SB2187 95TH GENERAL ASSEMBLY

LRB095 19517 KBJ 45825 b

95TH GENERAL ASSEMBLY
State of Illinois
2007 and 2008
SB2187

Introduced 2/14/2008, by Sen. David Koehler

SYNOPSIS AS INTRODUCED:

215 ILCS 5/155.39
215 ILCS 5/205	from Ch. 73, par. 817
215 ILCS 152/10
215 ILCS 152/50

Amends the Illinois Insurance Code. Deletes a provision providing that no vehicle protection product sold or offered for sale in this State shall be subject to the provisions of the Code. Provides that vehicle protection products, the warrantors of such products, and related vehicle protection product sellers and warranty administrators complying with the provision are not required to comply with and are not subject to any other provision of the Code, except that such parties shall be deemed to be engaged in an insurance business subject to the Insurance Code for purposes of rehabilitation, liquidation, conservation, or dissolution by the Director pursuant to Article XIII of the Code. Amends the Service Contract Act. Provides that service contract providers and related service contract sellers and administrators complying with the Act are not required to comply with and are not subject to any provision of the Insurance Code, except that such parties shall be deemed to be engaged in an insurance business subject to the Code for purposes of rehabilitation, liquidation, conservation, or dissolution by the Director of Insurance pursuant to Article XIII of the Code. Provides that if a service contract provider engages in a pattern or practice of conduct that violates the Act and that the Director reasonably believes threatens to render the service contract provider insolvent or cause irreparable loss or injury to the property or business of any person or company located in this State, the Director may report the case to the Attorney General for proceedings in accordance with Article XIII of the Code. Makes other changes. Effective immediately.

FISCAL NOTE ACT MAY APPLY

A BILL FOR

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 155.39 and 205 as follows:

(215 ILCS 5/155.39)

Sec. 155.39. Vehicle protection products.

(a) As used in this Section:

"Administrator" means a third party other than the warrantor who is designated by the warrantor to be responsible for the administration of vehicle protection product warranties.

"Incidental costs" means expenses specified in the vehicle protection product warranty incurred by the warranty holder related to the failure of the vehicle protection product to perform as provided in the warranty. Incidental costs may include, without limitation, insurance policy deductibles, rental vehicle charges, the difference between the actual value of the stolen vehicle at the time of theft and the cost of a replacement vehicle, sales taxes, registration fees, transaction fees, and mechanical inspection fees.

"Vehicle protection product" means a vehicle protection device, system, or service that is (i) installed on or applied to a vehicle, (ii) is designed to prevent loss or damage to a vehicle from a specific cause, (iii) includes a written warranty by a warrantor that provides if the vehicle protection product fails to prevent loss or damage to a vehicle from a specific cause, that the warranty holder shall be paid specified incidental costs by the warrantor as a result of the failure of the vehicle protection product to perform pursuant to the terms of the warranty, and (iv) the warrantor's liability is covered by a warranty reimbursement insurance policy. The term "vehicle protection product" shall include, without limitation, alarm systems, body part marking products, steering locks, window etch products, pedal and ignition locks, fuel and ignition kill switches, and electronic, radio, and satellite tracking devices.

"Vehicle protection product warrantor" or "warrantor" means a person who is contractually obligated to the warranty holder under the terms of the vehicle protection product. Warrantor does not include an authorized insurer.

"Warranty reimbursement insurance policy" means a policy of insurance issued to the vehicle protection product warrantor to pay on behalf of the warrantor all covered contractual obligations incurred by the warrantor under the terms and conditions of the insured vehicle protection product warranties sold by the warrantor. The warranty reimbursement insurance policy shall be issued by an insurer authorized to do business in this State that has filed its policy form with the Department.

(b) No vehicle protection product sold or offered for sale in this State shall be subject to the provisions of this Code. Vehicle protection products, the product warrantors of such products, and related vehicle protection product sellers and warranty administrators complying with this Section are not required to comply with and are not subject to any other provision of this Code, except that such parties shall be deemed to be engaged in an insurance business subject to this Code for purposes of rehabilitation, liquidation, conservation, or dissolution by the Director pursuant to Article XIII of this Code. The vehicle protection products' written warranties are to be treated as express warranties and not insurance.

(c) This Section applies to all vehicle protection products sold or offered for sale prior to, on, or after the effective date of this amendatory Act of the 93rd General Assembly. The enactment of this Section does not imply that vehicle protection products should have been subject to regulation under this Code prior to the enactment of this Section.

(Source: P.A. 95-331, eff. 8-21-07.)

(215 ILCS 5/205) (from Ch. 73, par. 817)

Sec. 205. Priority of distribution of general assets.

(1) The priorities of distribution of general assets from the company's estate is to be as follows:

(a) The costs and expenses of administration, including the expenses of the Illinois Insurance Guaranty Fund, the Illinois Life and Health Insurance Guaranty Association, the Illinois Health Maintenance Organization Guaranty Association and of any similar organization in any other state as prescribed in subsection (c) of Section 545.

(b) Secured claims, including claims for taxes and debts due the federal or any state or local government, that are secured by liens perfected prior to the filing of the complaint.

(c) Claims for wages actually owing to employees for services rendered within 3 months prior to the date of the filing of the complaint, not exceeding $1,000 to each employee unless there are claims due the federal government under paragraph (f), then the claims for wages shall have a priority of distribution immediately following that of federal claims under paragraph (f) and immediately preceding claims of general creditors under paragraph (g).

(d) Claims by policyholders, beneficiaries, and insureds, and consumers under insurance policies, annuity contracts, and funding agreements, service contracts, vehicle protection products, and liability claims against insureds covered under insurance policies and insurance contracts issued by the company, and claims of the Illinois Insurance Guaranty Fund, the Illinois Life and Health Insurance Guaranty Association, the Illinois Health Maintenance Organization Guaranty Association and any similar organization in another state as prescribed in Section 545. For purposes of this Section, "funding agreement" means an agreement whereby an insurer authorized to write business under Class 1 of Section 4 of this Code may accept and accumulate funds and make one or more payments at future dates in amounts that are not based upon mortality or morbidity contingencies.

(e) Claims by policyholders, beneficiaries, and insureds, the allowed values of which were determined by estimation under paragraph (b) of subsection (4) of Section 209.

(f) Any other claims due the federal government.

(g) All other claims of general creditors not falling within any other priority under this Section including claims for taxes and debts due any state or local government which are not secured claims and claims for attorneys' fees incurred by the company in contesting its conservation, rehabilitation, or liquidation.

(h) Claims of guaranty fund certificate holders, guaranty capital shareholders, capital note holders, and surplus note holders.

(i) Proprietary claims of shareholders, members, or other owners.

Every claim under a written agreement, statute, or rule providing that the assets in a separate account are not chargeable with the liabilities arising out of any other business of the insurer shall be satisfied out of the funded assets in the separate account equal to, but not to exceed, the reserves maintained in the separate account under the separate account agreement, and to the extent, if any, the claim is not fully discharged thereby, the remainder of the claim shall be treated as a priority level (d) claim under paragraph (d) of this subsection to the extent that reserves have been established in the insurer's general account pursuant to statute, rule, or the separate account agreement.

For purposes of this provision, "separate account policies, contracts, or agreements" means any policies, contracts, or agreements that provide for separate accounts as contemplated by Section 245.21.

To the extent that any assets of an insurer, other than those assets properly allocated to and maintained in a separate account, have been used to fund or pay any expenses, taxes, or policyholder benefits that are attributable to a separate account policy, contract, or agreement that should have been paid by a separate account prior to the commencement of receivership proceedings, then upon the commencement of receivership proceedings, the separate accounts that benefited from this payment or funding shall first be used to repay or reimburse the company's general assets or account for any unreimbursed net sums due at the commencement of receivership proceedings prior to the application of the separate account assets to the satisfaction of liabilities or the corresponding separate account policies, contracts, and agreements.

To the extent, if any, reserves or assets maintained in the separate account are in excess of the amounts needed to satisfy claims under the separate account contracts, the excess shall be treated as part of the general assets of the insurer's estate.

(2) Within 120 days after the issuance of an Order of Liquidation with a finding of insolvency against a domestic company, the Director shall make application to the court requesting authority to disburse funds to the Illinois Insurance Guaranty Fund, the Illinois Life and Health Insurance Guaranty Association, the Illinois Health Maintenance Organization Guaranty Association and similar organizations in other states from time to time out of the company's marshaled assets as funds become available in amounts equal to disbursements made by the Illinois Insurance Guaranty Fund, the Illinois Life and Health Insurance Guaranty Association, the Illinois Health Maintenance Organization Guaranty Association and similar organizations in other states for covered claims obligations on the presentation of evidence that such disbursements have been made by the Illinois Insurance Guaranty Fund, the Illinois Life and Health Insurance Guaranty Association, the Illinois Health Maintenance Organization Guaranty Association and similar organizations in other states.

The Director shall establish procedures for the ratable allocation and distribution of disbursements to the Illinois Insurance Guaranty Fund, the Illinois Life and Health Insurance Guaranty Association, the Illinois Health Maintenance Organization Guaranty Association and similar organizations in other states. In determining the amounts available for disbursement, the Director shall reserve sufficient assets for the payment of the expenses of administration described in paragraph (1)(a) of this Section. All funds available for disbursement after the establishment of the prescribed reserve shall be promptly distributed. As a condition to receipt of funds in reimbursement of covered claims obligations, the Director shall secure from the Illinois Insurance Guaranty Fund, the Illinois Life and Health Insurance Guaranty Association, the Illinois Health Maintenance Organization Guaranty Association and each similar organization in other states, an agreement to return to the Director on demand funds previously received as may be required to pay claims of secured creditors and claims falling within the priorities established in paragraphs (a), (b), (c), and (d) of subsection (1) of this Section in accordance with such priorities.

(3) The provisions of this Section are severable under Section 1.31 of the Statute on Statutes.

(Source: P.A. 92-65, eff. 7-12-01; 92-875, eff. 1-3-03.)

Section 10. The Service Contract Act is amended by changing Sections 10 and 50 as follows:

(215 ILCS 152/10)

Sec. 10. Exemptions. Service contract providers and related service contract sellers and administrators complying with this Act are not required to comply with and are not subject to any provision of the Illinois Insurance Code, except that such parties shall be deemed to be engaged in an insurance business subject to the Illinois Insurance Code for purposes of rehabilitation, liquidation, conservation, or dissolution by the Director pursuant to Article XIII of the Illinois Insurance Code. A service contract provider who is the manufacturer or a wholly-owned subsidiary of the manufacturer of the product or the builder, seller, or lessor of the product that is the subject of the service contract shall not be subject to Article XIII of the Illinois Insurance Code and is required to comply only with Sections 30, 35, 45, and 50 of this Act; except that, a service contract provider who sells a motor vehicle, excluding a motorcycle as defined in Section 1-147 of the Illinois Vehicle Code, or who leases, but is not the manufacturer of, the motor vehicle, excluding a motorcycle as defined in Section 1-147 of the Illinois Vehicle Code, that is the subject of the service contract must comply with this Act in its entirety. Contracts for the repair and monitoring of private alarm or private security systems regulated under the Private Detective, Private Alarm, Private Security, Fingerprint Vendor, and Locksmith Act of 2004 are not required to comply with this Act and are not subject to any provision of the Illinois Insurance Code.

(Source: P.A. 95-613, eff. 9-11-07.)

(215 ILCS 152/50)

Sec. 50. Examinations and enforcement provisions.

(a) The Director may conduct examinations of service contract providers, administrators, or other persons to enforce this Act and protect service contract holders in this State. Upon request of the Director, a service contract provider shall make available to the Director all accounts, books, and records concerning service contracts sold by the service contract provider that are necessary to enable the Director to reasonably determine compliance or noncompliance with this Act.

(b) The Director may take action that is necessary or appropriate to enforce the provisions of this Act and the Director's rules and orders and to protect service contract holders in this State. If a service contract provider engages in a pattern or practice of conduct that violates this Act and that the Director reasonably believes threatens to render the service contract provider insolvent or cause irreparable loss or injury to the property or business of any person or company located in this State, the Director may (i) issue an order directed to that service contract provider to cease and desist from engaging in further acts, practices, or transactions that are causing the conduct; (ii) issue an order prohibiting that service contract provider from selling or offering for sale service contracts in violation of this Act; (iii) issue an order imposing a civil penalty on that service contract provider; or (iv) report the case to the Attorney General for proceedings in accordance with Article XIII of the Illinois Insurance Code; or (v) issue any combination of the foregoing, as applicable. Prior to the effective date of any Director's order issued pursuant to this subsection, the Director must provide written notice of such the order to the service contract provider and the opportunity for a hearing to be held within 10 business days after receipt of the notice, except prior notice and hearing shall not be required if the Director reasonably believes that the service contract provider has become, or is about to become, insolvent.

A person aggrieved by an Director's order issued under this Section may request a hearing before the Director. The hearing request shall be filed with the Director within 20 days after the date the Director's order is effective, and the Director must hold such a hearing within 15 days after receipt of the hearing request.

(c) At the hearing, the burden shall be on the Director to show why the order issued pursuant to this Section is justified. The provisions of Section 10-25 of the Illinois Administrative Procedure Act shall apply to a hearing request under this Section.

(d) The Director may bring an action in any court of competent jurisdiction for an injunction or other appropriate relief to enjoin threatened or existing violations of this Act or of the Director's orders or rules. An action filed under this Section also may seek restitution on behalf of persons aggrieved by a violation of this Act or orders or rules of the Director.

(e) A person who is found to have violated this Act or orders or rules of the Director may be ordered to pay to the Director a civil penalty in an amount, determined by the Director, of not more than $500 per violation and not more than $10,000 in the aggregate for all violations of a similar nature. For purposes of this Section, violations shall be of a similar nature if the violation consists of the same or similar course of conduct, action, or practice, irrespective of the number of times the conduct, action, or practice that is determined to be a violation of this Act occurred.

(Source: P.A. 90-711, eff. 8-7-98.)

Section 99. Effective date. This Act takes effect upon becoming law.