HB3521 EngrossedLRB103 29647 BMS 56046 b

1    AN ACT concerning regulation.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Illinois Insurance Code is amended by
5changing Section 445 as follows:
 
6    (215 ILCS 5/445)  (from Ch. 73, par. 1057)
7    Sec. 445. Surplus line.
8    (1) Definitions. For the purposes of this Section:
9    "Affiliate" means, with respect to an insured, any entity
10that controls, is controlled by, or is under common control
11with the insured. For the purpose of this definition, an
12entity has control over another entity if:
13        (A) the entity directly or indirectly or acting
14    through one or more other persons owns, controls, or has
15    the power to vote 25% or more of any class of voting
16    securities of the other entity; or
17        (B) the entity controls in any manner the election of
18    a majority of the directors or trustees of the other
19    entity.
20    "Affiliated group" means any group of entities that are
21all affiliated.
22    "Authorized insurer" means an insurer that holds a
23certificate of authority issued by the Director but, for the

 

 

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1purposes of this Section, does not include a domestic surplus
2line insurer as defined in Section 445a or any residual market
3mechanism.
4    "Exempt commercial purchaser" means any person purchasing
5commercial insurance that, at the time of placement, meets the
6following requirements:
7        (A) The person employs or retains a qualified risk
8    manager to negotiate insurance coverage.
9        (B) The person has paid aggregate nationwide
10    commercial property and casualty insurance premiums in
11    excess of $100,000 in the immediately preceding 12 months.
12        (C) The person meets at least one of the following
13    criteria:
14            (I) The person possesses a net worth in excess of
15        $20,000,000, as such amount is adjusted pursuant to
16        the provision in this definition concerning percentage
17        change.
18            (II) The person generates annual revenues in
19        excess of $50,000,000, as such amount is adjusted
20        pursuant to the provision in this definition
21        concerning percentage change.
22            (III) The person employs more than 500 full-time
23        or full-time equivalent employees per individual
24        insured or is a member of an affiliated group
25        employing more than 1,000 employees in the aggregate.
26            (IV) The person is a not-for-profit organization

 

 

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1        or public entity generating annual budgeted
2        expenditures of at least $30,000,000, as such amount
3        is adjusted pursuant to the provision in this
4        definition concerning percentage change.
5            (V) The person is a municipality with a population
6        in excess of 50,000 persons.
7    Effective on January 1, 2015 and each fifth January 1
8occurring thereafter, the amounts in subitems (I), (II), and
9(IV) of item (C) of this definition shall be adjusted to
10reflect the percentage change for such 5-year period in the
11Consumer Price Index for All Urban Consumers published by the
12Bureau of Labor Statistics of the Department of Labor.
13    "Home state" means the following:
14        (A) With respect to an insured, except as provided in
15    item (B) of this definition:
16            (I) the state in which an insured maintains its
17        principal place of business or, in the case of an
18        individual, the individual's principal residence; or
19            (II) if 100% of the insured risk is located out of
20        the state referred to in subitem (I), the state to
21        which the greatest percentage of the insured's taxable
22        premium for that insurance contract is allocated.
23        (B) If more than one insured from an affiliated group
24    are named insureds on a single surplus line insurance
25    contract, then "home state" means the home state, as
26    determined pursuant to item (A) of this definition, of the

 

 

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1    member of the affiliated group that has the largest
2    percentage of premium attributed to it under such
3    insurance contract.
4        If more than one insured from a group that is not
5    affiliated are named insureds on a single surplus line
6    insurance contract, then: (I) if individual group members
7    pay 100% of the premium for the insurance from their own
8    funds, "home state" means the home state, as determined
9    pursuant to item (A) of this definition, of each
10    individual group member; each individual group member's
11    coverage under the surplus line insurance contract shall
12    be treated as a separate surplus line contract for the
13    purposes of this Section; (II) otherwise, "home state"
14    means the home state, as determined pursuant to item (A)
15    of this definition, of the group.
16    Nothing in this definition shall be construed to alter the
17terms of the surplus line insurance contract.
18    "Master policy" means a surplus line insurance contract
19with a single set of general contractual terms that are
20designed to apply on a group basis to multiple insureds who may
21or may not be affiliated and who may be added to or removed
22from the contract throughout the course of the contract
23period. A master policy may include certain provisions that
24vary for each insured depending on the insured's
25characteristics and the coverage sought.
26    "Multi-State risk" means a risk with insured exposures in

 

 

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1more than one State.
2    "NAIC" means the National Association of Insurance
3Commissioners or any successor entity.
4    "Personal lines insurance" means insurance as defined in
5subsection (a), (b), or (c) of Section 143.13 of this Code.
6    "Premium" means any amount designated as premium on the
7declarations page or elsewhere in a policy and on any
8endorsement, but does not include taxes, the Surplus Line
9Association of Illinois recording fee, or any other fee.
10    "Program business" means a clearly defined group of
11insurance contracts procured by a licensed surplus line
12producer from an unauthorized insurer, under a single
13agreement between the producer and insurer, for insureds with
14the same or similar characteristics and containing the same or
15similar contract terms.
16    "Qualified risk manager" means, with respect to a
17policyholder of commercial insurance, a person who meets all
18of the following requirements:
19        (A) The person is an employee of, or third-party
20    consultant retained by, the commercial policyholder.
21        (B) The person provides skilled services in loss
22    prevention, loss reduction, or risk and insurance coverage
23    analysis, and purchase of insurance.
24        (C) With regard to the person:
25            (I) the person has:
26                (a) a bachelor's degree or higher from an

 

 

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1            accredited college or university in risk
2            management, business administration, finance,
3            economics, or any other field determined by the
4            Director or his designee to demonstrate minimum
5            competence in risk management; and
6                (b) the following:
7                    (i) three years of experience in risk
8                financing, claims administration, loss
9                prevention, risk and insurance analysis, or
10                purchasing commercial lines of insurance; or
11                    (ii) alternatively has:
12                        (AA) a designation as a Chartered
13                    Property and Casualty Underwriter (in this
14                    subparagraph (ii) referred to as "CPCU")
15                    issued by the American Institute for
16                    CPCU/Insurance Institute of America;
17                        (BB) a designation as an Associate in
18                    Risk Management (ARM) issued by the
19                    American Institute for CPCU/Insurance
20                    Institute of America;
21                        (CC) a designation as Certified Risk
22                    Manager (CRM) issued by the National
23                    Alliance for Insurance Education &
24                    Research;
25                        (DD) a designation as a RIMS Fellow
26                    (RF) issued by the Global Risk Management

 

 

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1                    Institute; or
2                        (EE) any other designation,
3                    certification, or license determined by
4                    the Director or his designee to
5                    demonstrate minimum competency in risk
6                    management;
7            (II) the person has:
8                (a) at least 7 years of experience in risk
9            financing, claims administration, loss prevention,
10            risk and insurance coverage analysis, or
11            purchasing commercial lines of insurance; and
12                (b) has any one of the designations specified
13            in subparagraph (ii) of paragraph (b);
14            (III) the person has at least 10 years of
15        experience in risk financing, claims administration,
16        loss prevention, risk and insurance coverage analysis,
17        or purchasing commercial lines of insurance; or
18            (IV) the person has a graduate degree from an
19        accredited college or university in risk management,
20        business administration, finance, economics, or any
21        other field determined by the Director or his or her
22        designee to demonstrate minimum competence in risk
23        management.
24    "Residual market mechanism" means an association,
25organization, or other entity described in Article XXXIII of
26this Code or Section 7-501 of the Illinois Vehicle Code or any

 

 

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1similar association, organization, or other entity.
2    "State" means any state of the United States, the District
3of Columbia, the Commonwealth of Puerto Rico, Guam, the
4Northern Mariana Islands, the Virgin Islands, and American
5Samoa.
6    "Surplus line insurance" means insurance on a risk:
7        (A) of the kinds specified in Classes 2 and 3 of
8    Section 4 of this Code; and
9        (B) that is procured from an unauthorized insurer
10    after the insurance producer representing the insured or
11    the surplus line producer is unable, after diligent
12    effort, to procure the insurance from authorized insurers;
13    and
14        (C) where Illinois is the home state of the insured,
15    for policies effective, renewed or extended on July 21,
16    2011 or later and for multiyear policies upon the policy
17    anniversary that falls on or after July 21, 2011; and
18        (D) that is located in Illinois, for policies
19    effective prior to July 21, 2011.
20    "Taxable premium" means a premium for any risk that is
21located in or attributed to any state.
22    "Unauthorized insurer" means an insurer that does not hold
23a valid certificate of authority issued by the Director but,
24for the purposes of this Section, shall also include a
25domestic surplus line insurer as defined in Section 445a.
26    (1.5) Procuring surplus line insurance; surplus line

 

 

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1insurer requirements.
2        (a) License required. Insurance producers may procure
3    surplus line insurance only if licensed as a surplus line
4    producer under this Section.
5        (b) Domestic and foreign insurer eligibility. Licensed
6    surplus line producers may procure surplus line insurance
7    from an unauthorized insurer domiciled in any state only
8    if the insurer:
9            (i) is permitted in its domiciliary jurisdiction
10        to write the type of insurance involved; and
11             (ii) has, based upon information available to the
12        surplus line producer, a policyholders surplus of not
13        less than $15,000,000 determined in accordance with
14        the laws of its domiciliary jurisdiction; and
15             (iii) has standards of solvency and management
16        that are adequate for the protection of policyholders.
17         Where an unauthorized insurer does not meet the
18    standards set forth in (ii) and (iii) above, a surplus
19    line producer may, if necessary, procure insurance from
20    that insurer only if prior written warning of such fact or
21    condition is given to the insured by the insurance
22    producer or surplus line producer.
23        (c) Alien insurer eligibility. Licensed surplus line
24    producers may procure surplus line insurance from an
25    unauthorized insurer not domiciled in any state only if
26    the insurer meets the standards for unauthorized insurers

 

 

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1    domiciled in any state in paragraph (b) of this subsection
2    (1.5) or is listed on the Quarterly Listing of Alien
3    Insurers maintained by the International Insurers
4    Department of the NAIC at the time of procurement. The
5    Director shall make the Quarterly Listing of Alien
6    Insurers available to surplus line producers without
7    charge.
8        (d) Prohibited transactions. Insurance producers shall
9    not procure from an unauthorized insurer an insurance
10    policy:
11            (i) that is designed to satisfy the proof of
12        financial responsibility and insurance requirements in
13        any Illinois law where the law requires that the proof
14        of insurance is issued by an authorized insurer or
15        residual market mechanism;
16            (ii) that covers the risk of accidental injury to
17        employees arising out of and in the course of
18        employment according to the provisions of the Workers'
19        Compensation Act; or
20            (iii) that insures any Illinois personal lines
21        risk that is eligible for residual market mechanism
22        coverage, unless the insured or prospective insured
23        requests limits of liability greater than the limits
24        provided by the residual market mechanism. In the
25        course of making a diligent effort to procure
26        insurance from authorized insurers, an insurance

 

 

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1        producer shall not be required to submit a risk to a
2        residual market mechanism when the risk is not
3        eligible for coverage or exceeds the limits available
4        in the residual market mechanism.
5        Where there is an insurance policy issued by an
6    authorized insurer or residual market mechanism insuring a
7    risk described in item (i), (ii), or (iii) above, nothing
8    in this paragraph shall be construed to prohibit a surplus
9    line producer from procuring from an unauthorized insurer
10    a policy insuring the risk on an excess or umbrella basis
11    where the excess or umbrella policy is written over one or
12    more underlying policies.
13        (e) Exempt commercial purchaser diligent effort.
14    Licensed surplus line producers may procure surplus line
15    insurance from an unauthorized insurer for an exempt
16    commercial purchaser without making the required diligent
17    effort to procure the insurance from authorized insurers
18    if:
19            (i) the producer has disclosed to the exempt
20        commercial purchaser that such insurance may or may
21        not be available from authorized insurers that may
22        provide greater protection with more regulatory
23        oversight; and
24            (ii) the exempt commercial purchaser has
25        subsequently in writing requested the producer to
26        procure such insurance from an unauthorized insurer.

 

 

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1        (f) Commercial wholesale transaction diligent effort.
2    A licensed surplus line producer may procure a surplus
3    line insurance contract, other than a personal lines
4    insurance contract, from an unauthorized insurer without
5    making the required diligent effort to procure the
6    insurance from authorized insurers if the risk was
7    referred to the surplus line producer by an
8    Illinois-licensed insurance producer who is not affiliated
9    with the surplus line producer.
10        (g) Master policy diligent effort. For a master policy
11    insurance contract, a licensed surplus line producer may
12    make the required diligent effort to procure the insurance
13    from authorized insurers annually for the master policy
14    rather than individually for each insured that is added
15    during the policy period. The diligent effort shall
16    include all variable provisions of the master policy.
17        (h) Program business diligent effort. For program
18    business, a licensed surplus line producer may make the
19    required diligent effort to procure the insurance from
20    authorized insurers annually for the program rather than
21    individually for each contract. The diligent effort shall
22    include all variable provisions of the program master
23    policy.
24    (2) Surplus line producer; license. Any licensed producer
25who is a resident of this State, or any nonresident who
26qualifies under Section 500-40, may be licensed as a surplus

 

 

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1line producer upon payment of an annual license fee of $400.
2    A surplus line producer so licensed shall keep a separate
3account of the business transacted thereunder for 7 years from
4the policy effective date which shall be open at all times to
5the inspection of the Director or his representative.
6    No later than July 21, 2012, the State of Illinois shall
7participate in the national insurance producer database of the
8NAIC, or any other equivalent uniform national database, for
9the licensure of surplus line producers and the renewal of
10such licenses.
11    (3) Taxes and reports.
12        (a) Surplus line tax and penalty for late payment. The
13    surplus line tax rate for a surplus line insurance policy
14    or contract is determined as follows:
15            (i) 3% for policies or contracts with an effective
16        date prior to July 1, 2003;
17            (ii) 3.5% for policies or contracts with an
18        effective date of July 1, 2003 or later.
19        A surplus line producer shall file with the Director
20    on or before February 1 and August 1 of each year a report
21    in the form prescribed by the Director on all surplus line
22    insurance procured from unauthorized insurers and
23    submitted to the Surplus Line Association of Illinois
24    during the preceding 6 month period ending December 31 or
25    June 30 respectively, and on the filing of such report
26    shall pay to the Director for the use and benefit of the

 

 

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1    State a sum equal to the surplus line tax rate multiplied
2    by the gross taxable premiums less returned taxable
3    premiums upon all surplus line insurance submitted to the
4    Surplus Line Association of Illinois during the preceding
5    6 months.
6        Any surplus line producer who fails to pay the full
7    amount due under this subsection is liable, in addition to
8    the amount due, for such late fee, penalty, and interest
9    charges as are provided for under Section 412 of this
10    Code. The Director, through the Attorney General, may
11    institute an action in the name of the People of the State
12    of Illinois, in any court of competent jurisdiction, for
13    the recovery of the amount of such taxes, late fees,
14    interest, and penalties due, and prosecute the same to
15    final judgment, and take such steps as are necessary to
16    collect the same.
17        (b) Fire Marshal Tax. Each surplus line producer shall
18    file with the Director on or before February 1 of each year
19    a report in the form prescribed by the Director on all fire
20    insurance procured from unauthorized insurers and
21    submitted to the Surplus Line Association of Illinois
22    during the previous year that is subject to tax under
23    Section 12 of the Fire Investigation Act and shall pay to
24    the Director the fire marshal tax required thereunder.
25        (c) Taxes and fees charged to insured. The taxes
26    imposed under this subsection and the recording fees

 

 

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1    charged by the Surplus Line Association of Illinois may be
2    charged to and collected from surplus line insureds.
3    (4) (Blank).
4    (5) Submission of documents to Surplus Line Association of
5Illinois. A surplus line producer shall submit every insurance
6contract and premium-bearing endorsement issued under his or
7her license to the Surplus Line Association of Illinois for
8recording. The submission and recording may be effected
9through electronic means. The submission shall set forth:
10        (a) the name of the insured;
11        (b) the description and location of the insured
12    property or risk;
13        (c) (blank);
14        (d) the gross premiums charged or returned;
15        (e) the name of the unauthorized insurer from whom
16    coverage has been procured;
17        (f) the kind or kinds of insurance procured; and
18        (g) amount of premium subject to tax required by
19    Section 12 of the Fire Investigation Act.
20    Proposals, endorsements, and other documents which are
21incidental to the insurance but which do not affect the
22premium charged are exempted from the submission and recording
23requirements.
24    The submission of insuring contracts to the Surplus Line
25Association of Illinois constitutes a certification by the
26surplus line producer or by the insurance producer who

 

 

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1presented the risk to the surplus line producer for placement
2as a surplus line risk that after diligent effort, where
3required, the required insurance could not be procured from
4authorized insurers and that such procurement was otherwise in
5accordance with the surplus line law.
6    (6) Evidence of recording required. It shall be unlawful
7for an insurance producer to deliver any unauthorized insurer
8contract or premium-bearing endorsement unless it contains
9evidence of recording by the Surplus Line Association of
10Illinois.
11    (7) Inspection of records. A surplus line producer shall
12maintain separate records of the business transacted under his
13or her license for 7 years from the policy effective date,
14including complete copies of surplus line insurance contracts
15maintained on paper or by electronic means, which records
16shall be open at all times for inspection by the Director and
17by the Surplus Line Association of Illinois.
18    (8) Violations and penalties. The Director may suspend or
19revoke or refuse to renew a surplus line producer license for
20any violation of this Code. In addition to or in lieu of
21suspension or revocation, the Director may subject a surplus
22line producer to a civil penalty of up to $2,000 for each cause
23for suspension or revocation. Such penalty is enforceable
24under subsection (5) of Section 403A of this Code.
25    Whenever it appears to the satisfaction of the Director
26that a surplus line producer has made a documented good faith

 

 

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1determination of the home state for a surplus line insurance
2contract and has paid the surplus line taxes to a state other
3than Illinois, and the Director determines that the producer's
4good faith determination was incorrect and the home state is
5Illinois, the surplus line producer may, at the discretion of
6the Director, be required to submit the contract to the
7Surplus Line Association of Illinois and pay applicable taxes
8and recording fees, but there shall be no penalty, interest,
9or late fee assessed.
10    (9) Director may declare insurer ineligible. If the
11Director determines that the further assumption of risks might
12be hazardous to the policyholders of an unauthorized insurer,
13the Director may order the Surplus Line Association of
14Illinois not to accept and record insurance contracts
15evidencing insurance in such insurer and order surplus line
16producers to cease procuring insurance from such insurer.
17    (10) Service of process upon Director. Insurance contracts
18delivered under this Section from unauthorized insurers, other
19than domestic surplus line insurers as defined in Section
20445a, shall contain a provision designating the Director and
21his successors in office the true and lawful attorney of the
22insurer upon whom may be served all lawful process in any
23action, suit or proceeding arising out of such insurance.
24Service of process made upon the Director to be valid
25hereunder must state the name of the insured, the name of the
26unauthorized insurer and identify the contract of insurance.

 

 

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1The Director at his option is authorized to forward a copy of
2the process to the Surplus Line Association of Illinois for
3delivery to the unauthorized insurer or the Director may
4deliver the process to the unauthorized insurer by other means
5which he considers to be reasonably prompt and certain.
6    (10.5) Required notice to policyholder. Insurance
7contracts delivered under this Section from unauthorized
8insurers, other than domestic surplus line insurers as defined
9in Section 445a, shall have stamped or imprinted on the first
10page thereof in not less than 12-pt. bold face type the
11following legend: "Notice to Policyholder: This contract is
12issued, pursuant to Section 445 of the Illinois Insurance
13Code, by a company not authorized and licensed to transact
14business in Illinois and as such is not covered by the Illinois
15Insurance Guaranty Fund." Insurance contracts delivered under
16this Section from domestic surplus line insurers as defined in
17Section 445a shall have stamped or imprinted on the first page
18thereof in not less than 12-pt. bold face type the following
19legend: "Notice to Policyholder: This contract is issued by a
20domestic surplus line insurer, as defined in Section 445a of
21the Illinois Insurance Code, pursuant to Section 445, and as
22such is not covered by the Illinois Insurance Guaranty Fund."
23    (11) Marine, aviation, and transportation. The Illinois
24Surplus Line law does not apply to insurance of property and
25operations of railroads or aircraft engaged in interstate or
26foreign commerce, insurance of vessels, crafts or hulls,

 

 

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1cargoes, marine builder's risks, marine protection and
2indemnity, or other risks including strikes and war risks
3insured under ocean or wet marine forms of policies.
4    (12) Applicability of Illinois Insurance Code. Surplus
5line insurance procured under this Section, including
6insurance procured from a domestic surplus line insurer, is
7not subject to the provisions of the Illinois Insurance Code
8other than Sections 123, 123.1, 401, 401.1, 402, 403, 403A,
9408, 412, 445, 445a, 445.1, 445.2, 445.3, 445.4, and all of the
10provisions of Article XXXI to the extent that the provisions
11of Article XXXI are not inconsistent with the terms of this
12Act.
13(Source: P.A. 102-224, eff. 1-1-22.)