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| Public Act 102-0224
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| SB1753 Enrolled | LRB102 10455 BMS 15783 b |
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AN ACT concerning regulation.
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Be it enacted by the People of the State of Illinois,
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represented in the General Assembly:
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Section 5. The Illinois Insurance Code is amended by |
changing Sections 445 and 445.1 as follows:
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(215 ILCS 5/445) (from Ch. 73, par. 1057)
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Sec. 445. Surplus line.
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(1) Definitions. For the purposes of this Section:
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"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 |
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purposes of this Section, does not
include a
domestic surplus |
line insurer as defined in Section 445a or any
residual market
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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 |
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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 |
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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 |
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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: |
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(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; |
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(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, |
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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 |
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domestic surplus line insurer as defined in
Section 445a.
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(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:
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(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
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(iii) has standards of solvency and management |
that are adequate
for the protection of policyholders.
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Where an unauthorized insurer does not meet the
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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
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condition is given to the insured by the insurance |
producer or surplus line
producer.
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(c) Alien insurer eligibility. Licensed surplus line |
producers may procure surplus line insurance from an |
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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 |
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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
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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.
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(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 |
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(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 |
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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.
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A surplus line producer so licensed shall keep a separate
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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.
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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.
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(3) Taxes and reports.
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(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
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during the preceding
6 month period ending December 31 or |
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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.
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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
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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.
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(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
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Section 12 of the Fire Investigation
Act
and shall pay to |
the Director the fire marshal tax required thereunder.
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(c) Taxes and fees charged to insured. The taxes |
imposed under this
subsection and the recording |
countersigning fees charged by the Surplus Line
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Association of Illinois may be charged to and collected |
from surplus line
insureds.
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(4) (Blank).
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(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
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recording and countersignature. The submission and recording |
countersignature may be
effected through electronic means. The |
submission shall set
forth:
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(a) the name of the insured;
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(b) the description and location of the insured |
property or
risk;
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(c) (blank); the amount insured;
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(d) the gross premiums charged or returned;
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(e) the name of the unauthorized insurer from whom |
coverage has been procured;
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(f) the kind or kinds of insurance procured; and
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(g) amount of premium subject to tax required by |
Section 12 of the Fire
Investigation Act.
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Proposals, endorsements, and other documents which are
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incidental to the insurance but which do not affect the |
premium
charged
are exempted from the submission and recording |
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requirements filing and countersignature.
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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
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authorized insurers and that
such procurement was otherwise in |
accordance with the surplus line law.
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(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
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Illinois.
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(7) Inspection of records. A surplus line producer shall
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maintain
separate records of the business transacted under his |
or her license for 7 years from the policy effective date,
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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.
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(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 |
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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.
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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
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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
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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.
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(10) Service of process upon Director. Insurance contracts
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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 |
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his successors in office the true and lawful attorney of the
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insurer upon whom may be served all lawful process in any
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action, suit or
proceeding arising out of such insurance.
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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.
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(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 |
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the Illinois Insurance Code, pursuant to Section 445, and as |
such is not covered by the Illinois Insurance Guaranty Fund."
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(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
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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.
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(12) Applicability of Illinois Insurance Code. Surplus |
line insurance procured under this Section, including
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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.
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(Source: P.A. 97-955, eff. 8-14-12; 98-978, eff. 1-1-15.)
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(215 ILCS 5/445.1) (from Ch. 73, par. 1057.1)
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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
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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:
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(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;
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(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;
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(3) prepare and deliver to the Director and, at the |
discretion of the Director, to each licensee the reports
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of surplus line business prescribed in subsection (3) of |
Section 445;
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(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;
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(5) employ and retain such persons as are necessary to |
carry out the
duties of the Association;
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(6) borrow money as necessary to effect the purposes |
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of the Association;
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(7) enter contracts as necessary to effect the |
purposes of the Association;
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(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
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(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.
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(Source: P.A. 98-978, eff. 1-1-15.)
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Section 99. Effective date. This Act takes effect January |
1, 2022.
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