Sen. William E. Peterson
Filed: 4/19/2004
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1 | AMENDMENT TO HOUSE BILL 5928
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2 | AMENDMENT NO. ______. Amend House Bill 5928 by replacing | ||||||
3 | everything after the enacting clause with the following:
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4 | "Section 5. The Illinois Insurance Code is amended by | ||||||
5 | adding 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, liquidator, or | ||||||
11 | conservator to secure the obligations of a policyholder under a | ||||||
12 | deductible agreement shall not be considered an asset of the | ||||||
13 | estate and shall be maintained and administered by the Director | ||||||
14 | as rehabilitator, liquidator, or conservator as provided in | ||||||
15 | this Section and notwithstanding any other provision of law or | ||||||
16 | contract to the 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, liquidator, or conservator to secure | ||||||
20 | obligations under a deductible agreement with a policyholder, | ||||||
21 | subject to the provisions of this Section, the collateral shall | ||||||
22 | be used to secure the policyholder's obligation to fund or | ||||||
23 | reimburse claims payment within the agreed deductible amount. | ||||||
24 | (c) If a claim that is subject to a deductible agreement |
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1 | and secured by collateral is not covered by any guaranty | ||||||
2 | association or the Illinois Insurance Guaranty Fund and the | ||||||
3 | policyholder is unwilling or unable to take over the handling | ||||||
4 | and payment of the non-covered claims, the Director as | ||||||
5 | rehabilitator, liquidator, or conservator shall adjust and pay | ||||||
6 | the non-covered claims utilizing the collateral but only to the | ||||||
7 | extent the available collateral after allocation under | ||||||
8 | subsection (d), is sufficient to pay all outstanding and | ||||||
9 | anticipated claims. If the collateral is exhausted and the | ||||||
10 | insured is not able to provide funds to pay the remaining | ||||||
11 | claims within the deductible after all reasonable means of | ||||||
12 | collection against the insured have been exhausted, the | ||||||
13 | Director's obligation to pay such claims from the collateral as | ||||||
14 | the rehabilitator, liquidator, or conservator terminates, and | ||||||
15 | the remaining claims shall be claims against the insurer's | ||||||
16 | estate subject to complying with other provisions in this | ||||||
17 | Article for the filing and allowance of such claims. When the | ||||||
18 | liquidator determines that the collateral is insufficient to | ||||||
19 | pay all additional and anticipated claims, the liquidator may | ||||||
20 | file a plan for equitably allocating the collateral among | ||||||
21 | claimants, subject to court approval. | ||||||
22 | (d) To the extent that the Director as rehabilitator, | ||||||
23 | liquidator, or conservator is holding collateral provided by a | ||||||
24 | policyholder that was obtained to secure a deductible agreement | ||||||
25 | and to secure other obligations of the policyholder to pay the | ||||||
26 | insurer, directly or indirectly, amounts that become assets of | ||||||
27 | the estate, such as reinsurance obligations under a captive | ||||||
28 | reinsurance program or adjustable premium obligations under a | ||||||
29 | retrospectively rated insurance policy where the premium due is | ||||||
30 | subject to adjustment based upon actual loss experience, the | ||||||
31 | Director as rehabilitator, liquidator, or conservator shall | ||||||
32 | equitably allocate the collateral among such obligations and | ||||||
33 | administer the collateral allocated to the deductible | ||||||
34 | agreement pursuant to this Section. With respect to the |
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1 | collateral allocated to obligations under the deductible | ||||||
2 | agreement, if the collateral secured reimbursement obligations | ||||||
3 | under more than one line of insurance, then the
collateral | ||||||
4 | shall be equitably allocated among the various lines based upon | ||||||
5 | the estimated ultimate exposure within the deductible amount | ||||||
6 | for each line. The Director as rehabilitator, liquidator, or | ||||||
7 | conservator shall inform the guaranty association or the | ||||||
8 | Illinois Insurance Guaranty Fund that is or may be obligated | ||||||
9 | for claims against the insurer of the method and details of all | ||||||
10 | the foregoing allocations. | ||||||
11 | (e) Regardless of whether there is collateral, if the | ||||||
12 | insurer has contractually agreed to allow the policyholder to | ||||||
13 | fund its own claims within the deductible amount pursuant to a | ||||||
14 | deductible agreement, either through the policyholder's own | ||||||
15 | administration of its claims or through the policyholder | ||||||
16 | providing funds directly to a third party administrator who | ||||||
17 | administers the claims, the Director as rehabilitator, | ||||||
18 | liquidator, or conservator shall allow such funding | ||||||
19 | arrangement to continue and, where applicable, will enforce | ||||||
20 | such arrangements to the fullest extent possible. The funding | ||||||
21 | of such claims by the policyholder within the deductible amount | ||||||
22 | will act as a bar to any claim for such amount in the | ||||||
23 | liquidation proceeding, including but not limited to any such | ||||||
24 | claim by the policyholder or the third party claimant. The | ||||||
25 | funding will extinguish both the obligation, if any, of any | ||||||
26 | guaranty association or the Illinois Insurance Guaranty Fund to | ||||||
27 | pay such claims within the deductible amount, as well as the | ||||||
28 | obligations, if any, of the policyholder or third party | ||||||
29 | administrator to reimburse the guaranty association or the | ||||||
30 | Illinois Insurance Guaranty Fund. No charge of any kind shall | ||||||
31 | be made by the Director as rehabilitator, liquidator, or | ||||||
32 | conservator against any guaranty association or the Illinois | ||||||
33 | Insurance Guaranty Fund on the basis of the policyholder | ||||||
34 | funding of claims payment made pursuant to the mechanism set |
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1 | forth in this subsection. | ||||||
2 | (f) If the insurer has not contractually agreed to allow | ||||||
3 | the policyholder to fund its own claims within the deductible | ||||||
4 | amount, to the extent a guaranty association or the Illinois | ||||||
5 | Insurance Guaranty Fund is required by applicable state law to | ||||||
6 | pay any claims for which the insurer would be or would have | ||||||
7 | been entitled to reimbursement from the policyholder under the | ||||||
8 | terms of the deductible agreement and to the extent the claims | ||||||
9 | have not been paid by a policyholder or third party, the | ||||||
10 | Director as rehabilitator, liquidator, or conservator shall | ||||||
11 | promptly bill the policyholder for such reimbursement and the | ||||||
12 | policyholder will be obligated to pay such amount to the | ||||||
13 | Director as rehabilitator, liquidator, or conservator for the | ||||||
14 | benefit of the guaranty association or the Illinois Insurance | ||||||
15 | Guaranty Fund that paid such claims. Neither the insolvency of | ||||||
16 | the insurer, nor its inability to perform any of its | ||||||
17 | obligations under the deductible agreement, shall be a defense | ||||||
18 | to the policyholder's reimbursement obligation under the | ||||||
19 | deductible agreement. When the policyholder reimbursements are | ||||||
20 | collected, the Director as rehabilitator, liquidator, or | ||||||
21 | conservator shall promptly reimburse the guaranty association | ||||||
22 | or the Illinois Insurance Guaranty Fund for claims paid that | ||||||
23 | were subject to the deductible. If the policyholder fails to | ||||||
24 | pay the amounts due within 60 days after such bill for such | ||||||
25 | reimbursements is due, the Director as rehabilitator, | ||||||
26 | liquidator, or conservator shall use the collateral to the | ||||||
27 | extent necessary to reimburse the guaranty association or the | ||||||
28 | Illinois Insurance Guaranty Fund, and, at the same time, may | ||||||
29 | pursue other collections efforts against the policyholder. If | ||||||
30 | more than one guaranty association or the Illinois Insurance | ||||||
31 | Guaranty Fund has a claim against the same collateral and the | ||||||
32 | available collateral (after allocation under subsection (d)), | ||||||
33 | along with billing and collection efforts, are together | ||||||
34 | insufficient to pay each guaranty association or the Illinois |
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1 | Insurance Guaranty Fund in full, then the Director as | ||||||
2 | rehabilitator, liquidator, or conservator will pro-rate | ||||||
3 | payments to each guaranty association or the Illinois Insurance | ||||||
4 | Guaranty Fund based upon the relationship the amount of claims | ||||||
5 | each guaranty association or the Illinois Insurance Guaranty | ||||||
6 | Fund has paid bears to the total of all claims paid by such | ||||||
7 | guaranty association or the Illinois Insurance Guaranty Fund. | ||||||
8 | (g) Director's duties and powers as rehabilitator, | ||||||
9 | liquidator, or conservator. | ||||||
10 | (1) The Director as rehabilitator, liquidator, or | ||||||
11 | conservator is entitled to deduct from reimbursements owed | ||||||
12 | to guaranty associations or the Illinois Insurance | ||||||
13 | Guaranty Fund or collateral to be returned to a | ||||||
14 | policyholder
reasonable actual expenses incurred in | ||||||
15 | fulfilling the responsibilities under this provision, not | ||||||
16 | to exceed 3% of the collateral or the total deductible | ||||||
17 | reimbursements actually collected by the Director as | ||||||
18 | rehabilitator, liquidator, or conservator. | ||||||
19 | (2) With respect to claim payments made by any guaranty | ||||||
20 | association or the Illinois Insurance Guaranty Fund, the | ||||||
21 | Director as rehabilitator, liquidator, or conservator | ||||||
22 | shall promptly provide the court, with a copy of the | ||||||
23 | guaranty associations or the Illinois Insurance Guaranty | ||||||
24 | Fund, with a complete report of the Director's deductible | ||||||
25 | billing and collection activities as rehabilitator, | ||||||
26 | liquidator, or conservator including copies of the | ||||||
27 | policyholder billings when rendered, the reimbursements | ||||||
28 | collected, the available amounts and use of collateral for | ||||||
29 | each policyholder, and any pro-ration of payments when it | ||||||
30 | occurs. If the Director as rehabilitator, liquidator, or | ||||||
31 | conservator fails to make a good faith effort within 120 | ||||||
32 | days of receipt of claims payment reports to collect | ||||||
33 | reimbursements due from a policyholder under a deductible | ||||||
34 | agreement based on claim payments made by one or more |
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1 | guaranty associations or the Illinois Insurance Guaranty | ||||||
2 | Fund, then after such 120 day period such guaranty | ||||||
3 | associations or the Illinois Insurance Guaranty Fund may | ||||||
4 | pursue collection from the policyholders directly on the | ||||||
5 | same basis as the Director as rehabilitator, liquidator, or | ||||||
6 | conservator, and with the same rights and remedies, and | ||||||
7 | will report any amounts so collected from each policyholder | ||||||
8 | to the Director as rehabilitator, liquidator, or | ||||||
9 | conservator. To the extent that guaranty associations or | ||||||
10 | the Illinois Insurance Guaranty Fund pay claims within the | ||||||
11 | deductible amount, but are not reimbursed by either the | ||||||
12 | Director as rehabilitator, liquidator, or conservator | ||||||
13 | under this Section or by policyholder payments from the | ||||||
14 | guaranty associations' or the Illinois Insurance Guaranty | ||||||
15 | Fund's own collection efforts, the guaranty association or | ||||||
16 | the Illinois Insurance Guaranty Fund shall have a claim in | ||||||
17 | the insolvent insurer's estate for such un-reimbursed | ||||||
18 | claims payments. | ||||||
19 | (3) The Director as rehabilitator, liquidator, or | ||||||
20 | conservator shall periodically adjust the collateral being | ||||||
21 | held as the claims subject to the deductible agreement are | ||||||
22 | run-off, provided that adequate collateral is maintained | ||||||
23 | to secure the entire estimated ultimate obligation of the | ||||||
24 | policyholder plus a reasonable safety factor, and the | ||||||
25 | Director as rehabilitator, liquidator, or conservator | ||||||
26 | shall not be required to adjust the collateral more than | ||||||
27 | once a year. The guaranty associations or the Illinois | ||||||
28 | Insurance Guaranty Fund shall be informed of all such | ||||||
29 | collateral reviews, including but not limited to the basis | ||||||
30 | for the adjustment. Once all claims covered by the | ||||||
31 | collateral have been paid and the Director as | ||||||
32 | rehabilitator, liquidator, or conservator is satisfied | ||||||
33 | that no new claims can be presented, the Director as | ||||||
34 | rehabilitator, liquidator, or conservator will release any |
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1 | remaining collateral to the policyholder. | ||||||
2 | (h) The Illinois Circuit Court having jurisdiction over the | ||||||
3 | liquidation proceedings shall have jurisdiction to resolve | ||||||
4 | disputes arising under this provision. | ||||||
5 | (i) Nothing in this Section is intended to limit or | ||||||
6 | adversely affect any right the guaranty associations or the | ||||||
7 | Illinois Insurance Guaranty Fund may have under applicable | ||||||
8 | state law to obtain reimbursement from certain classes of | ||||||
9 | policyholders for claims payments made by such guaranty | ||||||
10 | associations or the Illinois Insurance Guaranty Fund under | ||||||
11 | policies of the insolvent insurer, or for related expenses the | ||||||
12 | guaranty associations or the Illinois Insurance Guaranty Fund | ||||||
13 | incur. | ||||||
14 | (j) This Section applies to all receivership proceedings | ||||||
15 | under Article XIII that either (1) commence on or after the | ||||||
16 | effective date of this amendatory Act of the 93rd General | ||||||
17 | Assembly or (2) are on file or open on the effective date of | ||||||
18 | this amendatory Act of the 93rd General Assembly and in which | ||||||
19 | an Order of Liquidation is entered on or after May 1, 2004. | ||||||
20 | (k) For purposes of this Section, a "deductible agreement" | ||||||
21 | is any combination of one or more policies, endorsements, | ||||||
22 | contracts, or security agreements, which provide for the | ||||||
23 | policyholder to bear the risk of loss within a specified amount | ||||||
24 | per claim or occurrence covered under a policy of insurance, | ||||||
25 | and may be subject to the aggregate limit of policyholder | ||||||
26 | reimbursement obligations. This
Section shall not apply to | ||||||
27 | first party claims, or to claims funded by a guaranty | ||||||
28 | association or the Illinois Insurance Guaranty Fund in excess | ||||||
29 | of the deductible unless subsection (e) above applies. The term | ||||||
30 | "non-covered claim" shall mean a claim that is subject to a | ||||||
31 | deductible agreement and is not covered by a guaranty | ||||||
32 | association or the Illinois Insurance Guaranty Fund. | ||||||
33 | Section 99. Effective date. This Act takes effect upon |
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1 | becoming law.".
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