a) Every insured or claimant seeking the protection of



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1this Article shall cooperate with the Fund to the same extent
2as such person would have been required to cooperate with the
3insolvent company. The Fund shall have all the rights, duties
4and obligations under the policy to the extent of the covered
5claim payment, provided the Fund shall have no cause of action
6against the insured of the insolvent company for any sums it
7has paid out except such causes of action as the insolvent
8company would have had if such sums had been paid by the
9insolvent company and except as provided in paragraph (d) of
10this Section.
11    (b) The Fund and any similar organization in another state
12shall be recognized as claimants in the liquidation of an
13insolvent company for any amounts paid by them on covered
14claims obligations as determined under this Article or similar
15laws in other states and shall receive dividends at the
16priority set forth in paragraph (d) of subsection (1) of
17Section 205 of this Code; provided that if, at the time that
18the liquidator Liquidator issues a cut-off notice to the Fund
19in anticipation of closing the estate, a reserve has been
20established by the Fund, or any similar organization in another
21state, for the amount of their future administrative expenses
22and loss development associated with unpaid reported pending
23claims, these reserves will be deemed to have been paid as of
24the date of the notice and payment shall be made accordingly.
25The liquidator of an insolvent company shall be bound by
26determinations of covered claim eligibility under the Act and



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1by settlements of claims made by the Fund or a similar
2organization in another state on the receipt of certification
3of such payments, to the extent those determinations or
4settlements satisfy obligations of the Fund, but the receiver
5shall not be bound in any way by those determinations or
6settlements to the extent that there remains a claim in the
7estate for amounts in excess of the payments by the Fund. In
8submitting their claim for covered claim payments the Fund and
9any similar organization in another state shall not be subject
10to the requirements of Sections 208 and 209 of this Code and
11shall not be affected by the failure of the person receiving a
12covered claim payment to file a proof of claim.
13    (c) The expenses of the Fund and of any similar
14organization in any other state, other than expenses incurred
15in the performance of duties under Section 547 or similar
16duties under the statute governing a similar organization in
17another state, shall be accorded the same priority over all
18claims against the estate, except as provided for in paragraph
19(a) of subsection (1) of Section 205 of this Code as the
20liquidator's expenses. The liquidator shall make prompt
21reimbursement to the Fund and any similar organization for such
22expense payments.
23    (d) The Fund has the right to recover from the following
24persons the amount of any covered claims and allocated claims
25expenses which the Fund paid or incurred on behalf of such
26person in satisfaction, in whole or in part, of liability



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1obligations of such person to any other person:
2        (i) any insured whose net worth on December 31 of the
3    year next preceding the date the company becomes an
4    insolvent company exceeds $25,000,000; provided that an
5    insured's net worth on such date shall be deemed to include
6    the aggregate net worth of the insured and all of its
7    affiliates as calculated on a consolidated basis.
8        (ii) any insured who is an affiliate of the insolvent
9    company.
10(Source: P.A. 96-1450, eff. 8-20-10.)
11    Section 99. Effective date. This Act takes effect upon
12becoming law.