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1 | AN ACT concerning insurance.
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2 | Be it enacted by the People of the State of Illinois,
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3 | represented in the General Assembly:
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4 | Section 5. The Illinois Insurance Code is amended by adding | ||||||
5 | Section 205.1 as follows: | ||||||
6 | (215 ILCS 5/205.1 new)
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7 | Sec. 205.1. Policyholder collateral, deductible | ||||||
8 | reimbursements, and other policyholder obligations. | ||||||
9 | (a) Any collateral held by, for the benefit of, or assigned | ||||||
10 | to the insurer or the Director as rehabilitator or liquidator | ||||||
11 | to secure the obligations of a policyholder under a deductible | ||||||
12 | agreement shall not be considered an asset of the estate and | ||||||
13 | shall be maintained and administered by the Director as | ||||||
14 | rehabilitator or liquidator as provided in this Section and | ||||||
15 | notwithstanding any other provision of law or contract to the | ||||||
16 | contrary. | ||||||
17 | (b) If the collateral is being held by, for the benefit of, | ||||||
18 | or assigned to the insurer or subsequently the Director as | ||||||
19 | rehabilitator or liquidator to secure obligations under a | ||||||
20 | deductible agreement with a policyholder, subject to the | ||||||
21 | provisions of this Section, the collateral shall be used to | ||||||
22 | secure the policyholder's obligation to fund or reimburse | ||||||
23 | claims payment within the agreed deductible amount. | ||||||
24 | (c) If a claim that is subject to a deductible agreement | ||||||
25 | and secured by collateral is not covered by any guaranty | ||||||
26 | association or the Illinois Insurance Guaranty Fund and the | ||||||
27 | policyholder is unwilling or unable to take over the handling | ||||||
28 | and payment of the non-covered claims, the Director as | ||||||
29 | rehabilitator or liquidator shall adjust and pay the | ||||||
30 | non-covered claims utilizing the collateral but only to the | ||||||
31 | extent the available collateral after allocation under | ||||||
32 | subsection (d), is sufficient to pay all outstanding and |
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1 | anticipated claims. If the collateral is exhausted and the | ||||||
2 | insured is not able to provide funds to pay the remaining | ||||||
3 | claims within the deductible after all reasonable means of | ||||||
4 | collection against the insured have been exhausted, the | ||||||
5 | Director's obligation to pay such claims from the collateral as | ||||||
6 | the rehabilitator or liquidator terminates, and the remaining | ||||||
7 | claims shall be claims against the insurer's estate subject to | ||||||
8 | complying with other provisions in this Article for the filing | ||||||
9 | and allowance of such claims. When the liquidator determines | ||||||
10 | that the collateral is insufficient to pay all additional and | ||||||
11 | anticipated claims, the liquidator may file a plan for | ||||||
12 | equitably allocating the collateral among claimants, subject | ||||||
13 | to court approval. | ||||||
14 | (d) To the extent that the Director as rehabilitator or | ||||||
15 | liquidator is holding collateral provided by a policyholder | ||||||
16 | that was obtained to secure a deductible agreement and to | ||||||
17 | secure other obligations of the policyholder to pay the | ||||||
18 | insurer, directly or indirectly, amounts that become assets of | ||||||
19 | the estate, such as reinsurance obligations under a captive | ||||||
20 | reinsurance program or adjustable premium obligations under a | ||||||
21 | retrospectively rated insurance policy where the premium due is | ||||||
22 | subject to adjustment based upon actual loss experience, the | ||||||
23 | Director as rehabilitator or liquidator shall equitably | ||||||
24 | allocate the collateral among such obligations and administer | ||||||
25 | the collateral allocated to the deductible agreement pursuant | ||||||
26 | to this Section. With respect to the collateral allocated to | ||||||
27 | obligations under the deductible agreement, if the collateral | ||||||
28 | secured reimbursement obligations under more than one line of | ||||||
29 | insurance, then the
collateral shall be equitably allocated | ||||||
30 | among the various lines based upon the estimated ultimate | ||||||
31 | exposure within the deductible amount for each line. The | ||||||
32 | Director as rehabilitator or liquidator shall inform the | ||||||
33 | guaranty association or the Illinois Insurance Guaranty Fund | ||||||
34 | that is or may be obligated for claims against the insurer of | ||||||
35 | the method and details of all the foregoing allocations. | ||||||
36 | (e) Regardless of whether there is collateral, if the |
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1 | insurer has contractually agreed to allow the policyholder to | ||||||
2 | fund its own claims within the deductible amount pursuant to a | ||||||
3 | deductible agreement, either through the policyholder's own | ||||||
4 | administration of its claims or through the policyholder | ||||||
5 | providing funds directly to a third party administrator who | ||||||
6 | administers the claims, the Director as rehabilitator or | ||||||
7 | liquidator shall allow such funding arrangement to continue | ||||||
8 | and, where applicable, will enforce such arrangements to the | ||||||
9 | fullest extent possible. The funding of such claims by the | ||||||
10 | policyholder within the deductible amount will act as a bar to | ||||||
11 | any claim for such amount in the liquidation proceeding, | ||||||
12 | including but not limited to any such claim by the policyholder | ||||||
13 | or the third party claimant. The funding will extinguish both | ||||||
14 | the obligation, if any, of any guaranty association or the | ||||||
15 | Illinois Insurance Guaranty Fund to pay such claims within the | ||||||
16 | deductible amount, as well as the obligations, if any, of the | ||||||
17 | policyholder or third party administrator to reimburse the | ||||||
18 | guaranty association or the Illinois Insurance Guaranty Fund. | ||||||
19 | No charge of any kind shall be made by the Director as | ||||||
20 | rehabilitator or liquidator against any guaranty association | ||||||
21 | or the Illinois Insurance Guaranty Fund on the basis of the | ||||||
22 | policyholder funding of claims payment made pursuant to the | ||||||
23 | mechanism set forth in this subsection. | ||||||
24 | (f) If the insurer has not contractually agreed to allow | ||||||
25 | the policyholder to fund its own claims within the deductible | ||||||
26 | amount, to the extent a guaranty association or the Illinois | ||||||
27 | Insurance Guaranty Fund is required by applicable state law to | ||||||
28 | pay any claims for which the insurer would be or would have | ||||||
29 | been entitled to reimbursement from the policyholder under the | ||||||
30 | terms of the deductible agreement and to the extent the claims | ||||||
31 | have not been paid by a policyholder or third party, the | ||||||
32 | Director as rehabilitator or liquidator shall promptly bill the | ||||||
33 | policyholder for such reimbursement and the policyholder will | ||||||
34 | be obligated to pay such amount to the Director as | ||||||
35 | rehabilitator or liquidator for the benefit of the guaranty | ||||||
36 | association or the Illinois Insurance Guaranty Fund that paid |
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1 | such claims. Neither the insolvency of the insurer, nor its | ||||||
2 | inability to perform any of its obligations under the | ||||||
3 | deductible agreement, shall be a defense to the policyholder's | ||||||
4 | reimbursement obligation under the deductible agreement. When | ||||||
5 | the policyholder reimbursements are collected, the Director as | ||||||
6 | rehabilitator or liquidator shall promptly reimburse the | ||||||
7 | guaranty association or the Illinois Insurance Guaranty Fund | ||||||
8 | for claims paid that were subject to the deductible. If the | ||||||
9 | policyholder fails to pay the amounts due within 60 days after | ||||||
10 | such bill for such reimbursements is due, the Director as | ||||||
11 | rehabilitator or liquidator shall use the collateral to the | ||||||
12 | extent necessary to reimburse the guaranty association or the | ||||||
13 | Illinois Insurance Guaranty Fund, and, at the same time, may | ||||||
14 | pursue other collections efforts against the policyholder. If | ||||||
15 | more than one guaranty association or the Illinois Insurance | ||||||
16 | Guaranty Fund has a claim against the same collateral and the | ||||||
17 | available collateral (after allocation under subsection (d)), | ||||||
18 | along with billing and collection efforts, are together | ||||||
19 | insufficient to pay each guaranty association or the Illinois | ||||||
20 | Insurance Guaranty Fund in full, then the Director as | ||||||
21 | rehabilitator or liquidator will pro-rate payments to each | ||||||
22 | guaranty association or the Illinois Insurance Guaranty Fund | ||||||
23 | based upon the relationship the amount of claims each guaranty | ||||||
24 | association or the Illinois Insurance Guaranty Fund has paid | ||||||
25 | bears to the total of all claims paid by such guaranty | ||||||
26 | association or the Illinois Insurance Guaranty Fund. | ||||||
27 | (g) Director's duties and powers as rehabilitator or | ||||||
28 | liquidator. | ||||||
29 | (1) The Director as rehabilitator or liquidator is | ||||||
30 | entitled to deduct from reimbursements owed to guaranty | ||||||
31 | associations or the Illinois Insurance Guaranty Fund or | ||||||
32 | collateral to be returned to a policyholder
reasonable | ||||||
33 | actual expenses incurred in fulfilling the | ||||||
34 | responsibilities under this provision, not to exceed 3% of | ||||||
35 | the collateral or the total deductible reimbursements | ||||||
36 | actually collected by the Director as rehabilitator or |
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1 | liquidator. | ||||||
2 | (2) With respect to claim payments made by any guaranty | ||||||
3 | association or the Illinois Insurance Guaranty Fund, the | ||||||
4 | Director as rehabilitator or liquidator shall promptly | ||||||
5 | provide the court, with a copy of the guaranty associations | ||||||
6 | or the Illinois Insurance Guaranty Fund, with a complete | ||||||
7 | report of the Director's deductible billing and collection | ||||||
8 | activities as rehabilitator or liquidator including copies | ||||||
9 | of the policyholder billings when rendered, the | ||||||
10 | reimbursements collected, the available amounts and use of | ||||||
11 | collateral for each policyholder, and any pro-ration of | ||||||
12 | payments when it occurs. If the Director as rehabilitator | ||||||
13 | or liquidator fails to make a good faith effort within 120 | ||||||
14 | days of receipt of claims payment reports to collect | ||||||
15 | reimbursements due from a policyholder under a deductible | ||||||
16 | agreement based on claim payments made by one or more | ||||||
17 | guaranty associations or the Illinois Insurance Guaranty | ||||||
18 | Fund, then after such 120 day period such guaranty | ||||||
19 | associations or the Illinois Insurance Guaranty Fund may | ||||||
20 | pursue collection from the policyholders directly on the | ||||||
21 | same basis as the Director as rehabilitator or liquidator, | ||||||
22 | and with the same rights and remedies, and will report any | ||||||
23 | amounts so collected from each policyholder to the Director | ||||||
24 | as rehabilitator, liquidator, or conservator. To the | ||||||
25 | extent that guaranty associations or the Illinois | ||||||
26 | Insurance Guaranty Fund pay claims within the deductible | ||||||
27 | amount, but are not reimbursed by either the Director as | ||||||
28 | rehabilitator, liquidator, or conservator under this | ||||||
29 | Section or by policyholder payments from the guaranty | ||||||
30 | associations' or the Illinois Insurance Guaranty Fund's | ||||||
31 | own collection efforts, the guaranty association or the | ||||||
32 | Illinois Insurance Guaranty Fund shall have a claim in the | ||||||
33 | insolvent insurer's estate for such un-reimbursed claims | ||||||
34 | payments. | ||||||
35 | (3) The Director as rehabilitator or liquidator shall | ||||||
36 | periodically adjust the collateral being held as the claims |
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1 | subject to the deductible agreement are run-off, provided | ||||||
2 | that adequate collateral is maintained to secure the entire | ||||||
3 | estimated ultimate obligation of the policyholder plus a | ||||||
4 | reasonable safety factor, and the Director as | ||||||
5 | rehabilitator or liquidator shall not be required to adjust | ||||||
6 | the collateral more than once a year. The guaranty | ||||||
7 | associations or the Illinois Insurance Guaranty Fund shall | ||||||
8 | be informed of all such collateral reviews, including but | ||||||
9 | not limited to the basis for the adjustment. Once all | ||||||
10 | claims covered by the collateral have been paid and the | ||||||
11 | Director as rehabilitator or liquidator is satisfied that | ||||||
12 | no new claims can be presented, the Director as | ||||||
13 | rehabilitator or liquidator will release any remaining | ||||||
14 | collateral to the policyholder. | ||||||
15 | (h) The Illinois Circuit Court having jurisdiction over the | ||||||
16 | liquidation proceedings shall have jurisdiction to resolve | ||||||
17 | disputes arising under this provision. | ||||||
18 | (i) Nothing in this Section is intended to limit or | ||||||
19 | adversely affect any right the guaranty associations or the | ||||||
20 | Illinois Insurance Guaranty Fund may have under applicable | ||||||
21 | state law to obtain reimbursement from certain classes of | ||||||
22 | policyholders for claims payments made by such guaranty | ||||||
23 | associations or the Illinois Insurance Guaranty Fund under | ||||||
24 | policies of the insolvent insurer, or for related expenses the | ||||||
25 | guaranty associations or the Illinois Insurance Guaranty Fund | ||||||
26 | incur. | ||||||
27 | (j) This Section applies to all receivership proceedings | ||||||
28 | under Article XIII that either (1) commence on or after the | ||||||
29 | effective date of this amendatory Act of the 93rd General | ||||||
30 | Assembly or (2) are on file or open on the effective date of | ||||||
31 | this amendatory Act of the 93rd General Assembly and in which | ||||||
32 | an Order of Liquidation is entered on or after May 1, 2004. | ||||||
33 | However, this Section applies to rehabilitation proceedings | ||||||
34 | only to the extent that guaranty associations are required to | ||||||
35 | pay claims and does not apply to receivership proceedings in | ||||||
36 | which an order of conservation has been entered. |
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1 | (k) For purposes of this Section, a "deductible agreement" | ||||||
2 | is any combination of one or more policies, endorsements, | ||||||
3 | contracts, or security agreements, which provide for the | ||||||
4 | policyholder to bear the risk of loss within a specified amount | ||||||
5 | per claim or occurrence covered under a policy of insurance, | ||||||
6 | and may be subject to the aggregate limit of policyholder | ||||||
7 | reimbursement obligations. This
Section shall not apply to | ||||||
8 | first party claims, or to claims funded by a guaranty | ||||||
9 | association or the Illinois Insurance Guaranty Fund in excess | ||||||
10 | of the deductible unless subsection (e) above applies. The term | ||||||
11 | "non-covered claim" shall mean a claim that is subject to a | ||||||
12 | deductible agreement and is not covered by a guaranty | ||||||
13 | association or the Illinois Insurance Guaranty Fund. | ||||||
14 | Section 99. Effective date. This Act takes effect upon | ||||||
15 | becoming law. |