Public Act 096-1450
 
HB5217 EnrolledLRB096 17690 RPM 33053 b

    AN ACT concerning 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 Sections 187, 209, 531.03, 531.04, 531.05, 531.06,
531.07, 531.08, 531.09, 531.10, 531.11, 531.12, 531.14,
531.18, 537.2, and 545 and by adding Section 206.1 as follows:
 
    (215 ILCS 5/187)  (from Ch. 73, par. 799)
    Sec. 187. Scope of Article.
    (1) This Article shall apply to every corporation,
association, society, order, firm, company, partnership,
individual, and aggregation of individuals to which any Article
of this Code is applicable, or which is subject to examination,
visitation or supervision by the Director under any provision
of this Code or under any law of this State, or which is
engaging in or proposing or attempting to engage in or is
representing that it is doing an insurance or surety business,
or is undertaking or proposing or attempting to undertake to
provide or arrange for health care services as a health care
plan as defined in subsection (7) of Section 1-2 of the Health
Maintenance Organization Act, including the exchanging of
reciprocal or inter-insurance contracts between individuals,
partnerships and corporations in this State, or which is in the
process of organization for the purpose of doing or attempting
or intending to do such business, anything as to any such
corporation, association, society, order, firm, company,
partnership, individual or aggregation of individuals provided
in this Code or elsewhere in the laws of this State to the
contrary notwithstanding.
    (2) The word "company" as used in this Article includes all
of the corporations, associations, societies, orders, firms,
companies, partnerships, and individuals specified in
subsections (1), (4), and (5) of this Section and agents,
managing general agents, brokers, premium finance companies,
insurance holding companies, and all other non-risk bearing
entities or persons engaged in any aspect of the business of
insurance on behalf of an insurer against which a receivership
proceeding has been or is being filed under this Article,
including, but not limited to, entities or persons that provide
management, administrative, accounting, data processing,
marketing, underwriting, claims handling, or any other similar
services to that insurer, whether or not those entities are
licensed to engage in the business of insurance in Illinois, if
the entity or person is an affiliate of that insurer.
    (3) The word "court" shall mean the court before which the
conservation, rehabilitation, or liquidation proceeding of the
company is pending, or the judge presiding in such proceedings.
    (4) The word "affiliate" as used in this Article means a
person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common
control with, the person specified.
    (5) The word "person" as used in this Article means an
individual, an aggregation of individuals, a partnership, or a
corporation.
    (6) The word "assets" as used in this Article includes all
deposits and funds of a special or trust nature.
    (7) The words "receivership proceedings" mean any
conservation, rehabilitation, liquidation, or ancillary
receivership.
    (8) "Netting agreement", as used in this Article, means (a)
a contract or agreement (including terms and conditions
incorporated by reference therein), including a master
agreement (which master agreement, together with all
schedules, confirmations, definitions, and addenda thereto and
transactions under any thereof, shall be treated as one netting
agreement), that documents one or more transactions between the
parties to the agreement for or involving one or more qualified
financial contracts and that provides for the netting,
liquidation, setoff, termination, acceleration, or close out
under or in connection with one or more qualified financial
contracts or present or future payment or delivery obligations
or payment or delivery entitlements thereunder (including
liquidation or close-out values relating to such obligations or
entitlements) among the parties to the netting agreement; (b)
any master agreement or bridge agreement for one or more master
agreements described in paragraph (a) of this subsection (8);
or (c) any security agreement or arrangement or other credit
enhancement or guarantee or reimbursement obligation related
to any contract or agreement described in paragraph (a) or (b)
of this subsection (8); provided that any contract or agreement
described in paragraphs (a) or (b) of this subsection (8)
relating to agreements or transactions that are not qualified
financial contracts shall be deemed to be a netting agreement
only with respect to those agreements or transactions that are
qualified financial contracts.
    (9) "Qualified financial contract" means any commodity
contract, forward contract, repurchase agreement, securities
contract, swap agreement, or any similar agreement that the
Director determines by regulation, resolution, or order to be a
qualified financial contract for the purposes of this Act.
        (a) "Commodity contract" means:
            (1) a contract for the purchase or sale of a
        commodity for future delivery on, or subject to the
        rules of, a board of trade or contract market under the
        federal Commodity Exchange Act or a board of trade
        outside the United States;
            (2) an agreement that is subject to regulation
        under Section 19 of the federal Commodity Exchange Act
        and that is commonly known to the commodities trade as
        a margin account, margin contract, leverage account,
        or leverage contract;
            (3) an agreement or transaction that is subject to
        regulation under Section 4c(b) of the federal
        Commodity Exchange Act and that is commonly known to
        the commodities trade as a commodity option;
            (4) any combination of the agreements or
        transactions referred to in this paragraph (a); or
            (5) any option to enter into an agreement or
        transaction referred to in this paragraph (a).
        (b) "Forward contract", "repurchase agreement",
    "securities contract", and "swap agreement" shall have the
    meanings set forth in the Federal Deposit Insurance Act, 12
    U.S.C. 1821(e)(8)(D), as amended from time to time.
(Source: P.A. 92-140, eff. 7-24-01.)
 
    (215 ILCS 5/206.1 new)
    Sec. 206.1. Qualified financial contracts.
    (a) Notwithstanding any other provision of this Article,
including any other provision of this Article permitting the
modification of contracts, or other law of a state, no person
shall be stayed or prohibited from exercising:
        (1) a contractual right to cause the termination,
    liquidation, acceleration, or close out of obligations
    under or in connection with any netting agreement or
    qualified financial contract with an insurer because of:
            (A) the insolvency, financial condition, or
        default of the insurer at any time, provided that the
        right is enforceable under an applicable law other than
        this Code; or
            (B) the commencement of a formal delinquency
        proceeding under this Code;
        (2) any right under a pledge, security, collateral,
    reimbursement or guarantee agreement or arrangement, any
    other similar security agreement or arrangement, or other
    credit enhancement relating to one or more netting
    agreements or qualified financial contracts;
        (3) subject to any provision of Section 206 of this
    Article, any right to set off or net out any termination
    value, payment amount, or other transfer obligation
    arising under or in connection with one or more qualified
    financial contracts where the counterparty or its
    guarantor is organized under the laws of the United States
    or a state or a foreign jurisdiction approved by the
    Securities Valuation Office of the National Association of
    Insurance Commissioners as eligible for netting; or
        (4) if a counterparty to a master netting agreement or
    a qualified financial contract with an insurer subject to a
    proceeding under this Article terminates, liquidates,
    closes out or accelerates the agreement or contract, then
    damages shall be measured as of the date or dates of
    termination, liquidation, close out, or acceleration; the
    amount of a claim for damages shall be actual direct
    compensatory damages calculated in accordance with
    subsection (f) of this Section.
    (b) Upon termination of a netting agreement or qualified
financial contract, the net or settlement amount, if any, owed
by a nondefaulting party to an insurer against which an
application or petition has been filed under this Code shall be
transferred to or on the order of the receiver for the insurer,
even if the insurer is the defaulting party, notwithstanding
any walkaway clause in the netting agreement or qualified
financial contract.
    For the purposes of this subsection (b), the term "walkaway
clause" means a provision in a netting agreement or a qualified
financial contract that, after calculation of a value of a
party's position or an amount due to or from one of the parties
in accordance with its terms upon termination, liquidation, or
acceleration of the netting agreement or qualified financial
contract, either does not create a payment obligation of a
party or extinguishes a payment obligation of a party in whole
or in part solely because of the party's status as a
nondefaulting party. Any limited 2-way payment or first method
provision in a netting agreement or qualified financial
contract with an insurer that has defaulted shall be deemed to
be a full 2-way payment or second method provision as against
the defaulting insurer. Any such property or amount shall,
except to the extent that it is subject to one or more
secondary liens or encumbrances or rights of netting or setoff,
be a general asset of the insurer.
    (c) In making any transfer of a netting agreement or
qualified financial contract of an insurer subject to a
proceeding under this Code, the receiver shall either:
        (1) transfer to one party (other than an insurer
    subject to a proceeding under this Article) all netting
    agreements and qualified financial contracts between a
    counterparty or any affiliate of the counterparty and the
    insurer that is the subject of the proceeding, including:
            (A) all rights and obligations of each party under
        each netting agreement and qualified financial
        contract; and
            (B) all property, including any guarantees or
        other credit enhancement, securing any claims of each
        party under each netting agreement and qualified
        financial contract; or
        (2) transfer none of the netting agreements, qualified
    financial contracts, rights, obligations, or property
    referred to in paragraph (1) of this subsection (c) (with
    respect to the counterparty and any affiliate of the
    counterparty).
    (d) If a receiver for an insurer makes a transfer of one or
more netting agreements or qualified financial contracts, then
the receiver shall use its best efforts to notify any person
who is party to the netting agreements or qualified financial
contracts of the transfer by 12:00 noon (the receiver's local
time) on the business day following the transfer. For the
purposes of this subsection (d), "business day" means a day
other than a Saturday, Sunday, or any day on which either the
New York Stock Exchange or the Federal Reserve Bank of New York
is closed.
    (e) Notwithstanding any other provision of this Article, a
receiver may not avoid a transfer of money or other property
arising under or in connection with a netting agreement or
qualified financial contract (or any pledge, security,
collateral, or guarantee agreement or any other similar
security arrangement or credit support document relating to a
netting agreement or qualified financial contract) that is made
before the commencement of a formal delinquency proceeding
under this Article.
    (f) The following provisions shall apply concerning
disaffirmance and repudiation:
        (1) In exercising the rights of disaffirmance or
    repudiation of a receiver with respect to any netting
    agreement or qualified financial contract to which an
    insurer is a party, the receiver for the insurer shall
    either:
            (A) disaffirm or repudiate all netting agreements
        and qualified financial contracts between a
        counterparty or any affiliate of the counterparty and
        the insurer that is the subject of the proceeding; or
            (B) disaffirm or repudiate none of the netting
        agreements and qualified financial contracts referred
        to in subparagraph (A) (with respect to the person or
        any affiliate of the person).
        (2) Notwithstanding any other provision of this
    Article, any claim of a counterparty against the estate
    arising from the receiver's disaffirmance or repudiation
    of a netting agreement or qualified financial contract that
    has not been previously affirmed in the liquidation or
    immediately preceding a conservation or rehabilitation
    case shall be determined and shall be allowed or disallowed
    as if the claim had arisen before the date of the filing of
    the petition for liquidation or, if a conservation or
    rehabilitation proceeding is converted to a liquidation
    proceeding, as if the claim had arisen before the date of
    the filing of the petition for conservation or
    rehabilitation. The amount of the claim shall be the actual
    direct compensatory damages determined as of the date of
    the disaffirmance or repudiation of the netting agreement
    or qualified financial contract. The term "actual direct
    compensatory damages" does not include punitive or
    exemplary damages, damages for lost profit or lost
    opportunity, or damages for pain and suffering, but does
    include normal and reasonable costs of cover or other
    reasonable measures of damages utilized in the
    derivatives, securities, or other market for the contract
    and agreement claims.
    (g) The term "contractual right", as used in this Section,
includes any right set forth in a rule or bylaw of a
derivatives clearing organization, as defined in the Commodity
Exchange Act; a multilateral clearing organization, as defined
in the Federal Deposit Insurance Corporation Improvement Act of
1991; a national securities exchange; a national securities
association; a securities clearing agency; a contract market
designated under the Commodity Exchange Act; a derivatives
transaction execution facility registered under the Commodity
Exchange Act; or a board of trade, as defined in the Commodity
Exchange Act or in a resolution of the governing board thereof
and any right, whether or not evidenced in writing, arising
under statutory or common law or under law merchant or by
reason of normal business practice.
    (h) The provisions of this Section shall not apply to
persons who are affiliates of the insurer that is the subject
of the proceeding.
    (i) All rights of counterparties under this Article shall
apply to netting agreements and qualified financial contracts
entered into on behalf of the general account or separate
accounts if the assets of each separate account are available
only to counterparties to netting agreements and qualified
financial contracts entered into on behalf of that separate
account.
 
    (215 ILCS 5/209)  (from Ch. 73, par. 821)
    Sec. 209. Proof and allowance of claims.
    (1) The following provisions shall apply concerning proof
and allowance of claims:
        (a) Proof of claim shall consist of a statement signed
    by the claimant or on behalf of the claimant that includes
    all of the following that are applicable:
            (i) the particulars of the claim including the
        consideration given for it;
            (ii) the identity and amount of the security on the
        claim;
            (iii) the payments made on the debt, if any;
            (iv) that the sum claimed is justly owing and that
        there is no setoff, counterclaim, or defense to the
        claim;
            (v) any right of priority of payment or other
        specific right asserted by the claimant;
            (vi) the name and address of the claimant and the
        attorney, if any, who represents the claimant; and
            (vii) the claimant's social security or federal
        employer identification number.
        (b) The Director may require that a prescribed form be
    used and may require that other information and documents
    be included.
        (c) At any time the Director may require the claimant
    to present information or evidence supplementary to that
    required under paragraph (a) and may take testimony under
    oath, require production of affidavits or depositions, or
    otherwise obtain additional information or evidence.
    (2) (1) A proof of claim shall consist of a written
statement signed under oath setting forth the claim, the
consideration for it, whether the claim is secured and, if so,
how, what payments have been made on the claim, if any, and
that the sum claimed is justly owing from the company. Whenever
a claim is based upon a document, the document, unless lost or
destroyed, shall be filed with the proof of claim. If the
document is lost or destroyed, a statement of that fact and of
the circumstances of the loss or destruction shall be included
in the proof of claim. A claim may be allowed even if
contingent or unliquidated as of the date fixed by the court
pursuant to subsection (a) of Section 194 if it is filed in
accordance with this subsection. Except as otherwise provided
in subsection (7), a proof of claim required under this Section
must identify a known loss or occurrence.
    (2) At any time, the Director may require the claimant to
present information or evidence supplementary to that required
under subsection (l) and may take testimony under oath, require
production of affidavits or depositions, or otherwise obtain
additional information or evidence.
    (3) Upon the liquidation, rehabilitation, or conservation
of any company which has issued policies insuring the lives of
persons, the Director shall, within a reasonable time, after
the last day set for the filing of claims, make a list of the
persons who have not filed proofs of claim with him and whose
rights have not been reinsured, to whom it appears from the
books of the company, there are owing amounts on such policies
and he shall set opposite the name of each person such amount
so owing to such person. The Director shall incur no personal
liability by reason of any mistake in such list. Each person
whose name shall appear upon said list shall be deemed to have
duly filed prior to the last day set for filing of claims a
proof of claim for the amount set opposite his name on said
list.
    (4)(a) When a Liquidation, Rehabilitation, or Conservation
Order has been entered in a proceeding against an insurer under
this Code, any insured under an insurance policy shall have the
right to file a contingent claim. The Court at the time of the
entry of the Order of Liquidation, Rehabilitation or
Conservation shall fix the final date for the liquidation of
insureds' contingent claims, but in no event shall said date be
more than 3 years after the last day fixed for the filing of
claims, provided, such date may be extended by the Court on
petition of the Director should the Director determine that
such extension will not delay distribution of assets under
Section 210. Such a contingent claim shall be allowed if such
claim is liquidated and the insured claimant presents evidence
of payment of such claim to the Director on or before the last
day fixed by the Court.
    (b) When an insured has been unable to liquidate its claim
under paragraph (a) of this subsection (4), the insured may
have its claim allowed by estimation if (i) it may be
reasonably inferred from the proof presented upon the claim
that a claim exists under the policy; (ii) the insured has
furnished suitable proof, unless the court for good cause shown
shall otherwise direct, that no further valid claims against
the insurer arising out of the cause of action other than those
already presented can be made, and (iii) the total liability of
the insurer to all claimants arising out of the same act shall
be no greater than its total liability would be were it not in
liquidation, rehabilitation, or conservation.
    (5) The obligation of the insurer, if any, to defend or
continue the defense of any claim or suit under a liability
insurance policy shall terminate on the entry of the Order of
Liquidation, Rehabilitation or Conservation, except during the
appeal of an Order of Liquidation as provided by Section 190.1
or, unless upon the petition of the Director, the court directs
otherwise. Insureds may include in contingent claims
reasonable attorneys fees for services rendered subsequent to
the date of Liquidation, Rehabilitation or Conservation in
defense of claims or suits covered by the insured's policy
provided such attorneys fees have actually been paid by the
assured and evidence of payment presented in the manner
required for insured's contingent claims.
    (6) When a liquidation, rehabilitation, or conservation
order has been entered in a proceeding against an insurer under
this Code, any person who has a cause of action against an
insured of the insurer under an insurance policy issued by the
insurer shall have the right to file a claim in the proceeding,
regardless of the fact that the claim may be contingent, and
the claim may be allowed by estimation (a) if it may be
reasonably, inferred from proof presented upon the claim that
the claimant would be able to obtain a judgment upon the cause
of action against the insured; and (b) if the person has
furnished suitable proof, unless the court for good cause shown
shall otherwise direct, that no further valid claims against
the insurer arising out of the cause of action other than those
already presented can be made, and (c) the total liability of
the insurer to all claimants arising out of the same act shall
be no greater than its total liability would be were it not in
liquidation, rehabilitation, or conservation.
    (7) Contingent or unliquidated general creditors' and
ceding insurers' claims that are not made absolute and
liquidated by the last day fixed by the court pursuant to
subsection (4) may be determined and allowed by estimation. Any
such estimate shall be based upon an actuarial evaluation made
with reasonable actuarial certainty or upon another accepted
method of valuing claims with reasonable certainty and, with
respect to ceding insurers' claims, may include an estimate of
incurred but not reported losses.
    (7.5) (a) The estimation and allowance of the loss
development on a known loss or occurrence shall trigger a
reinsurer's obligation to pay pursuant to its reinsurance
contract with the insolvent company, provided that the
allowance is made in accordance with paragraph (b) of
subsection (4) or subsection (6). The Director shall have the
authority to exercise all available remedies on behalf of the
insolvent company to marshal these reinsurance recoverables.
    (b) That portion of any estimated and allowed contingent
claim that is attributable to claims incurred but not reported
to the insolvent company's reinsured shall not be billable to
the insolvent company's reinsurers, except to the extent that
(A) such claims develop into known losses or occurrences and
become billable under paragraph (a) of this subsection or (B)
the reinsurance contract specifically provides for the payment
of such losses or reserves.
    (c) Notwithstanding any other provision of this Code, the
liquidator may negotiate a voluntary commutation and release of
all obligations arising from reinsurance contracts or other
agreements.
    (8) No judgment against such an insured or an insurer taken
after the date of the entry of the liquidation, rehabilitation,
or conservation order shall be considered in the proceedings as
evidence of liability, or of the amount of damages, and no
judgment against an insured or an insurer taken by default, or
by collusion prior to the entry of the liquidation order shall
be considered as conclusive evidence in the proceeding either
of the liability of such insured to such person upon such cause
of action or of the amount of damages to which such person is
therein entitled.
    (9) The value of securities held by secured creditors shall
be determined by converting the same into money according to
the terms of the agreement pursuant to which such securities
were delivered to such creditors, or by such creditors and the
Director by agreement, or by the court, and the amount of such
value shall be credited upon the claims of such secured
creditors and their claims allowed only for the balance.
    (10) Claims of creditors or policyholders who have received
preferences voidable under Section 204 or to whom conveyances
or transfers, assignments or incumbrances have been made or
given which are void under Section 204, shall not be allowed
unless such creditors or policyholders shall surrender such
preferences, conveyances, transfers, assignments or
incumbrances.
    (11)(a) When the Director denies a claim or allows a claim
for less than the amount requested by the claimant, written
notice of the determination and of the right to object shall be
given promptly to the claimant or the claimant's representative
by first class mail at the address shown on the proof of claim.
Within 60 days from the mailing of the notice, the claimant may
file his written objections with the Director. If no such
filing is made on a timely basis, the claimant may not further
object to the determination.
    (b) Whenever objections are filed with the Director and he
does not alter his determination as a result of the objection
and the claimant continues to object, the Director shall
petition the court for a hearing as soon as practicable and
give notice of the hearing by first class mail to the claimant
or his representative and to any other persons known by the
Director to be directly affected, not less than 10 days before
the date of the hearing.
    (12) The Director shall review all claims duly filed in the
liquidation, rehabilitation, or conservation proceeding,
unless otherwise directed by the court, and shall make such
further investigation as he considers necessary. The Director
may compound, compromise, or in any other manner negotiate the
amount for which claims will be recommended to the court.
Unresolved disputes shall be determined under subsection (11).
    (13)(a) The Director shall present to the court reports of
claims reviewed under subsection (12) with his recommendations
as to each claim.
    (b) The court may approve or disapprove any recommendations
contained in the reports of claims filed by the Director,
except that the Director's agreements with claimants shall be
accepted as final by the court on claims settled for $10,000 or
less.
    (14) The changes made in this Section by this amendatory
Act of 1993 apply to all liquidation, rehabilitation, or
conservation proceedings that are pending on the effective date
of this amendatory Act of 1993 and to all future liquidation,
rehabilitation, or conservation proceedings, except that the
changes made to the provisions of this Section by this
amendatory Act of 1993 shall not apply to any company ordered
into liquidation on or before January 1, 1982.
    (15) The changes made in this Section by this amendatory
Act of the 93rd General Assembly do not apply to any company
ordered into liquidation on or before January 1, 2004.
(Source: P.A. 93-1083, eff. 2-7-05.)
 
    (215 ILCS 5/531.03)  (from Ch. 73, par. 1065.80-3)
    Sec. 531.03. Coverage and limitations.
    (1) This Article shall provide coverage for the policies
and contracts specified in paragraph (2) of this Section:
        (a) to persons who, regardless of where they reside
    (except for non-resident certificate holders under group
    policies or contracts), are the beneficiaries, assignees
    or payees of the persons covered under subparagraph (1)(b),
    and
        (b) to persons who are owners of or certificate holders
    under the policies or contracts (other than unallocated
    annuity contracts and structured settlement annuities) and
    in each case who:
            (i) are residents; or
            (ii) are not residents, but only under all of the
        following conditions:
                (A) the insurer that issued the policies or
            contracts is domiciled in this State;
                (B) the states in which the persons reside have
            associations similar to the Association created by
            this Article;
                (C) the persons are not eligible for coverage
            by an association in any other state due to the
            fact that the insurer was not licensed in that
            state at the time specified in that state's
            guaranty association law.
        (c) For unallocated annuity contracts specified in
    subsection (2), paragraphs (a) and (b) of this subsection
    (1) shall not apply and this Article shall (except as
    provided in paragraphs (e) and (f) of this subsection)
    provide coverage to:
            (i) persons who are the owners of the unallocated
        annuity contracts if the contracts are issued to or in
        connection with a specific benefit plan whose plan
        sponsor has its principal place of business in this
        State; and
            (ii) persons who are owners of unallocated annuity
        contracts issued to or in connection with government
        lotteries if the owners are residents.
        (d) For structured settlement annuities specified in
    subsection (2), paragraphs (a) and (b) of this subsection
    (1) shall not apply and this Article shall (except as
    provided in paragraphs (e) and (f) of this subsection)
    provide coverage to a person who is a payee under a
    structured settlement annuity (or beneficiary of a payee if
    the payee is deceased), if the payee:
            (i) is a resident, regardless of where the contract
        owner resides; or
            (ii) is not a resident, but only under both of the
        following conditions:
                (A) with regard to residency:
                    (I) the contract owner of the structured
                settlement annuity is a resident; or
                    (II) the contract owner of the structured
                settlement annuity is not a resident but the
                insurer that issued the structured settlement
                annuity is domiciled in this State and the
                state in which the contract owner resides has
                an association similar to the Association
                created by this Article; and
                (B) neither the payee or beneficiary nor the
            contract owner is eligible for coverage by the
            association of the state in which the payee or
            contract owner resides.
        (e) This Article shall not provide coverage to:
            (i) a person who is a payee or beneficiary of a
        contract owner resident of this State if the payee or
        beneficiary is afforded any coverage by the
        association of another state; or
            (ii) a person covered under paragraph (c) of this
        subsection (1), if any coverage is provided by the
        association of another state to that person.
        (f) This Article is intended to provide coverage to a
    person who is a resident of this State and, in special
    circumstances, to a nonresident. In order to avoid
    duplicate coverage, if a person who would otherwise receive
    coverage under this Article is provided coverage under the
    laws of any other state, then the person shall not be
    provided coverage under this Article. In determining the
    application of the provisions of this paragraph in
    situations where a person could be covered by the
    association of more than one state, whether as an owner,
    payee, beneficiary, or assignee, this Article shall be
    construed in conjunction with other state laws to result in
    coverage by only one association. to persons who are owners
    of or certificate holders under such policies or contracts;
    or, in the case of unallocated annuity contracts, to the
    persons who are the contract holders, and who
            (i) are residents of this State, or
            (ii) are not residents, but only under all of the
        following conditions:
                (A) the insurers which issued such policies or
            contracts are domiciled in this State;
                (B) such insurers never held a license or
            certificate of authority in the states in which
            such persons reside;
                (C) such states have associations similar to
            the association created by this Act; and
                (D) such persons are not eligible for coverage
            by such associations.
    (2)(a) This Article shall provide coverage to the persons
specified in paragraph (l) of this Section for direct, (i)
nongroup life, health, annuity and supplemental policies, or
contracts, (ii) for certificates under direct group policies or
contracts, (iii) for unallocated annuity contracts and (iv) for
contracts to furnish health care services and subscription
certificates for medical or health care services issued by
persons licensed to transact insurance business in this State
under the Illinois Insurance Code. Annuity contracts and
certificates under group annuity contracts include but are not
limited to guaranteed investment contracts, deposit
administration contracts, unallocated funding agreements,
allocated funding agreements, structured settlement
agreements, lottery contracts and any immediate or deferred
annuity contracts.
    (b) This Article shall not provide coverage for:
        (i) that portion of a policy or contract not guaranteed
    by the insurer, or under which the risk is borne by the
    policy or contract owner or part of such policies or
    contracts under which the risk is borne by the
    policyholder; provided however, that nothing in this
    subparagraph (i) shall make this Article inapplicable to
    assessment life and accident and health insurance policies
    or contracts; or
        (ii) any such policy or contract or part thereof
    assumed by the impaired or insolvent insurer under a
    contract of reinsurance, other than reinsurance for which
    assumption certificates have been issued; or
        (iii) any portion of a policy or contract to the extent
    that the rate of interest on which it is based or the
    interest rate, crediting rate, or similar factor is
    determined by use of an index or other external reference
    stated in the policy or contract employed in calculating
    returns or changes in value: any portion of a policy or
    contract to the extent such portion represents an accrued
    value that the rate of interest on which it is accrued
            (A) averaged over the period of 4 years prior to
        the date on which the member insurer becomes an
        impaired or insolvent insurer under this Article,
        whichever is earlier, exceeds the rate of interest
        determined by subtracting 2 percentage points from
        Moody's Corporate Bond Yield Average averaged for that
        same 4-year period or for such lesser period if the
        policy or contract was issued less than 4 years before
        the member insurer becomes an impaired or insolvent
        insurer under this Article, whichever is earlier
        averaged over the period of four years prior to the
        date on which the Association becomes obligated with
        respect to such policy or contract, exceeds a rate of
        interest determined by subtracting two percentage
        points from Moody's Corporate Bond Yield Average
        averaged for that same four year period or for such
        lesser period if the policy or contract was issued less
        than four years before the Association became
        obligated; and
            (B) on and after the date on which the member
        insurer becomes an impaired or insolvent insurer under
        this Article, whichever is earlier, exceeds the rate of
        interest determined by subtracting 3 percentage points
        from Moody's Corporate Bond Yield Average as most
        recently available on and after the date on which the
        Association becomes obligated with respect to such
        policy or contract, exceeds the rate of interest
        determined by subtracting three percentage points from
        Moody's Corporate Bond Yield Average as most recently
        available; or
        (iv) any unallocated annuity contract issued to or in
    connection with a benefit plan protected under the federal
    Pension Benefit Guaranty Corporation, regardless of
    whether the federal Pension Benefit Guaranty Corporation
    has yet become liable to make any payments with respect to
    the benefit plan any unallocated annuity contract issued to
    an employee benefit plan protected under the federal
    Pension Benefit Guaranty Corporation; or
        (v) any portion of any unallocated annuity contract
    which is not issued to or in connection with a specific
    employee, union or association of natural persons benefit
    plan or a government lottery; or
        (vi) an obligation that does not arise under the
    express written terms of the policy or contract issued by
    the insurer to the contract owner or policy owner,
    including without limitation:
            (A) a claim based on marketing materials;
            (B) a claim based on side letters, riders, or other
        documents that were issued by the insurer without
        meeting applicable policy form filing or approval
        requirements;
            (C) a misrepresentation of or regarding policy
        benefits;
            (D) an extra-contractual claim; or
            (E) a claim for penalties or consequential or
        incidental damages; any burial society organized under
        Article XIX of this Act, any fraternal benefit society
        organized under Article XVII of this Act, any mutual
        benefit association organized under Article XVIII of
        this Act, and any foreign fraternal benefit society
        licensed under Article VI of this Act; or
        (vii) any health maintenance organization established
    pursuant to the Health Maintenance Organization Act
    including any health maintenance organization business of
    a member insurer; or
        (viii) any health services plan corporation
    established pursuant to the Voluntary Health Services
    Plans Act; or
        (ix) (blank); or
        (x) any dental service plan corporation established
    pursuant to the Dental Service Plan Act; or
        (vii) (xi) any stop-loss insurance, as defined in
    clause (b) of Class 1 or clause (a) of Class 2 of Section
    4, and further defined in subsection (d) of Section 352; or
        (viii) any policy or contract providing any hospital,
    medical, prescription drug, or other health care benefits
    pursuant to Part C or Part D of Subchapter XVIII, Chapter 7
    of Title 42 of the United States Code (commonly known as
    Medicare Part C & D) or any regulations issued pursuant
    thereto;
        (ix) any portion of a policy or contract to the extent
    that the assessments required by Section 531.09 of this
    Code with respect to the policy or contract are preempted
    or otherwise not permitted by federal or State law;
        (x) any portion of a policy or contract issued to a
    plan or program of an employer, association, or other
    person to provide life, health, or annuity benefits to its
    employees, members, or others to the extent that the plan
    or program is self-funded or uninsured, including, but not
    limited to, benefits payable by an employer, association,
    or other person under:
            (A) a multiple employer welfare arrangement as
        defined in 29 U.S.C. Section 1144;
            (B) a minimum premium group insurance plan;
            (C) a stop-loss group insurance plan; or
            (D) an administrative services only contract;
        (xi) any portion of a policy or contract to the extent
    that it provides for:
            (A) dividends or experience rating credits;
            (B) voting rights; or
            (C) payment of any fees or allowances to any
        person, including the policy or contract owner, in
        connection with the service to or administration of the
        policy or contract;
        (xii) any policy or contract issued in this State by a
    member insurer at a time when it was not licensed or did
    not have a certificate of authority to issue the policy or
    contract in this State;
        (xiii) any contractual agreement that establishes the
    member insurer's obligations to provide a book value
    accounting guaranty for defined contribution benefit plan
    participants by reference to a portfolio of assets that is
    owned by the benefit plan or its trustee, which in each
    case is not an affiliate of the member insurer;
        (xiv) any portion of a policy or contract to the extent
    that it provides for interest or other changes in value to
    be determined by the use of an index or other external
    reference stated in the policy or contract, but which have
    not been credited to the policy or contract, or as to which
    the policy or contract owner's rights are subject to
    forfeiture, as of the date the member insurer becomes an
    impaired or insolvent insurer under this Code, whichever is
    earlier. If a policy's or contract's interest or changes in
    value are credited less frequently than annually, then for
    purposes of determining the values that have been credited
    and are not subject to forfeiture under this Section, the
    interest or change in value determined by using the
    procedures defined in the policy or contract will be
    credited as if the contractual date of crediting interest
    or changing values was the date of impairment or
    insolvency, whichever is earlier, and will not be subject
    to forfeiture; or
        (xv) (xii) that portion or part of a variable life
    insurance or variable annuity contract not guaranteed by an
    insurer.
    (3) The benefits for which the Association may become
liable shall in no event exceed the lesser of:
        (a) the contractual obligations for which the insurer
    is liable or would have been liable if it were not an
    impaired or insolvent insurer, or
        (b)(i) with respect to any one life, regardless of the
    number of policies or contracts:
            (A) $300,000 in life insurance death benefits, but
        not more than $100,000 in net cash surrender and net
        cash withdrawal values for life insurance;
            (B) in health insurance benefits:
                (I) $100,000 for coverages not defined as
            disability insurance or basic hospital, medical,
            and surgical insurance or major medical insurance
            or long-term care insurance, including any net
            cash surrender and net cash withdrawal values;
                (II) $300,000 for disability insurance and
            $300,000 for long-term care insurance as defined
            in Section 351A-1 of this Code; and
                (III) $500,000 for basic hospital medical and
            surgical insurance or major medical insurance
            $300,000 in health insurance benefits, including
            any net cash surrender and net cash withdrawal
            values;
            (C) $250,000 in the present value of annuity
        benefits, including net cash surrender and net cash
        withdrawal values;
        (ii) with respect to each individual participating in a
    governmental retirement benefit plan established under
    Sections 401, 403(b), or 457 of the U.S. Internal Revenue
    Code covered by an unallocated annuity contract or the
    beneficiaries of each such individual if deceased, in the
    aggregate, $250,000 in present value annuity benefits,
    including net cash surrender and net cash withdrawal
    values;
        (iii) with respect to each payee of a structured
    settlement annuity or beneficiary or beneficiaries of the
    payee if deceased, $250,000 in present value annuity
    benefits, in the aggregate, including net cash surrender
    and net cash withdrawal values, if any; or
        (iv) with respect to either (1) one contract owner
    provided coverage under subparagraph (ii) of paragraph (c)
    of subsection (1) of this Section or (2) one plan sponsor
    whose plans own directly or in trust one or more
    unallocated annuity contracts not included in subparagraph
    (ii) of paragraph (b) of this subsection, $5,000,000 in
    benefits, irrespective of the number of contracts with
    respect to the contract owner or plan sponsor. However, in
    the case where one or more unallocated annuity contracts
    are covered contracts under this Article and are owned by a
    trust or other entity for the benefit of 2 or more plan
    sponsors, coverage shall be afforded by the Association if
    the largest interest in the trust or entity owning the
    contract or contracts is held by a plan sponsor whose
    principal place of business is in this State. In no event
    shall the Association be obligated to cover more than
    $5,000,000 in benefits with respect to all these
    unallocated contracts.
    In no event shall the Association be obligated to cover
more than (1) an aggregate of $300,000 in benefits with respect
to any one life under subparagraphs (i), (ii), and (iii) of
this paragraph (b) except with respect to benefits for basic
hospital, medical, and surgical insurance and major medical
insurance under item (B) of subparagraph (i) of this paragraph
(b), in which case the aggregate liability of the Association
shall not exceed $500,000 with respect to any one individual or
(2) with respect to one owner of multiple nongroup policies of
life insurance, whether the policy owner is an individual,
firm, corporation, or other person and whether the persons
insured are officers, managers, employees, or other persons,
$5,000,000 in benefits, regardless of the number of policies
and contracts held by the owner.
    The limitations set forth in this subsection are
limitations on the benefits for which the Association is
obligated before taking into account either its subrogation and
assignment rights or the extent to which those benefits could
be provided out of the assets of the impaired or insolvent
insurer attributable to covered policies. The costs of the
Association's obligations under this Article may be met by the
use of assets attributable to covered policies or reimbursed to
the Association pursuant to its subrogation and assignment
rights.
            $100,000 in the present value of annuity benefits,
        including net cash surrender and net cash withdrawal
        values;
        (ii) with respect to each individual participating in a
    governmental retirement plan established under Section
    401, 403(b) or 457 of the U.S. Internal Revenue Code
    covered by an unallocated annuity contract or the
    beneficiaries of each such individual if deceased, in the
    aggregate, $100,000 in present value annuity benefits,
    including net cash surrender and net cash withdrawal
    values; provided, however, that in no event shall the
    Association be liable to expend more than $300,000 in the
    aggregate with respect to any one individual under
    subparagraph (1) and this subparagraph;
        (iii) with respect to any one contract holder covered
    by any unallocated annuity contract not included in
    subparagraph (3)(b)(ii) of this Section above, $5,000,000
    in benefits, irrespective of the number of such contracts
    held by that contract holder.
    (4) In performing its obligations to provide coverage under
Section 531.08 of this Code, the Association shall not be
required to guarantee, assume, reinsure, or perform or cause to
be guaranteed, assumed, reinsured, or performed the
contractual obligations of the insolvent or impaired insurer
under a covered policy or contract that do not materially
affect the economic values or economic benefits of the covered
policy or contract.
(Source: P.A. 90-177, eff. 7-23-97; 91-357, eff. 7-29-99.)
 
    (215 ILCS 5/531.04)  (from Ch. 73, par. 1065.80-4)
    Sec. 531.04. Construction.) This Article shall be is to be
liberally construed to effect the purpose under Section 531.02
which constitutes an aid and guide to interpretation.
(Source: P.A. 81-899.)
 
    (215 ILCS 5/531.05)  (from Ch. 73, par. 1065.80-5)
    Sec. 531.05. Definitions. As used in this Act:
    (1) "Account" means either of the 3 accounts created under
Section 531.06.
    (2) "Association" means the Illinois Life and Health
Insurance Guaranty Association created under Section 531.06.
    "Authorized assessment" or the term "authorized" when used
in the context of assessments means a resolution by the Board
of Directors has been passed whereby an assessment shall be
called immediately or in the future from member insurers for a
specified amount. An assessment is authorized when the
resolution is passed.
    "Benefit plan" means a specific employee, union, or
association of natural persons benefit plan.
    "Called assessment" or the term "called" when used in the
context of assessments means that a notice has been issued by
the Association to member insurers requiring that an authorized
assessment be paid within the time frame set forth within the
notice. An authorized assessment becomes a called assessment
when notice is mailed by the Association to member insurers.
    (3) "Director" means the Director of Insurance of this
State.
    (4) "Contractual obligation" means any obligation under a
policy or contract or certificate under a group policy or
contract, or portion thereof for which coverage is provided
under Section 531.03.
    (5) "Covered person" means any person who is entitled to
the protection of the Association as described in Section
531.02.
    (6) "Covered policy" means any policy or contract within
the scope of this Article under Section 531.03.
    "Extra-contractual claims" shall include claims relating
to bad faith in the payment of claims, punitive or exemplary
damages, or attorneys' fees and costs.
    "Impaired insurer" means (A) a member insurer which, after
the effective date of this amendatory Act of the 96th General
Assembly, is not an insolvent insurer, and is placed under an
order of rehabilitation or conservation by a court of competent
jurisdiction or (B) a member insurer deemed by the Director
after the effective date of this amendatory Act of the 96th
General Assembly to be potentially unable to fulfill its
contractual obligations and not an insolvent insurer. (7)
"Impaired insurer" means a member insurer deemed by the
Director after the effective date of this Article to be
potentially unable to fulfill its contractual obligations and
not an insolvent insurer.
    "Insolvent insurer" means a member insurer that, after the
effective date of this amendatory Act of the 96th General
Assembly, is placed under a final order of liquidation by a
court of competent jurisdiction with a finding of insolvency.
(8) "Insolvent insurer" means (a) a member insurer either at
the time the policy was issued or when the insured event
occurred, or any company which has acquired such direct policy
obligations through purchase, merger, consolidation,
reinsurance or otherwise, whether or not such acquiring company
held a certificate of authority to transact insurance in this
State at the time such policy was issued or when the insured
event occurred; and (b) becomes insolvent and is placed under a
final order of liquidation, rehabilitation or conservation by a
court of competent jurisdiction.
    "Member insurer" means an insurer licensed or holding a
certificate of authority to transact in this State any kind of
insurance for which coverage is provided under Section 531.03
of this Code and includes an insurer whose license or
certificate of authority in this State may have been suspended,
revoked, not renewed, or voluntarily withdrawn or whose
certificate of authority may have been suspended pursuant to
Section 119 of this Code, but does not include:
        (1) a hospital or medical service organization,
    whether profit or nonprofit;
        (2) a health maintenance organization;
        (3) any burial society organized under Article XIX of
    this Code, any fraternal benefit society organized under
    Article XVII of this Code, any mutual benefit association
    organized under Article XVIII of this Code, and any foreign
    fraternal benefit society licensed under Article VI of this
    Code or a fraternal benefit society;
        (4) a mandatory State pooling plan;
        (5) a mutual assessment company or other person that
    operates on an assessment basis;
        (6) an insurance exchange;
        (7) an organization that is permitted to issue
    charitable gift annuities pursuant to Section 121-2.10 of
    this Code;
        (8) any health services plan corporation established
    pursuant to the Voluntary Health Services Plans Act;
        (9) any dental service plan corporation established
    pursuant to the Dental Service Plan Act; or
        (10) an entity similar to any of the above. (9) "Member
    insurer" means any person licensed or who holds a
    certificate of authority to transact in this State any kind
    of insurance business to which this Article applies under
    Section 531.03. For purposes of this Article "member
    insurer" includes any person whose certificate of
    authority may have been suspended pursuant to Section 119.
    (10) "Moody's Corporate Bond Yield Average" means the
Monthly Average Corporates as published by Moody's Investors
Service, Inc., or any successor thereto.
    "Owner" of a policy or contract and "policy owner" and
"contract owner" mean the person who is identified as the legal
owner under the terms of the policy or contract or who is
otherwise vested with legal title to the policy or contract
through a valid assignment completed in accordance with the
terms of the policy or contract and properly recorded as the
owner on the books of the insurer. The terms owner, contract
owner, and policy owner do not include persons with a mere
beneficial interest in a policy or contract.
    "Person" means an individual, corporation, limited
liability company, partnership, association, governmental body
or entity, or voluntary organization.
    "Plan sponsor" means:
        (1) the employer in the case of a benefit plan
    established or maintained by a single employer;
        (2) the employee organization in the case of a benefit
    plan established or maintained by an employee
    organization; or
        (3) in a case of a benefit plan established or
    maintained by 2 or more employers or jointly by one or more
    employers and one or more employee organizations, the
    association, committee, joint board of trustees, or other
    similar group of representatives of the parties who
    establish or maintain the benefit plan.
    "Premiums" mean amounts or considerations, by whatever
name called, received on covered policies or contracts less
returned premiums, considerations, and deposits and less
dividends and experience credits.
    "Premiums" does not include:
        (A) amounts or considerations received for policies or
    contracts or for the portions of policies or contracts for
    which coverage is not provided under Section 531.03 of this
    Code except that assessable premium shall not be reduced on
    account of the provisions of subparagraph (iii) of
    paragraph (b) of subsection (a) of Section 531.03 of this
    Code relating to interest limitations and the provisions of
    paragraph (b) of subsection (3) of Section 531.03 relating
    to limitations with respect to one individual, one
    participant, and one contract owner;
        (B) premiums in excess of $5,000,000 on an unallocated
    annuity contract not issued under a governmental
    retirement benefit plan (or its trustee) established under
    Section 401, 403(b) or 457 of the United States Internal
    Revenue Code; or
        (C) with respect to multiple nongroup policies of life
    insurance owned by one owner, whether the policy owner is
    an individual, firm, corporation, or other person, and
    whether the persons insured are officers, managers,
    employees, or other persons, premiums in excess of
    $5,000,000 with respect to these policies or contracts,
    regardless of the number of policies or contracts held by
    the owner. (11) "Premiums" means direct gross insurance
    premiums or subscriptions and annuity considerations
    received on covered policies or contracts, less return
    premiums and considerations thereon and dividends paid or
    credited to policyholders on such direct business.
    "Premiums" do not include premiums and considerations on
    contracts between insurers and reinsurers. "Premiums" do
    not include any amounts received for any policies or
    contracts or for the portions of any policies or contracts
    for which coverage is not provided under paragraph (2) of
    Section 531.03 except that assessable premium shall not be
    reduced on account of subparagraph (2)(b)(iii) of Section
    531.03 relating to interest limitations and subparagraph
    (3)(b) of Section 531.03 relating to limitations with
    respect to any one individual, any one participant and any
    one contractholder; provided that "premiums" shall not
    include any premiums in excess of five million dollars on
    any unallocated annuity contract not issued under a
    governmental retirement plan established under Sections
    401, 403(b) or 457 of the United States Internal Revenue
    Code.
    (12) "Person" means any individual, corporation,
partnership, association or voluntary organization.
    "Principal place of business" of a plan sponsor or a person
other than a natural person means the single state in which the
natural persons who establish policy for the direction,
control, and coordination of the operations of the entity as a
whole primarily exercise that function, determined by the
Association in its reasonable judgment by considering the
following factors:
        (A) the state in which the primary executive and
    administrative headquarters of the entity is located;
        (B) the state in which the principal office of the
    chief executive officer of the entity is located;
        (C) the state in which the board of directors (or
    similar governing person or persons) of the entity conducts
    the majority of its meetings;
        (D) the state in which the executive or management
    committee of the board of directors (or similar governing
    person or persons) of the entity conducts the majority of
    its meetings;
        (E) the state from which the management of the overall
    operations of the entity is directed; and
        (F) in the case of a benefit plan sponsored by
    affiliated companies comprising a consolidated
    corporation, the state in which the holding company or
    controlling affiliate has its principal place of business
    as determined using the above factors. However, in the case
    of a plan sponsor, if more than 50% of the participants in
    the benefit plan are employed in a single state, that state
    shall be deemed to be the principal place of business of
    the plan sponsor.
    The principal place of business of a plan sponsor of a
benefit plan described in this Section shall be deemed to be
the principal place of business of the association, committee,
joint board of trustees, or other similar group of
representatives of the parties who establish or maintain the
benefit plan that, in lieu of a specific or clear designation
of a principal place of business, shall be deemed to be the
principal place of business of the employer or employee
organization that has the largest investment in the benefit
plan in question.
    "Receivership court" means the court in the insolvent or
impaired insurer's state having jurisdiction over the
conservation, rehabilitation, or liquidation of the insurer.
    "Resident" means a person to whom a contractual obligation
is owed and who resides in this State on the date of entry of a
court order that determines a member insurer to be an impaired
insurer or a court order that determines a member insurer to be
an insolvent insurer. A person may be a resident of only one
state, which in the case of a person other than a natural
person shall be its principal place of business. Citizens of
the United States that are either (i) residents of foreign
countries or (ii) residents of United States possessions,
territories, or protectorates that do not have an association
similar to the Association created by this Article, shall be
deemed residents of the state of domicile of the insurer that
issued the policies or contracts. (13) "Resident" means any
person who resides in this State at the time the insurer is
determined to be impaired or insolvent and to whom contractual
obligations are owed. A person may be a resident of only one
state which, in the case of a person other than a natural
person, shall be its principal place of business.
    "Structured settlement annuity" means an annuity purchased
in order to fund periodic payments for a plaintiff or other
claimant in payment for or with respect to personal injury
suffered by the plaintiff or other claimant.
    "State" means a state, the District of Columbia, Puerto
Rico, and a United States possession, territory, or
protectorate.
    "Supplemental contract" means a written agreement entered
into for the distribution of proceeds under a life, health, or
annuity policy or a life, health, or annuity contract. (14)
"Supplemental contract" means any agreement entered into for
the distribution of policy or contract proceeds.
    (15) "Unallocated annuity contract" means any annuity
contract or group annuity certificate which is not issued to
and owned by an individual, except to the extent of any annuity
benefits guaranteed to an individual by an insurer under such
contract or certificate.
(Source: P.A. 86-753.)
 
    (215 ILCS 5/531.06)  (from Ch. 73, par. 1065.80-6)
    Sec. 531.06. Creation of the Association. There is created
a non-profit legal entity to be known as the Illinois Life and
Health Insurance Guaranty Association. All member insurers are
and must remain members of the Association as a condition of
their authority to transact insurance in this State. The
Association must perform its functions under the plan of
operation established and approved under Section 531.10 and
must exercise its powers through a board of directors
established under Section 531.07. For purposes of
administration and assessment, the Association must maintain 2
accounts:
        (1) The life insurance and annuity account, which
    includes the following subaccounts:
            (a) Life Insurance Account;
            (b) Annuity account, which shall include annuity
        contracts owned by a governmental retirement plan (or
        its trustee) established under Section 401, 403(b), or
        457 of the United States Internal Revenue Code, but
        shall otherwise exclude unallocated annuities Annuity
        account; and
            (c) Unallocated annuity account, which shall
        exclude contracts owned by a governmental retirement
        benefit plan (or its trustee) established under
        Section 401, 403(b), or 457 of the United States
        Internal Revenue Code Unallocated Annuity Account
        which shall include contracts qualified under Section
        403(b) of the United States Internal Revenue Code.
        (2) The health insurance account.
    The Association shall be supervised by the Director and is
subject to the applicable provisions of the Illinois Insurance
Code. Meetings or records of the Association may be opened to
the public upon majority vote of the board of directors of the
Association.
(Source: P.A. 95-331, eff. 8-21-07.)
 
    (215 ILCS 5/531.07)  (from Ch. 73, par. 1065.80-7)
    Sec. 531.07. Board of Directors.) The board of directors of
the Association consists of not less than 7 5 nor more than 11
9 members serving terms as established in the plan of
operation. The insurers members of the board are to be selected
by member insurers subject to the approval of the Director. In
addition, 2 persons who must be public representatives may be
appointed by the Director to the board of directors. A public
representative may not be an officer, director, or employee of
an insurance company or any person engaged in the business of
insurance. Vacancies on the board must be filled for the
remaining period of the term in the manner described in the
plan of operation. To select the initial board of directors,
and initially organize the Association, the Director must give
notice to all member insurers of the time and place of the
organizational meeting. In determining voting rights at the
organizational meeting each member insurer is entitled to one
vote in person or by proxy. If the board of directors is not
selected within 60 days after notice of the organizational
meeting, the Director may appoint the initial members.
    In approving selections or in appointing members to the
board, the Director must consider, whether all member insurers
are fairly represented.
    Members of the board may be reimbursed from the assets of
the Association for expenses incurred by them as members of the
board of directors but members of the board may not otherwise
be compensated by the Association for their services.
(Source: P.A. 81-899.)
 
    (215 ILCS 5/531.08)  (from Ch. 73, par. 1065.80-8)
    Sec. 531.08. Powers and duties of the Association.
    (a) In addition to the powers and duties enumerated in
other Sections of this Article:
        (1) If a member insurer is an impaired insurer, then
    the Association may, in its discretion and subject to any
    conditions imposed by the Association that do not impair
    the contractual obligations of the impaired insurer and
    that are approved by the Director:
            (A) guarantee, assume, or reinsure or cause to be
        guaranteed, assumed, or reinsured, any or all of the
        policies or contracts of the impaired insurer; or
            (B) provide such money, pledges, loans, 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).
        (2) If a member insurer is an insolvent insurer, then
    the Association shall, in its discretion, either:
            (A) guaranty, assume, or reinsure or cause to be
        guaranteed, assumed, or reinsured the policies or
        contracts of the insolvent insurer or assure payment of
        the contractual obligations of the insolvent insurer
        and provide money, pledges, loans, notes, guarantees,
        or other means reasonably necessary to discharge the
        Association's duties; or
            (B) provide benefits and coverages in accordance
        with the following provisions:
                (i) with respect to life and health insurance
            policies and annuities, ensure 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 or contracts of the insolvent insurer
            for claims incurred:
                    (a) with respect to group policies and
                contracts, not later than the earlier of the
                next renewal date under those policies or
                contracts or 45 days, but in no event less than
                30 days, after the date on which the
                Association becomes obligated with respect to
                the policies and contracts;
                    (b) with respect to nongroup policies,
                contracts, and annuities not later than the
                earlier of the next renewal date (if any) under
                the policies or contracts or one year, but in
                no event less than 30 days, from the date on
                which the Association becomes obligated with
                respect to the policies or contracts;
                (ii) make diligent efforts to provide all
            known insureds or annuitants (for nongroup
            policies and contracts), or group policy owners
            with respect to group policies and contracts, 30
            days notice of the termination (pursuant to
            subparagraph (i) of this paragraph (B)) of the
            benefits provided;
                (iii) with respect to nongroup life and health
            insurance policies and annuities covered by the
            Association, make available to each known insured
            or annuitant, or owner if other than the insured or
            annuitant, and with respect to an individual
            formerly insured or formerly an annuitant 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 paragraph (3), if the insureds or
            annuitants had a right under law or the terminated
            policy or annuity to convert coverage to
            individual coverage or to continue an individual
            policy or annuity in force until a specified age or
            for a specified time, during which the insurer had
            no right unilaterally to make changes in any
            provision of the policy or annuity or had a right
            only to make changes in premium by class.
        (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.
    (b) (d)(i) In providing the substitute coverage required
under subparagraph (iii) of paragraph (B) of item (2) of
subsection (a) (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.
    (c) (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.
    (d) (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.
    (e) (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.
    (f) (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.
    (g) (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.
    (h) In carrying out its duties under paragraph (2) of
subsection (a) of this Section, the Association may:
        (1) subject to approval by a court in this State,
    impose permanent policy or contract liens in connection
    with a guarantee, assumption, or reinsurance agreement if
    the Association finds that the amounts which can be
    assessed under this Article are less than the amounts
    needed to assure full and prompt performance of the
    Association's duties under this Article or that the
    economic or financial conditions as they affect member
    insurers are sufficiently adverse to render the imposition
    of such permanent policy or contract liens to be in the
    public interest; or
        (2) subject to approval by a court in this State,
    impose temporary moratoriums or liens on payments of cash
    values and policy loans or any other right to withdraw
    funds held in conjunction with policies or contracts in
    addition to any contractual provisions for deferral of cash
    or policy loan value. In addition, in the event of a
    temporary moratorium or moratorium charge imposed by the
    receivership court on payment of cash values or policy
    loans or on any other right to withdraw funds held in
    conjunction with policies or contracts, out of the assets
    of the impaired or insolvent insurer, the Association may
    defer the payment of cash values, policy loans, or other
    rights by the Association for the period of the moratorium
    or moratorium charge imposed by the receivership court,
    except for claims covered by the Association to be paid in
    accordance with a hardship procedure established by the
    liquidator or rehabilitator and approved by the
    receivership court.
        (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.
    (i) (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.
    (j) (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.
    (k) (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.
    (l) The Association shall have standing to appear or
intervene before a court or agency in this State with
jurisdiction over an impaired or insolvent insurer concerning
which the Association is or may become obligated under this
Article or with jurisdiction over any person or property
against which the Association may have rights through
subrogation or otherwise. Standing shall extend to all matters
germane to the powers and duties of the Association, including,
but not limited to, proposals for reinsuring, modifying, or
guaranteeing the policies or contracts of the impaired or
insolvent insurer and the determination of the policies or
contracts and contractual obligations. The Association shall
also have the right to appear or intervene before a court or
agency in another state with jurisdiction over an impaired or
insolvent insurer for which the Association is or may become
obligated or with jurisdiction over any person or property
against whom the Association may have rights through
subrogation or otherwise. (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.
    (m)(1) A person receiving benefits under this Article shall
be deemed to have assigned the rights under and any causes of
action against any person for losses arising under, resulting
from, or otherwise relating to the covered policy or contract
to the Association to the extent of the benefits received
because of this Article, whether the benefits are payments of
or on account of contractual obligations, continuation of
coverage, or provision of substitute or alternative coverages.
The Association may require an assignment to it of such rights
and cause of action by any payee, policy, or contract owner,
beneficiary, insured, or annuitant as a condition precedent to
the receipt of any right or benefits conferred by this Article
upon the person. (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.
    (2) (b) The subrogation rights of the Association under this
subsection have the same priority against the assets of the
impaired or insolvent insurer as that possessed by the person
entitled to receive benefits under this Article.
    (3) In addition to paragraphs (1) and (2), the Association
shall have all common law rights of subrogation and any other
equitable or legal remedy that would have been available to the
impaired or insolvent insurer or owner, beneficiary, or payee
of a policy or contract with respect to the policy or
contracts, including without limitation, in the case of a
structured settlement annuity, any rights of the owner,
beneficiary, or payee of the annuity to the extent of benefits
received pursuant to this Article, against a person originally
or by succession responsible for the losses arising from the
personal injury relating to the annuity or payment therefor,
excepting any such person responsible solely by reason of
serving as an assignee in respect of a qualified assignment
under Internal Revenue Code Section 130.
    (4) If the preceding provisions of this subsection (l) are
invalid or ineffective with respect to any person or claim for
any reason, then the amount payable by the Association with
respect to the related covered obligations shall be reduced by
the amount realized by any other person with respect to the
person or claim that is attributable to the policies, or
portion thereof, covered by the Association.
    (5) If the Association has provided benefits with respect
to a covered obligation and a person recovers amounts as to
which the Association has rights as described in the preceding
paragraphs of this subsection (10), then the person shall pay
to the Association the portion of the recovery attributable to
the policies, or portion thereof, covered by the Association.
    (n) (13) The Association may:
         (1) (a) Enter into such contracts as are necessary or
    proper to carry out the provisions and purposes of this
    Article;
         (2) (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;
         (3) (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.
         (4) (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.
         (5) (e) Negotiate and contract with any liquidator,
    rehabilitator, conservator, or ancillary receiver to carry
    out the powers and duties of the Association.
         (6) (f) Take such legal action as may be necessary to
    avoid payment of improper claims.
         (7) (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.
         (8) (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.
        (9) Request information from a person seeking coverage
    from the Association in order to aid the Association in
    determining its obligations under this Article with
    respect to the person, and the person shall promptly comply
    with the request.
        (10) Take other necessary or appropriate action to
    discharge its duties and obligations under this Article or
    to exercise its powers under this Article.
    (o) (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.
    (p) A deposit in this State, held pursuant to law or
required by the Director for the benefit of creditors,
including policy owners, not turned over to the domiciliary
liquidator upon the entry of a final order of liquidation or
order approving a rehabilitation plan of an insurer domiciled
in this State or in a reciprocal state, pursuant to Article
XIII 1/2 of this Code, shall be promptly paid to the
Association. The Association shall be entitled to retain a
portion of any amount so paid to it equal to the percentage
determined by dividing the aggregate amount of policy owners'
claims related to that insolvency for which the Association has
provided statutory benefits by the aggregate amount of all
policy owners' claims in this State related to that insolvency
and shall remit to the domiciliary receiver the amount so paid
to the Association less the amount retained pursuant to this
subsection (13). Any amount so paid to the Association and
retained by it shall be treated as a distribution of estate
assets pursuant to applicable State receivership law dealing
with early access disbursements.
    (q) The Board of Directors of the Association shall have
discretion and may exercise reasonable business judgment to
determine the means by which the Association is to provide the
benefits of this Article in an economical and efficient manner.
    (r) Where the Association has arranged or offered to
provide the benefits of this Article to a covered person under
a plan or arrangement that fulfills the Association's
obligations under this Article, the person shall not be
entitled to benefits from the Association in addition to or
other than those provided under the plan or arrangement.
    (s) Venue in a suit against the Association arising under
the Article shall be in Cook County. The Association shall not
be required to give any appeal bond in an appeal that relates
to a cause of action arising under this Article.
    (t) The Association may join an organization of one or more
other State associations of similar purposes to further the
purposes and administer the powers and duties of the
Association.
    (u) In carrying out its duties in connection with
guaranteeing, assuming, or reinsuring policies or contracts
under subsections (1) or (2), the Association may, subject to
approval of the receivership court, issue substitute coverage
for a policy or contract that provides an interest rate,
crediting rate, or similar factor determined by use of an index
or other external reference stated in the policy or contract
employed in calculating returns or changes in value by issuing
an alternative policy or contract in accordance with the
following provisions:
        (1) in lieu of the index or other external reference
    provided for in the original policy or contract, the
    alternative policy or contract provides for (i) a fixed
    interest rate, or (ii) payment of dividends with minimum
    guarantees, or (iii) a different method for calculating
    interest or changes in value;
        (2) there is no requirement for evidence of
    insurability, waiting period, or other exclusion that
    would not have applied under the replaced policy or
    contract; and
        (3) the alternative policy or contract is
    substantially similar to the replaced policy or contract in
    all other material terms.
(Source: P.A. 93-326, eff. 1-1-04.)
 
    (215 ILCS 5/531.09)  (from Ch. 73, par. 1065.80-9)
    Sec. 531.09. Assessments.
    (1) For the purpose of providing the funds necessary to
carry out the powers and duties of the Association, the board
of directors shall assess the member insurers, separately for
each account, at such times and for such amounts as the board
finds necessary. Assessments shall be due not less than 30 days
after written notice to the member insurers and shall accrue
interest from the due date at such adjusted rate as is
established under Section 6621 of Chapter 26 of the United
States Code and such interest shall be compounded daily.
    (2) There shall be 2 classes of assessments, as follows:
        (a) Class A assessments shall be made for the purpose
    of meeting administrative costs and other general expenses
    and examinations conducted under the authority of the
    Director under subsection (5) of Section 531.12.
        (b) Class B assessments shall be made to the extent
    necessary to carry out the powers and duties of the
    Association under Section 531.08 with regard to an impaired
    or insolvent domestic insurer or insolvent foreign or alien
    insurers.
    (3)(a) The amount of any Class A assessment shall be
determined at the discretion of the board of directors and such
assessments shall be authorized and called on a non-pro rata
basis. The amount of any Class B assessment shall be allocated
for assessment purposes among the accounts and subaccounts
pursuant to an allocation formula which may be based on the
premiums or reserves of the impaired or insolvent insurer or
any other standard deemed by the board in its sole discretion
as being fair and reasonable under the circumstances.
    (b) Class B assessments against member insurers for each
account and subaccount shall be in the proportion that the
premiums received on business in this State by each assessed
member insurer on policies or contracts covered by each account
or subaccount for the three most recent calendar years for
which information is available preceding the year in which the
insurer became impaired or insolvent, as the case may be, bears
to such premiums received on business in this State for such
calendar years by all assessed member insurers.
    (c) Assessments for funds to meet the requirements of the
Association with respect to an impaired or insolvent insurer
shall not be made until necessary to implement the purposes of
this Article. Classification of assessments under subsection
(2) and computations of assessments under this subsection shall
be made with a reasonable degree of accuracy, recognizing that
exact determinations may not always be possible.
    (4) The Association may abate or defer, in whole or in
part, the assessment of a member insurer if, in the opinion of
the board, payment of the assessment would endanger the ability
of the member insurer to fulfill its contractual obligations.
In the event an assessment against a member insurer is abated
or deferred in whole or in part the amount by which the
assessment is abated or deferred may be assessed against the
other member insurers in a manner consistent with the basis for
assessments set forth in this Section. Once the conditions that
caused a deferral have been removed or rectified, the member
insurer shall pay all assessments that were deferred pursuant
to a repayment plan approved by the Association.
    (5) (a) Subject to the provisions of subparagraph (ii) of
this paragraph, the total of all assessments authorized by the
Association with respect to a member insurer for each
subaccount of the life insurance and annuity account and for
the health account shall not in one calendar year exceed 2% of
that member insurer's average annual premiums received in this
State on the policies and contracts covered by the subaccount
or account during the 3 calendar years preceding the year in
which the insurer became an impaired or insolvent insurer.
    If 2 or more assessments are authorized in one calendar
year with respect to insurers that become impaired or insolvent
in different calendar years, the average annual premiums for
purposes of the aggregate assessment percentage limitation
referenced in subparagraph (a) of this paragraph shall be equal
and limited to the higher of the 3-year average annual premiums
for the applicable subaccount or account as calculated pursuant
to this Section.
    If the maximum assessment, together with the other assets
of the Association in an account, does not provide in one year
in either account an amount sufficient to carry out the
responsibilities of the Association, the necessary additional
funds shall be assessed as soon thereafter as permitted by this
Article.
    (b) The board may provide in the plan of operation a method
of allocating funds among claims, whether relating to one or
more impaired or insolvent insurers, when the maximum
assessment will be insufficient to cover anticipated claims.
    (c) If the maximum assessment for a subaccount of the life
and annuity account in one year does not provide an amount
sufficient to carry out the responsibilities of the
Association, then pursuant to paragraph (b) of subsection (3),
the board shall assess the other subaccounts of the life and
annuity account for the necessary additional amount, subject to
the maximum stated in paragraph (a) of this subsection.
    (4) The Association may abate or defer, in whole or in
part, the assessment of a member insurer if, in the opinion of
the board, payment of the assessment would endanger the ability
of the member insurer to fulfill its contractual obligations.
The total of all assessments upon a member insurer for the life
and annuity account and for each subaccount thereunder may not
in any one calendar year exceed 2% and for the health account
may not in any one calendar year exceed 2% of such insurer's
average premiums received in this State on the policies and
contracts covered by the account or subaccount during the three
calendar years preceding the year in which the insurer became
an impaired or insolvent insurer. If a one percent assessment
for any subaccount of the life and annuity account in any one
year does not provide an amount sufficient to carry out the
responsibilities of the Association, then pursuant to
subsection 3(b), the board shall access all subaccounts of the
life and annuity account for the necessary additional amount,
subject to the maximum stated in this subsection.
    (5) In the event an assessment against a member insurer is
abated, or deferred, in whole or in part, because of the
limitations set forth in subsection (4) of this Section the
amount by which such assessment is abated or deferred, may be
assessed against the other member insurers in a manner
consistent with the basis for assessments set forth in this
Section. If the maximum assessment, together with the other
assets of the Association in either account, does not provide
in any one year in either account an amount sufficient to carry
out the responsibilities of the Association, the necessary
additional funds may be assessed as soon thereafter as
permitted by this Article. The board may provide in the plan of
operation a method of allocating funds among claims, whether
relating to one or more impaired or insolvent insurers, when
the maximum assessment will be insufficient to cover
anticipated claims.
    (6) The board may, by an equitable method as established in
the plan of operation, refund to member insurers, in proportion
to the contribution of each insurer to that account, the amount
by which the assets of the account exceed the amount the board
finds is necessary to carry out during the coming year the
obligations of the Association with regard to that account,
including assets accruing from net realized gains and income
from investments. A reasonable amount may be retained in any
account to provide funds for the continuing expenses of the
Association and for future losses if refunds are impractical.
    (7) An assessment is deemed to occur on the date upon which
the board votes such assessment. The board may defer calling
the payment of the assessment or may call for payment in one or
more installments.
    (8) It is proper for any member insurer, in determining its
premium rates and policyowner dividends as to any kind of
insurance within the scope of this Article, to consider the
amount reasonably necessary to meet its assessment obligations
under this Article.
    (9) The Association must issue to each insurer paying a
Class B assessment under this Article a certificate of
contribution, in a form acceptable to the Director, for the
amount of the assessment so paid. All outstanding certificates
are of equal dignity and priority without reference to amounts
or dates of issue. A certificate of contribution may be shown
by the insurer in its financial statement as an asset in such
form and for such amount, if any, and period of time as the
Director may approve, provided the insurer shall in any event
at its option have the right to show a certificate of
contribution as an admitted asset at percentages of the
original face amount for calendar years as follows:
    100% for the calendar year after the year of issuance;
    80% for the second calendar year after the year of
issuance;
    60% for the third calendar year after the year of issuance;
    40% for the fourth calendar year after the year of
issuance;
    20% for the fifth calendar year after the year of issuance.
    (10) The Association may request information of member
insurers in order to aid in the exercise of its power under
this Section and member insurers shall promptly comply with a
request.
(Source: P.A. 95-86, eff. 9-25-07 (changed from 1-1-08 by P.A.
95-632).)
 
    (215 ILCS 5/531.10)  (from Ch. 73, par. 1065.80-10)
    Sec. 531.10. Plan of Operation.) (1) (a) The Association
must submit to the Director a plan of operation and any
amendments thereto necessary or suitable to assure the fair,
reasonable, and equitable administration of the Association.
The plan of operation and any amendments thereto become
effective upon approval in writing by the Director.
    (b) If the Association fails to submit a suitable plan of
operation within 180 days following the effective date of this
Article or if at any time thereafter the Association fails to
submit suitable amendments to the plan, the Director may, after
notice and hearing, adopt and promulgate such reasonable rules
as are necessary or advisable to effectuate the provisions of
this Article. Such rules are in force until modified by the
Director or superseded by a plan submitted by the Association
and approved by the Director.
    (2) All member insurers must comply with the plan of
operation.
    (3) The plan of operation must, in addition to requirements
enumerated elsewhere in this Article:
        (a) Establish procedures for handling the assets of the
    Association;
        (b) Establish the amount and method of reimbursing
    members of the board of directors under Section 531.07;
        (c) Establish regular places and times for meetings of
    the board of directors;
        (d) Establish procedures for records to be kept of all
    financial transactions of the Association, its agents, and
    the board of directors;
        (e) Establish the procedures whereby selections for
    the board of directors will be made and submitted to the
    Director;
        (f) Establish any additional procedures for
    assessments under Section 531.09; and
        (g) Contain additional provisions necessary or proper
    for the execution of the powers and duties of the
    Association.
    (4) The plan of operation shall establish a procedure for
protest by any member insurer of assessments made by the
Association pursuant to Section 531.09. Such procedures shall
require that:
        (a) a member insurer that wishes to protest all or part
    of an assessment shall pay when due the full amount of the
    assessment as set forth in the notice provided by the
    Association. The payment shall be available to meet
    Association obligations during the pendency of the protest
    or any subsequent appeal. Payment shall be accompanied by a
    statement in writing that the payment is made under protest
    and setting forth a brief statement of the grounds for the
    protest; Any member insurer that wishes to protest all or
    any part of an assessment for any year shall first pay the
    full amount of the assessment as set forth in the notice
    provided by the Association. Such payments shall be
    accompanied by a statement in writing that the payment is
    made under protest, setting forth a brief statement of the
    ground for the protest. The Association shall hold such
    payments in a separate interest bearing account.
        (b) within Within 30 days following the payment of an
    assessment under protest by any protesting member insurer,
    the Association must notify the member insurer in writing
    of its determination with respect to the protest unless the
    Association notifies the member that additional time is
    required to resolve the issues raised by the protest; .
        (c) in In the event the Association determines that the
    protesting member insurer is entitled to a refund, such
    refund shall be made within 30 days following the date upon
    which the Association makes its determination; .
        (d) the The decision of the Association with respect to
    a protest may be appealed to the Director pursuant to
    Section 531.11(3); .
        (e) in In the alternative to rendering a decision with
    respect to any protest based on a question regarding the
    assessment base, the Association may refer such protests to
    the Director for final decision, with or without a
    recommendation from the Association; and .
        (f) interest Interest on any refund due a protesting
    member insurer shall be paid at the rate actually earned by
    the Association on the separate account.
    (5) The plan of operation may provide that any or all
powers and duties of the Association, except those under
paragraph (c) of subsection (10) of Section 531.08 and Section
531.09 are delegated to a corporation, association or other
organization which performs or will perform functions similar
to those of this Association, or its equivalent, in 2 or more
states. Such a corporation, association or organization shall
be reimbursed for any payments made on behalf of the
Association and shall be paid for its performance of any
function of the Association. A delegation under this subsection
shall take effect only with the approval of both the Board of
Directors and the Director, and may be made only to a
corporation, association or organization which extends
protection not substantially less favorable and effective than
that provided by this Act.
(Source: P.A. 84-1035.)
 
    (215 ILCS 5/531.11)  (from Ch. 73, par. 1065.80-11)
    Sec. 531.11. Duties and powers of the Director. In addition
to the duties and powers enumerated elsewhere in this Article:
    (1) The Director must do all of the following:
        (a) Upon request of the board of directors, provide the
    Association with a statement of the premiums in the
    appropriate accounts for each member insurer.
        (b) Notify notify the board of directors of the
    existence of an impaired or insolvent insurer not later
    than 3 days after a determination of impairment or
    insolvency is made or when the Director receives notice of
    impairment or insolvency.
        (c) Give give notice to an impaired insurer as required
    by Sections 34 or 60. Notice to the impaired insurer shall
    constitute notice to its shareholders, if any.
        (d) In any liquidation or rehabilitation proceeding
    involving a domestic insurer, be appointed as the
    liquidator or rehabilitator. If a foreign or alien member
    insurer is subject to a liquidation proceeding in its
    domiciliary jurisdiction or state of entry, the Director
    shall be appointed conservator.
    (2) The Director may suspend or revoke, after notice and
hearing, the certificate of authority to transact insurance in
this State of any member insurer which fails to pay an
assessment when due or fails to comply with the plan of
operation. As an alternative the Director may levy a forfeiture
on any member insurer which fails to pay an assessment when
due. Such forfeiture may not exceed 5% of the unpaid assessment
per month, but no forfeiture may be less than $100 per month.
    (3) Any action of the board of directors or the Association
may be appealed to the Director by any member insurer or any
other person adversely affected by such action if such appeal
is taken within 30 days of the action being appealed. Any final
action or order of the Director is subject to judicial review
in a court of competent jurisdiction.
    (4) The liquidator, rehabilitator, or conservator of any
impaired insurer may notify all interested persons of the
effect of this Article.
(Source: P.A. 89-97, eff. 7-7-95.)
 
    (215 ILCS 5/531.12)  (from Ch. 73, par. 1065.80-12)
    Sec. 531.12. Prevention of Insolvencies. To aid in the
detection and prevention of insurer insolvencies or
impairments:
    (1) It shall be the duty of the Director:
    (a) To notify the Commissioners of all other states,
territories of the United States, and the District of Columbia
when he takes any of the following actions against a member
insurer:
    (i) revocation of license;
    (ii) suspension of license;
    (iii) makes any formal order except for an order issued
pursuant to Article XII 1/2 of this Code that such company
restrict its premium writing, obtain additional contributions
to surplus, withdraw from the State, reinsure all or any part
of its business, or increase capital, surplus or any other
account for the security of policyholders or creditors.
    Such notice shall be transmitted to all commissioners
within 30 days following the action taken or the date on which
the action occurs.
    (b) To report to the board of directors when he has taken
any of the actions set forth in subparagraph (a) of this
paragraph or has received a report from any other commissioner
indicating that any such action has been taken in another
state. Such report to the board of directors shall contain all
significant details of the action taken or the report received
from another commissioner.
    (c) To report to the board of directors when the Director
has reasonable cause to believe from an examination, whether
completed or in process, of any member insurer that the insurer
may be an impaired or insolvent insurer.
    (d) To furnish to the board of directors the National
Association of Insurance Commissioners Insurance Regulatory
Information System ratios and listings of companies not
included in the ratios developed by the National Association of
Insurance Commissioners. The board may use the information
contained therein in carrying out its duties and
responsibilities under this Section. The report and the
information contained therein shall be kept confidential by the
board of directors until such time as made public by the
Director or other lawful authority.
    (2) The Director may seek the advice and recommendations of
the board of directors concerning any matter affecting his
duties and responsibilities regarding the financial condition
of member companies and companies seeking admission to transact
insurance business in this State.
    (3) The board of directors may, upon majority vote, make
reports and recommendations to the Director upon any matter
germane to the liquidation, rehabilitation or conservation of
any member insurer. Such reports and recommendations shall not
be considered public documents.
    (4) The board of directors may, upon majority vote, make
recommendations to the Director for the detection and
prevention of insurer insolvencies.
    (5) The board of directors shall, at the conclusion of any
insurer insolvency in which the Association was obligated to
pay covered claims prepare a report to the Director containing
such information as it may have in its possession bearing on
the history and causes of such insolvency. The board shall
cooperate with the boards of directors of guaranty associations
in other states in preparing a report on the history and causes
for insolvency of a particular insurer, and may adopt by
reference any report prepared by such other associations.
(Source: P.A. 86-753.)
 
    (215 ILCS 5/531.14)  (from Ch. 73, par. 1065.80-14)
    Sec. 531.14. Miscellaneous Provisions.)
    (1) Nothing in this Article may be construed to reduce the
liability for unpaid assessments of the insured of an impaired
or insolvent insurer operating under a plan with assessment
liability.
    (2) Records must be kept of all negotiations and meetings
in which the Association or its representatives are involved to
discuss the activities of the Association in carrying out its
powers and duties under Section 531.08. Records of such
negotiations or meetings may be made public only upon the
termination of a liquidation, rehabilitation, or conservation
proceeding involving the impaired or insolvent insurer, upon
the termination of the impairment or insolvency of the insurer,
or upon the order of a court of competent jurisdiction. Nothing
in this paragraph (2) limits the duty of the Association to
render a report of its activities under Section 531.15.
    (3) For the purpose of carrying out its obligations under
this Article, the Association is deemed to be a creditor of the
impaired or insolvent insurer to the extent of assets
attributable to covered policies reduced by any amounts to
which the Association is entitled as subrogee (under paragraph
(8) of Section 531.08). All assets of the impaired or insolvent
insurer attributable to covered policies must be used to
continue all covered policies and pay all contractual
obligations of the impaired insurer as required by this
Article. "Assets attributable to covered policies", as used in
this paragraph (3), is that proportion of the assets which the
reserves that should have been established for such policies
bear to the reserve that should have been established for all
policies of insurance written by the impaired or insolvent
insurer.
    (4) (a) Prior to the termination of any liquidation,
rehabilitation, or conservation proceeding, the court may take
into consideration the contributions of the respective
parties, including the Association, the shareholders and
policyowners of the impaired or insolvent insurer, and any
other party with a bona fide interest, in making an equitable
distribution of the ownership rights of such impaired or
insolvent insurer. In such a determination, consideration must
be given to the welfare of the policyholders of the continuing
or successor insurer.
    (b) No distribution to stockholders, if any, of an impaired
or insolvent insurer may be made until and unless the total
amount of valid claims of the Association for funds expended in
carrying out its powers and duties under Section 531.08, with
respect to such insurer have been fully recovered by the
Association.
    (5) (a) If an order for liquidation or rehabilitation of an
insurer domiciled in this State has been entered, the receiver
appointed under such order has a right to recover on behalf of
the insurer, from any affiliate that controlled it, the amount
of distributions, other than stock dividends paid by the
insurer on its capital stock, made at any time during the 5
years preceding the petition for liquidation or rehabilitation
subject to the limitations of paragraphs (b) to (d).
    (b) No such dividend is recoverable if the insurer shows
that when paid the distribution was lawful and reasonable, and
that the insurer did not know and could not reasonably have
known that the distribution might adversely affect the ability
of the insurer to fulfill its contractual obligations.
    (c) Any person who as an affiliate that controlled the
insurer at the time the distributions were paid is liable up to
the amount of distributions he received. Any person who was an
affiliate that controlled the insurer at the time the
distributions were declared, is liable up to the amount of
distributions he would have received if they had been paid
immediately. If 2 persons are liable with respect to the same
distributions, they are jointly and severally liable.
    (d) The maximum amount recoverable under subsection (5) of
this Section is the amount needed in excess of all other
available assets of the insolvent insurer to pay the
contractual obligations of the insolvent insurer.
    (e) If any person liable under paragraph (c) of subsection
(5) of this Section is insolvent, all its affiliates that
controlled it at the time the dividend was paid are jointly and
severally liable for any resulting deficiency in the amount
recovered from the insolvent affiliate.
    (6) As a creditor of the impaired or insolvent insurer as
established in subsection (3) of this Section and consistent
with subsection (2) of Section 205 of this Code, the
Association and other similar associations shall be entitled to
receive a disbursement of assets out of the marshaled assets,
from time to time as the assets become available to reimburse
it, as a credit against contractual obligations under this
Article. If the liquidator has not, within 120 days after a
final determination of insolvency of an insurer by the
receivership court, made an application to the court for the
approval of a proposal to disburse assets out of marshaled
assets to guaranty associations having obligations because of
the insolvency, then the Association shall be entitled to make
application to the receivership court for approval of its own
proposal to disburse these assets.
(Source: P.A. 81-899.)
 
    (215 ILCS 5/531.18)  (from Ch. 73, par. 1065.80-18)
    Sec. 531.18. Stay of Proceedings - Reopening Default
Judgments.) All proceedings in which the insolvent insurer is a
party in any court in this State shall be stayed 180 60 days
from the date an order of liquidation, rehabilitation, or
conservation is final to permit proper legal action by the
Association on any matters germane to its powers or duties. As
to a judgment under any decision, order, verdict, or finding
based on default the Association may apply to have such
judgment set aside by the same court that made such judgment
and must be permitted to defend against such suit on the
merits.
(Source: P.A. 82-210.)
 
    (215 ILCS 5/537.2)  (from Ch. 73, par. 1065.87-2)
    Sec. 537.2. Obligation of Fund. The Fund shall be obligated
to the extent of the covered claims existing prior to the entry
of an Order of Liquidation against an insolvent company and
arising within 30 days after the entry of such Order, or before
the policy expiration date if less than 30 days after the entry
of such Order, or before the insured replaces the policy or on
request effects cancellation, if he does so within 30 days
after the entry of such Order. If the entry of an Order of
Liquidation occurs on or after October 1, 1975 and before
October 1, 1977, such obligations shall not: (i) exceed
$100,000, or (ii) include any obligation to refund the first
$100 of any unearned premium claim; and if the entry of an
Order of Liquidation occurs on or after October 1, 1977 and
before January 1, 1988, such obligations shall not: (i) exceed
$150,000, except that this limitation shall not apply to any
workers compensation claims, or (ii) include any obligation to
refund the first $100 of any unearned premium claim; and if the
entry of an Order of Liquidation occurs on or after January 1,
1988 and before January 1, 2011, such obligations shall not:
(i) exceed $300,000, except that this limitation shall not
apply to any workers compensation claims, or (ii) include any
obligation to refund the first $100 of any unearned premium
claim or to refund any unearned premium over $10,000 under any
one policy. If the entry of an Order of Liquidation occurs on
or after January 1, 2011, then such obligations shall not: (i)
exceed $500,000, except that this limitation shall not apply to
any workers compensation claims or (ii) include any obligation
to refund the first $100 of any unearned premium claim or
refund any unearned premium over $10,000 under any one policy.
In no event shall the Fund be obligated to a policyholder or
claimant in an amount in excess of the face amount of the
policy from which the claim arises.
    In no event shall the Fund be liable for any interest on
any judgment entered against the insured or the insolvent
company, or for any other interest claim against the insured or
the insolvent company, regardless of whether the insolvent
company would have been obligated to pay such interest under
the terms of its policy. The Fund shall be liable for interest
at the statutory rate on money judgments entered against the
Fund until the judgment is satisfied.
    Any obligation of the Fund to defend an insured shall cease
upon the Fund's payment or tender of an amount equal to the
lesser of the Fund's covered claim obligation limit or the
applicable policy limit.
(Source: P.A. 92-77, eff. 7-12-01.)
 
    (215 ILCS 5/545)  (from Ch. 73, par. 1065.95)
    Sec. 545. Effect of paid claims.
    (a) Every insured or claimant seeking the protection of
this Article shall cooperate with the Fund to the same extent
as such person would have been required to cooperate with the
insolvent company. The Fund shall have all the rights, duties
and obligations under the policy to the extent of the covered
claim payment, provided the Fund shall have no cause of action
against the insured of the insolvent company for any sums it
has paid out except such causes of action as the insolvent
company would have had if such sums had been paid by the
insolvent company and except as provided in paragraph (d) of
this Section.
    (b) The Fund and any similar organization in another state
shall be recognized as claimants in the liquidation of an
insolvent company for any amounts paid by them on covered
claims obligations as determined under this Article or similar
laws in other states and shall receive dividends at the
priority set forth in paragraph (d) of subsection (1) of
Section 205 of this Code; provided that if, at the time that
the Liquidator issues a cut-off notice to the Fund in
anticipation of closing the estate, a reserve has been
established by the Fund, or any similar organization in another
state, for the amount of their future administrative expenses
and loss development associated with unpaid reported pending
claims, these reserves will be deemed to have been paid as of
the date of the notice and payment shall be made accordingly.
The liquidator of an insolvent company shall be bound by
determinations of covered claim eligibility under the Act and
by settlements of claims made by the Fund or a similar
organization in another state on the receipt of certification
of such payments, to the extent those determinations or
settlements satisfy obligations of the Fund, but the receiver
shall not be bound in any way by those determinations or
settlements to the extent that there remains a claim in the
estate for amounts in excess of the payments by the Fund. In
submitting their claim for covered claim payments the Fund and
any similar organization in another state shall not be subject
to the requirements of Sections 208 and 209 of this Code and
shall not be affected by the failure of the person receiving a
covered claim payment to file a proof of claim.
    (c) The expenses of the Fund and of any similar
organization in any other state, other than expenses incurred
in the performance of duties under Section 547 or similar
duties under the statute governing a similar organization in
another state, shall be accorded the same priority as the
liquidator's expenses. The liquidator shall make prompt
reimbursement to the Fund and any similar organization for such
expense payments.
    (d) The Fund has the right to recover from the following
persons the amount of any covered claims and allocated claims
expenses which the Fund paid or incurred on behalf of such
person in satisfaction, in whole or in part, of liability
obligations of such person to any other person:
        (i) any insured whose net worth on December 31 of the
    year next preceding the date the company becomes an
    insolvent company exceeds $25,000,000; provided that an
    insured's net worth on such date shall be deemed to include
    the aggregate net worth of the insured and all of its
    affiliates as calculated on a consolidated basis.
        (ii) any insured who is an affiliate of the insolvent
    company.
(Source: P.A. 89-206, eff. 7-21-95; 90-499, eff. 8-19-97.)
 
    Section 10. The Health Maintenance Organization Act is
amended by changing Sections 6-4, 6-5, 6-8, 6-9, 6-10, and 6-18
as follows:
 
    (215 ILCS 125/6-4)  (from Ch. 111 1/2, par. 1418.4)
    Sec. 6-4. Construction. This Article shall be is to be
liberally construed to be for the benefit of the member
organizations' enrollees and to effect the purpose under
Section 6-2 which constitutes an aid and guide to
interpretation.
(Source: P.A. 85-20.)
 
    (215 ILCS 125/6-5)  (from Ch. 111 1/2, par. 1418.5)
    Sec. 6-5. Definitions. As used in this Act:
    (1) "Association" means the Illinois Health Maintenance
Organization Guaranty Association created under Section 6-6.
    (2) "Director" means the Director of Insurance of this
State.
    (3) "Contractual obligation" means any obligation of the
member organization under covered health care plan
certificates.
    (4) "Covered person" means any enrollee who is entitled to
the protection of the Association as described in Section 6-2.
    (5) "Covered health care plan certificate" means any health
care plan certificate, contract or other evidence of coverage
within the scope of this Article under Section 6-3.
    (6) "Fund" means the fund created under Section 6-6.
    (7) "Impaired organization" means a member organization
deemed by the Director after the effective date of this Article
to be potentially unable to fulfill its contractual obligations
and not an insolvent organization.
    (8) "Insolvent organization" means a member organization
which becomes insolvent and is placed under a final order of
liquidation or rehabilitation by a court of competent
jurisdiction.
    (9) "Member organization" means any person licensed or who
holds a certificate of authority to transact in this State any
kind of business to which this Article applies under Section
6-3. For purposes of this Article "member organization"
includes any person whose certificate of authority may have
been suspended pursuant to Section 5-5 of this Act.
    (10) "Premiums" means direct gross premiums or
subscriptions received on covered health care plan
certificates. "Premiums" does not include amounts or
considerations received for policies, contracts, or
certificates or for the portions of policies, contracts, or
certificates for which coverage is not provided.
    (11) "Person" means any individual, corporation,
partnership, association or voluntary organization.
    (12) "Resident" means any person who resides in this State
at the time the organization is issued a Notice of Impairment
by the Director or at the time a complaint for liquidation or
rehabilitation is filed and to whom contractual obligations are
owed. A person may be a resident of only one state which, in
the case of a person other than a natural person, shall be its
principal place of business.
(Source: P.A. 88-297.)
 
    (215 ILCS 125/6-8)  (from Ch. 111 1/2, par. 1418.8)
    Sec. 6-8. Powers and duties of the Association. In addition
to the powers and duties enumerated in other Sections of this
Article, the Association shall have the powers set forth in
this Section.
    (1) If a domestic organization is an impaired organization,
the Association may, subject to any conditions imposed by the
Association other than those which impair the contractual
obligations of the impaired organization, and approved by the
impaired organization and the Director:
        (a) guarantee, assume, or reinsure, or cause to be
    guaranteed, assumed or reinsured, any or all of the covered
    health care plan certificates of covered persons of the
    impaired organization;
        (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 organization pending action under paragraph (a);
    and
        (c) loan money to the impaired organization.
    (2) If a domestic, foreign, or alien organization is an
insolvent organization, the Association shall, subject to the
approval of the Director:
        (a) guarantee, assume, indemnify or reinsure or cause
    to be guaranteed, assumed, indemnified or reinsured the
    covered health care plan benefits of covered persons of the
    insolvent organization; however, in the event that the
    Director of Healthcare and Family Services (formerly
    Director of the Department of Public Aid) assigns
    individuals that are recipients of public aid from an
    insolvent organization to another organization, the
    Director of Healthcare and Family Services shall, before
    fixing the rates to be paid by the Department of Healthcare
    and Family Services to the transferee organization on
    account of such individuals, consult with the Director of
    the Department of Insurance as to the reasonableness of
    such rates in light of the health care needs of such
    individuals and the costs of providing health care services
    to such individuals;
        (b) assure payment of the contractual obligations of
    the insolvent organization to covered persons;
        (c) make payments to providers of health care, or
    indemnity payments to covered persons, so as to assure the
    continued payment of benefits substantially similar to
    those provided for under covered health care plan
    certificate issued by the insolvent organization to
    covered persons; and
        (d) provide such monies, pledges, notes, guaranties,
    or other means as are reasonably necessary to discharge
    such duties.
    This subsection (2) shall not apply when the Director has
determined that the foreign or alien organization's
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) 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 organization's business by reason of any action
taken or any failure to take any action by the impaired or
insolvent organization at any time.
    (4) 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 organization, the Director shall
have the powers and duties of the Association under this
Article with regard to such insolvent organization.
    (5) 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 organization.
    (6) 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 health care plan
certificates of the impaired or insolvent organization and the
determination of the covered health care plan certificates and
contractual obligations.
    (7) (a) Any person receiving benefits under this Article is
deemed to have assigned the rights under the covered health
care plan certificates 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, enrollee or beneficiary 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
organization and against any other party who may be liable to
such payee, enrollee or beneficiary.
    (b) The subrogation rights of the Association under this
subsection have the same priority against the assets of the
insolvent organization as that possessed by the person entitled
to receive benefits under this Article.
    (8) (a) The contractual obligations of the insolvent
organization for which the Association becomes or may become
liable are as great as but no greater than the contractual
obligations of the insolvent organization would have been in
the absence of an insolvency unless such obligations are
reduced as permitted by subsection (3), but the aggregate
liability of the Association shall not exceed $300,000 with
respect to any one natural person.
    (b) Furthermore, the Association shall not be required to
pay, and shall have no liability to, any provider of health
care services to an enrollee:
        (i) if such provider, or his or its affiliates or
    members of his immediate family, at any time within the one
    year prior to the date of the issuance of the first order,
    by a court of competent jurisdiction, of conservation,
    rehabilitation or liquidation pertaining to the health
    maintenance organization:
            (A) was a securityholder of such organization (but
        excluding any securityholder holding an equity
        interest of 5% or less);
            (B) exercised control over the organization by
        means such as serving as an officer or director,
        through a management agreement or as a principal member
        of a not-for-profit organization;
            (C) had a representative serving by virtue or his
        or her official position as a representative of such
        provider on the board of any entity which exercised
        control over the organization;
            (D) received provider payments made by such
        organization pursuant to a contract which was not a
        product of arms-length bargaining; or
            (E) received distributions other than for
        physician services from a not-for-profit organization
        on account of such provider's status as a member of
        such organization.
        For purposes of this subparagraph (i), the terms
    "affiliate," "person," "control" and "securityholder"
    shall have the meanings ascribed to such terms in Section
    131.1 of the Illinois Insurance Code; or
        (ii) if and to the extent such a provider has agreed by
    contract not to seek payment from the enrollee for services
    provided to such enrollee or if, and to the extent, as a
    matter of law such provider may not seek payment from the
    enrollee for services provided to such enrollee.
        (iii) related to any policy, contract, or certificate
    providing any hospital, medical, prescription drug, or
    other health care benefits pursuant to Part C or Part D of
    Subchapter XVIII, Chapter 7 of Title 42 of the United
    States Code (commonly known as Medicare Part C & D) or any
    regulations issued pursuant thereto; or
        (iv) for any portion of a policy, contract, or
    certificate to the extent that the assessments required by
    this Article with respect to the policy or contract are
    preempted or otherwise not permitted by federal or State
    law; or
        (v) for any obligation that does not arise under the
    express written terms of the policy or contract issued by
    the organization to the contract owner or policy owner,
    including without limitation:
            (A) claims based on marketing materials;
            (B) claims based on side letters, riders, or other
        documents that were issued by the insurer without
        meeting applicable policy form filing or approval
        requirements;
            (C) misrepresentations of or regarding policy
        benefits;
            (D) extra-contractual claims; or
            (E) claims for penalties or consequential or
        incidental damages.
    (c) In no event shall the Association be required to pay
any provider participating in the insolvent organization any
amount for in-plan services rendered by such provider prior to
the insolvency of the organization in excess of (1) the amount
provided by a capitation contract between a physician provider
and the insolvent organization for such services; or (2) the
amounts provided by contract between a hospital provider and
the Department of Healthcare and Family Services (formerly
Department of Public Aid) for similar services to recipients of
public aid; or (3) in the event neither (1) nor (2) above is
applicable, then the amounts paid under the Medicare area
prevailing rate for the area where the services were provided,
or if no such rate exists with respect to such services, then
80% of the usual and customary rates established by the Health
Insurance Association of America. The payments required to be
made by the Association under this Section shall constitute
full and complete payment for such provider services to the
enrollee.
    (d) The Association shall not be required to pay more than
an aggregate of $300,000 for any organization which is declared
to be insolvent prior to July 1, 1987, and such funds shall be
distributed first to enrollees who are not public aid
recipients pursuant to a plan recommended by the Association
and approved by the Director and the court having jurisdiction
over the liquidation.
    (9) 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 6-9. 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 organizations 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 organization, but in no case may the Association
    issue evidence of coverage other than that issued to
    perform the contractual obligations of the impaired or
    insolvent organization.
        (h) Exercise all the rights of the Director under
    Section 193(4) of the Illinois Insurance Code with respect
    to covered health care plan certificates after the
    association becomes obligated by statute.
        (i) Request information from a person seeking coverage
    from the Association in order to aid the Association in
    determining its obligations under this Article with
    respect to the person and the person shall promptly comply
    with the request.
        (j) Take other necessary or appropriate action to
    discharge its duties and obligations under this Article or
    to exercise its powers under this Article.
    (10) The obligations of the Association under this Article
shall not relieve any reinsurer, insurer or other person of its
obligations to the insolvent organization (or its conservator,
rehabilitator, liquidator or similar official) or its
enrollees, including without limitation any reinsurer, insurer
or other person liable to the insolvent insurer (or its
conservator, rehabilitator, liquidator or similar official) or
its enrollees under any contract of reinsurance, any contract
providing stop loss coverage or similar coverage or any health
care contract. With respect to covered health care plan
certificates 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
organization arising after the date of the order of liquidation
or rehabilitation under any contract of reinsurance, any
contract providing stop loss coverage or similar coverages or
any health care service contract to which the insolvent
organization was a party, on the terms set forth under such
contract, to the extent that such contract provides coverage
for health care services provided after the date of the order
of liquidation or rehabilitation. As a condition to making this
election, the Association must pay premiums for coverage
relating to periods after the date of the order of liquidation
or rehabilitation.
    (11) The Association shall be entitled to collect premiums
due under or with respect to covered health care certificates
for a period from the date on which the domestic, foreign, or
alien organization became an insolvent organization until the
Association no longer has obligations under subsection (2) of
this Section with respect to such certificates. The
Association's obligations under subsection (2) of this Section
with respect to any covered health care plan certificates shall
terminate in the event that all such premiums due under or with
respect to such covered health care plan certificates are not
paid to the Association (i) within 30 days of the Association's
demand therefor, or (ii) in the event that such certificates
provide for a longer grace period for payment of premiums after
notice of non-payment or demand therefor, within the lesser of
(A) the period provided for in such certificates or (B) 60
days.
    (12) The Board of Directors of the Association shall have
discretion and may exercise reasonable business judgment to
determine the means by which the Association is to provide the
benefits of this Article in an economical and efficient manner.
    (13) Where the Association has arranged or offered to
provide the benefits of this Article to a covered person under
a plan or arrangement that fulfills the Association's
obligations under this Article, the person shall not be
entitled to benefits from the Association in addition to or
other than those provided under the plan or arrangement.
    (14) Venue in a suit against the Association arising under
the Article shall be in Cook County. The Association shall not
be required to give any appeal bond in an appeal that relates
to a cause of action arising under this Article.
(Source: P.A. 95-331, eff. 8-21-07.)
 
    (215 ILCS 125/6-9)  (from Ch. 111 1/2, par. 1418.9)
    Sec. 6-9. Assessments. (1) For the purpose of providing the
funds necessary to carry out the powers and duties of the
Association, the board of directors shall assess the member
organizations, at such times and for such amounts as the board
finds necessary. Assessments shall be due not less than 30 days
after written notice to the member organizations and shall
accrue interest from the due date at such adjusted rate as is
established under Section 531.09 of the Illinois Insurance Code
and such interest shall be compounded daily.
    (2) There shall be 2 classes of assessments, as follows:
    (a) Class A assessments shall be made for the purpose of
meeting administrative costs and other general expenses and
examinations conducted under the authority of the Director
under subsection (5) of Section 6-12.
    (b) Class B assessments shall be made to the extent
necessary to carry out the powers and duties of the Association
under Section 6-8 with regard to an impaired or insolvent
domestic organization or insolvent foreign or alien
organizations.
    (3) (a) The amount of any Class A assessment shall be
determined by the Board and may be made on a non-pro rata
basis.
    (b) Class B assessments against member organizations shall
be in the proportion that the premiums received on health
maintenance organization business in this State by each
assessed member organization on covered health care plan
certificates for the calendar year preceding the assessment
bears to such premiums received on health maintenance
organization business in this State for the calendar year
preceding the assessment by all assessed member organizations.
    (c) Assessments to meet the requirements of the Association
with respect to an impaired or insolvent organization shall not
be made until necessary to implement the purposes of this
Article. Classification of assessments under subsection (2)
and computations of assessments under this subsection shall be
made with a reasonable degree of accuracy, recognizing that
exact determinations may not always be possible.
    (4) (a) The Association may abate or defer, in whole or in
part, the assessment of a member organization if, in the
opinion of the board, payment of the assessment would endanger
the ability of the member organization to fulfill its
contractual obligations.
    (b) The total of all assessments upon a member organization
may not in any one calendar year exceed 2% of such
organization's premiums in this State during the calendar year
preceding the assessment on the covered health care plan
certificates.
    (5) In the event an assessment against a member
organization is abated, or deferred, in whole or in part,
because of the limitations set forth in subsection (4) of this
Section, the amount by which such assessment is abated or
deferred, may be assessed against the other member
organizations in a manner consistent with the basis for
assessments set forth in this Section. If the maximum
assessment, together with the other assets of the Association,
does not provide in any one year an amount sufficient to carry
out the responsibilities of the Association, the necessary
additional funds may be assessed as soon thereafter as
permitted by this Article.
    (6) The board may, by an equitable method as established in
the plan of operation, refund to member organizations, in
proportion to the contribution of each organization, the amount
by which the assets of the fund exceed the amount the board
finds is necessary to carry out during the coming year the
obligations of the Association, including assets accruing from
net realized gains and income from investments. A reasonable
amount may be retained in the fund to provide moneys for the
continuing expenses of the Association and for future losses if
refunds are impractical.
    (7) An assessment is deemed to occur on the date upon which
the board votes such assessment. The board may defer calling
the payment of the assessment or may call for payment in one or
more installments.
    (8) It is proper for any member organization, in
determining its rates to consider the amount reasonably
necessary to meet its assessment obligations under this
Article.
    (9) The Association must issue to each organization paying
a Class B assessment under this Article a certificate of
contribution, in a form prescribed by the Director, for the
amount of the assessment so paid. All outstanding certificates
are of equal dignity and priority without reference to amounts
or dates of issue. A certificate of contribution may be shown
by the organization in its financial statement as an admitted
asset in such form and for such amount, if any, and period of
time as the Director may approve, provided the organization
shall in any event at its option have the right to show a
certificate of contribution as an asset at percentages of the
original face amount for calendar years as follows:
    100% for the calendar year after the year of issuance;
    80% for the second calendar year after the year of
issuance;
    60% for the third calendar year after the year of issuance;
    40% for the fourth calendar year after the year of
issuance;
    20% for the fifth calendar year after the year of issuance.
    (10) The Association may request information of member
organizations in order to aid in the exercise of its power
under this Section and member organizations shall promptly
comply with a request.
(Source: P.A. 85-20.)
 
    (215 ILCS 125/6-10)  (from Ch. 111 1/2, par. 1418.10)
    Sec. 6-10. Plan of Operation. (1) (a) The Association must
submit to the Director a plan of operation and any amendments
thereto necessary or suitable to assure the fair, reasonable,
and equitable administration of the Association. The plan of
operation and any amendments thereto become effective upon
approval in writing by the Director.
    (b) If the Association fails to submit a suitable plan of
operation within 90 days following the effective date of this
Article or if at any time thereafter the Association fails to
submit suitable amendments to the plan, the Director may, after
notice and hearing, adopt and promulgate such reasonable rules
as are necessary or advisable to effectuate the provisions of
this Article. Such rules are in force until modified by the
Director or superseded by a plan submitted by the Association
and approved by the Director.
    (2) All member organizations must comply with the plan of
operation.
    (3) The plan of operation must, in addition to requirements
enumerated elsewhere in this Article:
    (a) Establish procedures for handling the assets of the
Association;
    (b) Establish the amount and method of reimbursing members
of the board of directors under Section 6-7;
    (c) Establish regular places and times for meetings of the
board of directors;
    (d) Establish procedures for records to be kept of all
financial transactions of the Association, its agents, and the
board of directors;
    (e) Establish the procedures whereby selections for the
board of directors will be made and submitted to the Director;
    (f) Establish any additional procedures for assessments
under Section 6-9; and
    (g) Contain additional provisions necessary or proper for
the execution of the powers and duties of the Association.
    (4) The plan of operation shall establish a procedure for
protest by any member organization of assessments made by the
Association pursuant to Section 6-9. Such procedures shall
require that:
    (a) A member organization that wishes to protest all or
part of an assessment shall pay when due the full amount of the
assessment as set forth in the notice provided by the
Association. The payment shall be available to meet Association
obligations during the pendency of the protest or any
subsequent appeal. Payment shall be accompanied by a statement
in writing that the payment is made under protest and setting
forth a brief statement of the grounds for the protest. Any
member organization that wishes to protest all or any part of
an assessment for any year shall first pay the full amount of
the assessment as set forth in the notice provided by the
Association. Such payments shall be accompanied by a statement
in writing that the payment is made under protest, setting
forth a brief statement of the ground for the protest. The
Association shall hold such payments in a separate interest
bearing account.
    (b) Within 30 days following the payment of an assessment
under protest by any protesting member organization, the
Association must notify the member organization in writing of
its determination with respect to the protest unless the
Association notifies the member that additional time is
required to resolve the issues raised by the protest.
    (c) In the event the Association determines that the
protesting member organization is entitled to a refund, such
refund shall be made within 30 days following the date upon
which the Association makes its determination.
    (d) The decision of the Association with respect to a
protest may be appealed to the Director pursuant to subsection
(3) of Section 6-11.
    (e) In the alternative to rendering a decision with respect
to any protest based on a question regarding the assessment
base, the Association may refer such protests to the Director
for final decision, with or without a recommendation from the
Association.
    (f) Interest on any refund due a protesting member
organization shall be paid at the rate actually earned by the
Association on the separate account.
    (5) The plan of operation may provide that any or all
powers and duties of the Association, except those under
paragraph (c) of subsection (10) of Section 6-8 and Section 6-9
are delegated to a corporation, association or other
organization which performs or will perform functions similar
to those of this Association, or its equivalent, in 2 or more
states. Such a corporation, association or organization shall
be reimbursed for any payments made on behalf of the
Association and shall be paid for its performance of any
function of the Association. A delegation under this subsection
shall take effect only with the approval of both the Board of
Directors and the Director, and may be made only to a
corporation, association or organization which extends
protection not substantially less favorable and effective than
that provided by this Article.
(Source: P.A. 85-20.)
 
    (215 ILCS 125/6-18)  (from Ch. 111 1/2, par. 1418.18)
    Sec. 6-18. Stay of Proceedings - Reopening Default
Judgments. All proceedings in which the insolvent organization
is a party in any court in this State shall be stayed 180 60
days from the date an order of liquidation, rehabilitation, or
conservation is final to permit proper legal action by the
Association on any matters germane to its powers or duties. As
to a judgment under any decision, order, verdict, or finding
based on default the Association may apply to have such
judgment set aside by the same court that made such judgment
and must be permitted to defend against such suit on the
merits.
(Source: P.A. 85-20.)
 
    Section 99. Effective date. This Act takes effect upon
becoming law.
INDEX
Statutes amended in order of appearance
    215 ILCS 5/187from Ch. 73, par. 799
    215 ILCS 5/206.1 new
    215 ILCS 5/209from Ch. 73, par. 821
    215 ILCS 5/531.03from Ch. 73, par. 1065.80-3
    215 ILCS 5/531.04from Ch. 73, par. 1065.80-4
    215 ILCS 5/531.05from Ch. 73, par. 1065.80-5
    215 ILCS 5/531.06from Ch. 73, par. 1065.80-6
    215 ILCS 5/531.07from Ch. 73, par. 1065.80-7
    215 ILCS 5/531.08from Ch. 73, par. 1065.80-8
    215 ILCS 5/531.09from Ch. 73, par. 1065.80-9
    215 ILCS 5/531.10from Ch. 73, par. 1065.80-10
    215 ILCS 5/531.11from Ch. 73, par. 1065.80-11
    215 ILCS 5/531.12from Ch. 73, par. 1065.80-12
    215 ILCS 5/531.14from Ch. 73, par. 1065.80-14
    215 ILCS 5/531.17from Ch. 73, par. 1065.80-17
    215 ILCS 5/531.18from Ch. 73, par. 1065.80-18
    215 ILCS 5/537.2from Ch. 73, par. 1065.87-2
    215 ILCS 5/545from Ch. 73, par. 1065.95
    215 ILCS 125/6-4from Ch. 111 1/2, par. 1418.4
    215 ILCS 125/6-5from Ch. 111 1/2, par. 1418.5
    215 ILCS 125/6-8from Ch. 111 1/2, par. 1418.8
    215 ILCS 125/6-9from Ch. 111 1/2, par. 1418.9
    215 ILCS 125/6-10from Ch. 111 1/2, par. 1418.10
    215 ILCS 125/6-17from Ch. 111 1/2, par. 1418.17
    215 ILCS 125/6-18from Ch. 111 1/2, par. 1418.18