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Public Act 102-0224


 

Public Act 0224 102ND GENERAL ASSEMBLY

  
  
  

 


 
Public Act 102-0224
 
SB1753 EnrolledLRB102 10455 BMS 15783 b

    AN ACT concerning regulation.
 
    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 445 and 445.1 as follows:
 
    (215 ILCS 5/445)  (from Ch. 73, par. 1057)
    Sec. 445. Surplus line.
    (1) Definitions. For the purposes of this Section:
    "Affiliate" means, with respect to an insured, any entity
that controls, is controlled by, or is under common control
with the insured. For the purpose of this definition, an
entity has control over another entity if:
        (A) the entity directly or indirectly or acting
    through one or more other persons owns, controls, or has
    the power to vote 25% or more of any class of voting
    securities of the other entity; or
        (B) the entity controls in any manner the election of
    a majority of the directors or trustees of the other
    entity.
    "Affiliated group" means any group of entities that are
all affiliated.
    "Authorized insurer" means an insurer that holds a
certificate of authority issued by the Director but, for the
purposes of this Section, does not include a domestic surplus
line insurer as defined in Section 445a or any residual market
mechanism.
    "Exempt commercial purchaser" means any person purchasing
commercial insurance that, at the time of placement, meets the
following requirements:
        (A) The person employs or retains a qualified risk
    manager to negotiate insurance coverage.
        (B) The person has paid aggregate nationwide
    commercial property and casualty insurance premiums in
    excess of $100,000 in the immediately preceding 12 months.
        (C) The person meets at least one of the following
    criteria:
            (I) The person possesses a net worth in excess of
        $20,000,000, as such amount is adjusted pursuant to
        the provision in this definition concerning percentage
        change.
            (II) The person generates annual revenues in
        excess of $50,000,000, as such amount is adjusted
        pursuant to the provision in this definition
        concerning percentage change.
            (III) The person employs more than 500 full-time
        or full-time equivalent employees per individual
        insured or is a member of an affiliated group
        employing more than 1,000 employees in the aggregate.
            (IV) The person is a not-for-profit organization
        or public entity generating annual budgeted
        expenditures of at least $30,000,000, as such amount
        is adjusted pursuant to the provision in this
        definition concerning percentage change.
            (V) The person is a municipality with a population
        in excess of 50,000 persons.
    Effective on January 1, 2015 and each fifth January 1
occurring thereafter, the amounts in subitems (I), (II), and
(IV) of item (C) of this definition shall be adjusted to
reflect the percentage change for such 5-year period in the
Consumer Price Index for All Urban Consumers published by the
Bureau of Labor Statistics of the Department of Labor.
    "Home state" means the following:
        (A) With respect to an insured, except as provided in
    item (B) of this definition:
            (I) the state in which an insured maintains its
        principal place of business or, in the case of an
        individual, the individual's principal residence; or
            (II) if 100% of the insured risk is located out of
        the state referred to in subitem (I), the state to
        which the greatest percentage of the insured's taxable
        premium for that insurance contract is allocated.
        (B) If more than one insured from an affiliated group
    are named insureds on a single surplus line insurance
    contract, then "home state" means the home state, as
    determined pursuant to item (A) of this definition, of the
    member of the affiliated group that has the largest
    percentage of premium attributed to it under such
    insurance contract.
        If more than one insured from a group that is not
    affiliated are named insureds on a single surplus line
    insurance contract, then:
            (I) if individual group members pay 100% of the
        premium for the insurance from their own funds, "home
        state" means the home state, as determined pursuant to
        item (A) of this definition, of each individual group
        member; each individual group member's coverage under
        the surplus line insurance contract shall be treated
        as a separate surplus line contract for the purposes
        of this Section;
            (II) otherwise, "home state" means the home state,
        as determined pursuant to item (A) of this definition,
        of the group.
    Nothing in this definition shall be construed to alter the
terms of the surplus line insurance contract.
    "Master policy" means a surplus line insurance contract
with a single set of general contractual terms that are
designed to apply on a group basis to multiple insureds who may
or may not be affiliated and who may be added to or removed
from the contract throughout the course of the contract
period. A master policy may include certain provisions that
vary for each insured depending on the insured's
characteristics and the coverage sought.
    "Multi-State risk" means a risk with insured exposures in
more than one State.
    "NAIC" means the National Association of Insurance
Commissioners or any successor entity.
    "Personal lines insurance" means insurance as defined in
subsection (a), (b), or (c) of Section 143.13 of this Code.
    "Premium" means any amount designated as premium on the
declarations page or elsewhere in a policy and on any
endorsement, but does not include taxes, the Surplus Line
Association of Illinois recording fee, or any other fee.
    "Program business" means a clearly defined group of
insurance contracts procured by a licensed surplus line
producer from an unauthorized insurer, under a single
agreement between the producer and insurer, for insureds with
the same or similar characteristics and containing the same or
similar contract terms.
    "Qualified risk manager" means, with respect to a
policyholder of commercial insurance, a person who meets all
of the following requirements:
        (A) The person is an employee of, or third-party
    consultant retained by, the commercial policyholder.
        (B) The person provides skilled services in loss
    prevention, loss reduction, or risk and insurance coverage
    analysis, and purchase of insurance.
        (C) With regard to the person:
            (I) the person has:
                (a) a bachelor's degree or higher from an
            accredited college or university in risk
            management, business administration, finance,
            economics, or any other field determined by the
            Director or his designee to demonstrate minimum
            competence in risk management; and
                (b) the following:
                    (i) three years of experience in risk
                financing, claims administration, loss
                prevention, risk and insurance analysis, or
                purchasing commercial lines of insurance; or
                    (ii) alternatively has:
                        (AA) a designation as a Chartered
                    Property and Casualty Underwriter (in this
                    subparagraph (ii) referred to as "CPCU")
                    issued by the American Institute for
                    CPCU/Insurance Institute of America;
                        (BB) a designation as an Associate in
                    Risk Management (ARM) issued by the
                    American Institute for CPCU/Insurance
                    Institute of America;
                        (CC) a designation as Certified Risk
                    Manager (CRM) issued by the National
                    Alliance for Insurance Education &
                    Research;
                        (DD) a designation as a RIMS Fellow
                    (RF) issued by the Global Risk Management
                    Institute; or
                        (EE) any other designation,
                    certification, or license determined by
                    the Director or his designee to
                    demonstrate minimum competency in risk
                    management;
            (II) the person has:
                (a) at least 7 years of experience in risk
            financing, claims administration, loss prevention,
            risk and insurance coverage analysis, or
            purchasing commercial lines of insurance; and
                (b) has any one of the designations specified
            in subparagraph (ii) of paragraph (b);
            (III) the person has at least 10 years of
        experience in risk financing, claims administration,
        loss prevention, risk and insurance coverage analysis,
        or purchasing commercial lines of insurance; or
            (IV) the person has a graduate degree from an
        accredited college or university in risk management,
        business administration, finance, economics, or any
        other field determined by the Director or his or her
        designee to demonstrate minimum competence in risk
        management.
    "Residual market mechanism" means an association,
organization, or other entity described in Article XXXIII of
this Code or Section 7-501 of the Illinois Vehicle Code or any
similar association, organization, or other entity.
    "State" means any state of the United States, the District
of Columbia, the Commonwealth of Puerto Rico, Guam, the
Northern Mariana Islands, the Virgin Islands, and American
Samoa.
    "Surplus line insurance" means insurance on a risk:
        (A) of the kinds specified in Classes 2 and 3 of
    Section 4 of this Code; and
        (B) that is procured from an unauthorized insurer
    after the insurance producer representing the insured or
    the surplus line producer is unable, after diligent
    effort, to procure the insurance from authorized insurers;
    and
        (C) where Illinois is the home state of the insured,
    for policies effective, renewed or extended on July 21,
    2011 or later and for multiyear policies upon the policy
    anniversary that falls on or after July 21, 2011; and
        (D) that is located in Illinois, for policies
    effective prior to July 21, 2011.
    "Taxable premium" means a premium for any risk that is
located in or attributed to any state.
    "Unauthorized insurer" means an insurer that does not hold
a valid certificate of authority issued by the Director but,
for the purposes of this Section, shall also include a
domestic surplus line insurer as defined in Section 445a.
    (1.5) Procuring surplus line insurance; surplus line
insurer requirements.
        (a) License required. Insurance producers may procure
    surplus line insurance only if licensed as a surplus line
    producer under this Section.
        (b) Domestic and foreign insurer eligibility. Licensed
    surplus line producers may procure surplus line insurance
    from an unauthorized insurer domiciled in any state the
    United States only if the insurer:
            (i) is permitted in its domiciliary jurisdiction
        to write the type of insurance involved; and
             (ii) has, based upon information available to the
        surplus line producer, a policyholders surplus of not
        less than $15,000,000 determined in accordance with
        the laws of its domiciliary jurisdiction; and
             (iii) has standards of solvency and management
        that are adequate for the protection of policyholders.
         Where an unauthorized insurer does not meet the
    standards set forth in (ii) and (iii) above, a surplus
    line producer may, if necessary, procure insurance from
    that insurer only if prior written warning of such fact or
    condition is given to the insured by the insurance
    producer or surplus line producer.
        (c) Alien insurer eligibility. Licensed surplus line
    producers may procure surplus line insurance from an
    unauthorized insurer not domiciled in any state outside of
    the United States only if the insurer meets the standards
    for unauthorized insurers domiciled in any state the
    United States in paragraph (b) of this subsection (1.5) or
    is listed on the Quarterly Listing of Alien Insurers
    maintained by the International Insurers Department of the
    NAIC at the time of procurement. The Director shall make
    the Quarterly Listing of Alien Insurers available to
    surplus line producers without charge.
        (d) Prohibited transactions. Insurance producers shall
    not procure from an unauthorized insurer an insurance
    policy:
            (i) that is designed to satisfy the proof of
        financial responsibility and insurance requirements in
        any Illinois law where the law requires that the proof
        of insurance is issued by an authorized insurer or
        residual market mechanism;
            (ii) that covers the risk of accidental injury to
        employees arising out of and in the course of
        employment according to the provisions of the Workers'
        Compensation Act; or
            (iii) that insures any Illinois personal lines
        risk, as defined in subsection (a), (b), or (c) of
        Section 143.13 of this Code, that is eligible for
        residual market mechanism coverage, unless the insured
        or prospective insured requests limits of liability
        greater than the limits provided by the residual
        market mechanism. In the course of making a diligent
        effort to procure insurance from authorized insurers,
        an insurance producer shall not be required to submit
        a risk to a residual market mechanism when the risk is
        not eligible for coverage or exceeds the limits
        available in the residual market mechanism.
        Where there is an insurance policy issued by an
    authorized insurer or residual market mechanism insuring a
    risk described in item (i), (ii), or (iii) above, nothing
    in this paragraph shall be construed to prohibit a surplus
    line producer from procuring from an unauthorized insurer
    a policy insuring the risk on an excess or umbrella basis
    where the excess or umbrella policy is written over one or
    more underlying policies.
        (e) Exempt commercial purchaser diligent effort.
    Licensed surplus line producers may procure surplus line
    insurance from an unauthorized insurer for an exempt
    commercial purchaser without making the required diligent
    effort to procure the insurance from authorized insurers
    if:
            (i) the producer has disclosed to the exempt
        commercial purchaser that such insurance may or may
        not be available from authorized insurers that may
        provide greater protection with more regulatory
        oversight; and
            (ii) the exempt commercial purchaser has
        subsequently in writing requested the producer to
        procure such insurance from an unauthorized insurer.
        (f) Commercial wholesale transaction diligent effort.
    A licensed surplus line producer may procure a surplus
    line insurance contract, other than a personal lines
    insurance contract, from an unauthorized insurer without
    making the required diligent effort to procure the
    insurance from authorized insurers if the risk was
    referred to the surplus line producer by an
    Illinois-licensed insurance producer who is not affiliated
    with the surplus line producer.
        (g) Master policy diligent effort. For a master policy
    insurance contract, a licensed surplus line producer may
    make the required diligent effort to procure the insurance
    from authorized insurers annually for the master policy
    rather than individually for each insured that is added
    during the policy period. The diligent effort shall
    include all variable provisions of the master policy.
        (h) Program business diligent effort. For program
    business, a licensed surplus line producer may make the
    required diligent effort to procure the insurance from
    authorized insurers annually for the program rather than
    individually for each contract. The diligent effort shall
    include all variable provisions of the master policy.
    (2) Surplus line producer; license. Any licensed producer
who is a resident of this State, or any nonresident who
qualifies under Section 500-40, may be licensed as a surplus
line producer upon payment of an annual license fee of $400.
    A surplus line producer so licensed shall keep a separate
account of the business transacted thereunder for 7 years from
the policy effective date which shall be open at all times to
the inspection of the Director or his representative.
    No later than July 21, 2012, the State of Illinois shall
participate in the national insurance producer database of the
NAIC, or any other equivalent uniform national database, for
the licensure of surplus line producers and the renewal of
such licenses.
    (3) Taxes and reports.
        (a) Surplus line tax and penalty for late payment. The
    surplus line tax rate for a surplus line insurance policy
    or contract is determined as follows:
            (i) 3% for policies or contracts with an effective
        date prior to July 1, 2003;
            (ii) 3.5% for policies or contracts with an
        effective date of July 1, 2003 or later.
        A surplus line producer shall file with the Director
    on or before February 1 and August 1 of each year a report
    in the form prescribed by the Director on all surplus line
    insurance procured from unauthorized insurers and
    submitted to the Surplus Line Association of Illinois
    during the preceding 6 month period ending December 31 or
    June 30 respectively, and on the filing of such report
    shall pay to the Director for the use and benefit of the
    State a sum equal to the surplus line tax rate multiplied
    by the gross taxable premiums less returned taxable
    premiums upon all surplus line insurance submitted to the
    Surplus Line Association of Illinois during the preceding
    6 months.
        Any surplus line producer who fails to pay the full
    amount due under this subsection is liable, in addition to
    the amount due, for such late fee, penalty, and interest
    charges as are provided for under Section 412 of this
    Code. The Director, through the Attorney General, may
    institute an action in the name of the People of the State
    of Illinois, in any court of competent jurisdiction, for
    the recovery of the amount of such taxes, late fees,
    interest, and penalties due, and prosecute the same to
    final judgment, and take such steps as are necessary to
    collect the same.
        (b) Fire Marshal Tax. Each surplus line producer shall
    file with the Director on or before February 1 March 31 of
    each year a report in the form prescribed by the Director
    on all fire insurance procured from unauthorized insurers
    and submitted to the Surplus Line Association of Illinois
    during the previous year that is subject to tax under
    Section 12 of the Fire Investigation Act and shall pay to
    the Director the fire marshal tax required thereunder.
        (c) Taxes and fees charged to insured. The taxes
    imposed under this subsection and the recording
    countersigning fees charged by the Surplus Line
    Association of Illinois may be charged to and collected
    from surplus line insureds.
    (4) (Blank).
    (5) Submission of documents to Surplus Line Association of
Illinois. A surplus line producer shall submit every insurance
contract and premium-bearing endorsement issued under his or
her license to the Surplus Line Association of Illinois for
recording and countersignature. The submission and recording
countersignature may be effected through electronic means. The
submission shall set forth:
        (a) the name of the insured;
        (b) the description and location of the insured
    property or risk;
        (c) (blank); the amount insured;
        (d) the gross premiums charged or returned;
        (e) the name of the unauthorized insurer from whom
    coverage has been procured;
        (f) the kind or kinds of insurance procured; and
        (g) amount of premium subject to tax required by
    Section 12 of the Fire Investigation Act.
    Proposals, endorsements, and other documents which are
incidental to the insurance but which do not affect the
premium charged are exempted from the submission and recording
requirements filing and countersignature.
    The submission of insuring contracts to the Surplus Line
Association of Illinois constitutes a certification by the
surplus line producer or by the insurance producer who
presented the risk to the surplus line producer for placement
as a surplus line risk that after diligent effort, where
required, the required insurance could not be procured from
authorized insurers and that such procurement was otherwise in
accordance with the surplus line law.
    (6) Evidence of recording Countersignature required. It
shall be unlawful for an insurance producer to deliver any
unauthorized insurer contract or premium-bearing endorsement
unless it contains evidence of recording such insurance
contract is countersigned by the Surplus Line Association of
Illinois.
    (7) Inspection of records. A surplus line producer shall
maintain separate records of the business transacted under his
or her license for 7 years from the policy effective date,
including complete copies of surplus line insurance contracts
maintained on paper or by electronic means, which records
shall be open at all times for inspection by the Director and
by the Surplus Line Association of Illinois.
    (8) Violations and penalties. The Director may suspend or
revoke or refuse to renew a surplus line producer license for
any violation of this Code. In addition to or in lieu of
suspension or revocation, the Director may subject a surplus
line producer to a civil penalty of up to $2,000 for each cause
for suspension or revocation. Such penalty is enforceable
under subsection (5) of Section 403A of this Code.
    Whenever it appears to the satisfaction of the Director
that a surplus line producer has made a documented good faith
determination of the home state for a surplus line insurance
contract and has paid the surplus line taxes to a state other
than Illinois, and the Director determines that the producer's
good faith determination was incorrect and the home state is
Illinois, the surplus line producer may, at the discretion of
the Director, be required to submit the contract to the
Surplus Line Association of Illinois and pay applicable taxes
and recording fees, but there shall be no penalty, interest,
or late fee assessed.
    (9) Director may declare insurer ineligible. If the
Director determines that the further assumption of risks might
be hazardous to the policyholders of an unauthorized insurer,
the Director may order the Surplus Line Association of
Illinois not to accept and record countersign insurance
contracts evidencing insurance in such insurer and order
surplus line producers to cease procuring insurance from such
insurer.
    (10) Service of process upon Director. Insurance contracts
delivered under this Section from unauthorized insurers, other
than domestic surplus line insurers as defined in Section
445a, shall contain a provision designating the Director and
his successors in office the true and lawful attorney of the
insurer upon whom may be served all lawful process in any
action, suit or proceeding arising out of such insurance.
Service of process made upon the Director to be valid
hereunder must state the name of the insured, the name of the
unauthorized insurer and identify the contract of insurance.
The Director at his option is authorized to forward a copy of
the process to the Surplus Line Association of Illinois for
delivery to the unauthorized insurer or the Director may
deliver the process to the unauthorized insurer by other means
which he considers to be reasonably prompt and certain.
    (10.5) Required notice to policyholder. Insurance
contracts delivered under this Section from unauthorized
insurers, other than domestic surplus line insurers as defined
in Section 445a, shall have stamped or imprinted on the first
page thereof in not less than 12-pt. bold face type the
following legend: "Notice to Policyholder: This contract is
issued, pursuant to Section 445 of the Illinois Insurance
Code, by a company not authorized and licensed to transact
business in Illinois and as such is not covered by the Illinois
Insurance Guaranty Fund." Insurance contracts delivered under
this Section from domestic surplus line insurers as defined in
Section 445a shall have stamped or imprinted on the first page
thereof in not less than 12-pt. bold face type the following
legend: "Notice to Policyholder: This contract is issued by a
domestic surplus line insurer, as defined in Section 445a of
the Illinois Insurance Code, pursuant to Section 445, and as
such is not covered by the Illinois Insurance Guaranty Fund."
    (11) Marine, aviation, and transportation. The Illinois
Surplus Line law does not apply to insurance of property and
operations of railroads or aircraft engaged in interstate or
foreign commerce, insurance of vessels, crafts or hulls,
cargoes, marine builder's risks, marine protection and
indemnity, or other risks including strikes and war risks
insured under ocean or wet marine forms of policies.
    (12) Applicability of Illinois Insurance Code. Surplus
line insurance procured under this Section, including
insurance procured from a domestic surplus line insurer, is
not subject to the provisions of the Illinois Insurance Code
other than Sections 123, 123.1, 401, 401.1, 402, 403, 403A,
408, 412, 445, 445a, 445.1, 445.2, 445.3, 445.4, and all of the
provisions of Article XXXI to the extent that the provisions
of Article XXXI are not inconsistent with the terms of this
Act.
(Source: P.A. 97-955, eff. 8-14-12; 98-978, eff. 1-1-15.)
 
    (215 ILCS 5/445.1)  (from Ch. 73, par. 1057.1)
    Sec. 445.1. Surplus Line Association of Illinois. There is
hereby created a non-profit association to be known as the
Surplus Line Association of Illinois. All surplus line
producers shall be and must remain individual members of the
Association as a condition of their holding a license as a
surplus line producer in this State. The Association must
perform its functions under the plan of operation established
and approved under Section 445.3 and must exercise its powers
through a board of directors established under Section 445.2
of this Code. The Association shall be supervised by the
Director and is subject to the applicable provisions of the
Illinois Insurance Code. The Association shall be authorized
and have the duty to:
        (1) receive and , record and countersign all surplus
    line insurance contracts that which surplus line producers
    are required to file with the Association under subsection
    (5) of Section 445;
        (2) prepare monthly reports for the Director on
    surplus line insurance procured by its members during the
    preceding month in such form and providing such
    information as the Director may prescribe;
        (3) prepare and deliver to the Director and, at the
    discretion of the Director, to each licensee the reports
    of surplus line business prescribed in subsection (3) of
    Section 445;
        (4) assess its members for costs of operations in
    accordance with a schedule adopted by the Board of
    Directors of the Association and approved by the Director;
        (5) employ and retain such persons as are necessary to
    carry out the duties of the Association;
        (6) borrow money as necessary to effect the purposes
    of the Association;
        (7) enter contracts as necessary to effect the
    purposes of the Association;
        (8) perform such other acts as will facilitate and
    encourage compliance by its members with the surplus line
    law of this State and rules promulgated thereunder; and
        (9) provide such other services to its members as are
    incidental or related to the purposes of the Association.
    Nothing in this Act shall be construed as giving the
Association any discretionary authority to enforce this Act or
to withhold or decline acceptance and recording
countersignature of insurance contracts that which meet the
requirements of subsection (5) of Section 445.
(Source: P.A. 98-978, eff. 1-1-15.)
 
    Section 99. Effective date. This Act takes effect January
1, 2022.

Effective Date: 1/1/2022