Rep. Thaddeus Jones

Filed: 3/21/2023

 

 


 

 


 
10300HB3521ham001LRB103 29647 BMS 59236 a

1
AMENDMENT TO HOUSE BILL 3521

2    AMENDMENT NO. ______. Amend House Bill 3521 by replacing
3everything after the enacting clause with the following:
 
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

 

 

10300HB3521ham001- 2 -LRB103 29647 BMS 59236 a

1        (B) the entity controls in any manner the election of
2    a majority of the directors or trustees of the other
3    entity.
4    "Affiliated group" means any group of entities that are
5all affiliated.
6    "Authorized insurer" means an insurer that holds a
7certificate of authority issued by the Director but, for the
8purposes of this Section, does not include a domestic surplus
9line insurer as defined in Section 445a or any residual market
10mechanism.
11    "Exempt commercial purchaser" means any person purchasing
12commercial insurance that, at the time of placement, meets the
13following requirements:
14        (A) The person employs or retains a qualified risk
15    manager to negotiate insurance coverage.
16        (B) The person has paid aggregate nationwide
17    commercial property and casualty insurance premiums in
18    excess of $100,000 in the immediately preceding 12 months.
19        (C) The person meets at least one of the following
20    criteria:
21            (I) The person possesses a net worth in excess of
22        $20,000,000, as such amount is adjusted pursuant to
23        the provision in this definition concerning percentage
24        change.
25            (II) The person generates annual revenues in
26        excess of $50,000,000, as such amount is adjusted

 

 

10300HB3521ham001- 3 -LRB103 29647 BMS 59236 a

1        pursuant to the provision in this definition
2        concerning percentage change.
3            (III) The person employs more than 500 full-time
4        or full-time equivalent employees per individual
5        insured or is a member of an affiliated group
6        employing more than 1,000 employees in the aggregate.
7            (IV) The person is a not-for-profit organization
8        or public entity generating annual budgeted
9        expenditures of at least $30,000,000, as such amount
10        is adjusted pursuant to the provision in this
11        definition concerning percentage change.
12            (V) The person is a municipality with a population
13        in excess of 50,000 persons.
14    Effective on January 1, 2015 and each fifth January 1
15occurring thereafter, the amounts in subitems (I), (II), and
16(IV) of item (C) of this definition shall be adjusted to
17reflect the percentage change for such 5-year period in the
18Consumer Price Index for All Urban Consumers published by the
19Bureau of Labor Statistics of the Department of Labor.
20    "Home state" means the following:
21        (A) With respect to an insured, except as provided in
22    item (B) of this definition:
23            (I) the state in which an insured maintains its
24        principal place of business or, in the case of an
25        individual, the individual's principal residence; or
26            (II) if 100% of the insured risk is located out of

 

 

10300HB3521ham001- 4 -LRB103 29647 BMS 59236 a

1        the state referred to in subitem (I), the state to
2        which the greatest percentage of the insured's taxable
3        premium for that insurance contract is allocated.
4        (B) If more than one insured from an affiliated group
5    are named insureds on a single surplus line insurance
6    contract, then "home state" means the home state, as
7    determined pursuant to item (A) of this definition, of the
8    member of the affiliated group that has the largest
9    percentage of premium attributed to it under such
10    insurance contract.
11        If more than one insured from a group that is not
12    affiliated are named insureds on a single surplus line
13    insurance contract, then: (I) if individual group members
14    pay 100% of the premium for the insurance from their own
15    funds, "home state" means the home state, as determined
16    pursuant to item (A) of this definition, of each
17    individual group member; each individual group member's
18    coverage under the surplus line insurance contract shall
19    be treated as a separate surplus line contract for the
20    purposes of this Section; (II) otherwise, "home state"
21    means the home state, as determined pursuant to item (A)
22    of this definition, of the group.
23    Nothing in this definition shall be construed to alter the
24terms of the surplus line insurance contract.
25    "Master policy" means a surplus line insurance contract
26with a single set of general contractual terms that are

 

 

10300HB3521ham001- 5 -LRB103 29647 BMS 59236 a

1designed to apply on a group basis to multiple insureds who may
2or may not be affiliated and who may be added to or removed
3from the contract throughout the course of the contract
4period. A master policy may include certain provisions that
5vary for each insured depending on the insured's
6characteristics and the coverage sought.
7    "Multi-State risk" means a risk with insured exposures in
8more than one State.
9    "NAIC" means the National Association of Insurance
10Commissioners or any successor entity.
11    "Personal lines insurance" means insurance as defined in
12subsection (a), (b), or (c) of Section 143.13 of this Code.
13    "Premium" means any amount designated as premium on the
14declarations page or elsewhere in a policy and on any
15endorsement, but does not include taxes, the Surplus Line
16Association of Illinois recording fee, or any other fee.
17    "Program business" means a clearly defined group of
18insurance contracts procured by a licensed surplus line
19producer from an unauthorized insurer, under a single
20agreement between the producer and insurer, for insureds with
21the same or similar characteristics and containing the same or
22similar contract terms.
23    "Qualified risk manager" means, with respect to a
24policyholder of commercial insurance, a person who meets all
25of the following requirements:
26        (A) The person is an employee of, or third-party

 

 

10300HB3521ham001- 6 -LRB103 29647 BMS 59236 a

1    consultant retained by, the commercial policyholder.
2        (B) The person provides skilled services in loss
3    prevention, loss reduction, or risk and insurance coverage
4    analysis, and purchase of insurance.
5        (C) With regard to the person:
6            (I) the person has:
7                (a) a bachelor's degree or higher from an
8            accredited college or university in risk
9            management, business administration, finance,
10            economics, or any other field determined by the
11            Director or his designee to demonstrate minimum
12            competence in risk management; and
13                (b) the following:
14                    (i) three years of experience in risk
15                financing, claims administration, loss
16                prevention, risk and insurance analysis, or
17                purchasing commercial lines of insurance; or
18                    (ii) alternatively has:
19                        (AA) a designation as a Chartered
20                    Property and Casualty Underwriter (in this
21                    subparagraph (ii) referred to as "CPCU")
22                    issued by the American Institute for
23                    CPCU/Insurance Institute of America;
24                        (BB) a designation as an Associate in
25                    Risk Management (ARM) issued by the
26                    American Institute for CPCU/Insurance

 

 

10300HB3521ham001- 7 -LRB103 29647 BMS 59236 a

1                    Institute of America;
2                        (CC) a designation as Certified Risk
3                    Manager (CRM) issued by the National
4                    Alliance for Insurance Education &
5                    Research;
6                        (DD) a designation as a RIMS Fellow
7                    (RF) issued by the Global Risk Management
8                    Institute; or
9                        (EE) any other designation,
10                    certification, or license determined by
11                    the Director or his designee to
12                    demonstrate minimum competency in risk
13                    management;
14            (II) the person has:
15                (a) at least 7 years of experience in risk
16            financing, claims administration, loss prevention,
17            risk and insurance coverage analysis, or
18            purchasing commercial lines of insurance; and
19                (b) has any one of the designations specified
20            in subparagraph (ii) of paragraph (b);
21            (III) the person has at least 10 years of
22        experience in risk financing, claims administration,
23        loss prevention, risk and insurance coverage analysis,
24        or purchasing commercial lines of insurance; or
25            (IV) the person has a graduate degree from an
26        accredited college or university in risk management,

 

 

10300HB3521ham001- 8 -LRB103 29647 BMS 59236 a

1        business administration, finance, economics, or any
2        other field determined by the Director or his or her
3        designee to demonstrate minimum competence in risk
4        management.
5    "Residual market mechanism" means an association,
6organization, or other entity described in Article XXXIII of
7this Code or Section 7-501 of the Illinois Vehicle Code or any
8similar association, organization, or other entity.
9    "State" means any state of the United States, the District
10of Columbia, the Commonwealth of Puerto Rico, Guam, the
11Northern Mariana Islands, the Virgin Islands, and American
12Samoa.
13    "Surplus line insurance" means insurance on a risk:
14        (A) of the kinds specified in Classes 2 and 3 of
15    Section 4 of this Code; and
16        (B) that is procured from an unauthorized insurer
17    after the insurance producer representing the insured or
18    the surplus line producer is unable, after diligent
19    effort, to procure the insurance from authorized insurers;
20    and
21        (C) where Illinois is the home state of the insured,
22    for policies effective, renewed or extended on July 21,
23    2011 or later and for multiyear policies upon the policy
24    anniversary that falls on or after July 21, 2011; and
25        (D) that is located in Illinois, for policies
26    effective prior to July 21, 2011.

 

 

10300HB3521ham001- 9 -LRB103 29647 BMS 59236 a

1    "Taxable premium" means a premium for any risk that is
2located in or attributed to any state.
3    "Unauthorized insurer" means an insurer that does not hold
4a valid certificate of authority issued by the Director but,
5for the purposes of this Section, shall also include a
6domestic surplus line insurer as defined in Section 445a.
7    (1.5) Procuring surplus line insurance; surplus line
8insurer requirements.
9        (a) License required. Insurance producers may procure
10    surplus line insurance only if licensed as a surplus line
11    producer under this Section.
12        (b) Domestic and foreign insurer eligibility. Licensed
13    surplus line producers may procure surplus line insurance
14    from an unauthorized insurer domiciled in any state only
15    if the insurer:
16            (i) is permitted in its domiciliary jurisdiction
17        to write the type of insurance involved; and
18             (ii) has, based upon information available to the
19        surplus line producer, a policyholders surplus of not
20        less than $15,000,000 determined in accordance with
21        the laws of its domiciliary jurisdiction; and
22             (iii) has standards of solvency and management
23        that are adequate for the protection of policyholders.
24         Where an unauthorized insurer does not meet the
25    standards set forth in (ii) and (iii) above, a surplus
26    line producer may, if necessary, procure insurance from

 

 

10300HB3521ham001- 10 -LRB103 29647 BMS 59236 a

1    that insurer only if prior written warning of such fact or
2    condition is given to the insured by the insurance
3    producer or surplus line producer.
4        (c) Alien insurer eligibility. Licensed surplus line
5    producers may procure surplus line insurance from an
6    unauthorized insurer not domiciled in any state only if
7    the insurer meets the standards for unauthorized insurers
8    domiciled in any state in paragraph (b) of this subsection
9    (1.5) or is listed on the Quarterly Listing of Alien
10    Insurers maintained by the International Insurers
11    Department of the NAIC at the time of procurement. The
12    Director shall make the Quarterly Listing of Alien
13    Insurers available to surplus line producers without
14    charge.
15        (d) Prohibited transactions. Insurance producers shall
16    not procure from an unauthorized insurer an insurance
17    policy:
18            (i) that is designed to satisfy the proof of
19        financial responsibility and insurance requirements in
20        any Illinois law where the law requires that the proof
21        of insurance is issued by an authorized insurer or
22        residual market mechanism;
23            (ii) that covers the risk of accidental injury to
24        employees arising out of and in the course of
25        employment according to the provisions of the Workers'
26        Compensation Act; or

 

 

10300HB3521ham001- 11 -LRB103 29647 BMS 59236 a

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

 

 

10300HB3521ham001- 12 -LRB103 29647 BMS 59236 a

1        commercial purchaser that such insurance may or may
2        not be available from authorized insurers that may
3        provide greater protection with more regulatory
4        oversight; and
5            (ii) the exempt commercial purchaser has
6        subsequently in writing requested the producer to
7        procure such insurance from an unauthorized insurer.
8        (f) Commercial wholesale transaction diligent effort.
9    A licensed surplus line producer may procure a surplus
10    line insurance contract, other than a personal lines
11    insurance contract, from an unauthorized insurer without
12    making the required diligent effort to procure the
13    insurance from authorized insurers if the risk was
14    referred to the surplus line producer by an
15    Illinois-licensed insurance producer who is not affiliated
16    with the surplus line producer.
17        (g) Master policy diligent effort. For a master policy
18    insurance contract, a licensed surplus line producer may
19    make the required diligent effort to procure the insurance
20    from authorized insurers annually for the master policy
21    rather than individually for each insured that is added
22    during the policy period. The diligent effort shall
23    include all variable provisions of the master policy.
24        (h) Program business diligent effort. For program
25    business, a licensed surplus line producer may make the
26    required diligent effort to procure the insurance from

 

 

10300HB3521ham001- 13 -LRB103 29647 BMS 59236 a

1    authorized insurers annually for the program rather than
2    individually for each contract. The diligent effort shall
3    include all variable provisions of the program master
4    policy.
5    (2) Surplus line producer; license. Any licensed producer
6who is a resident of this State, or any nonresident who
7qualifies under Section 500-40, may be licensed as a surplus
8line producer upon payment of an annual license fee of $400.
9    A surplus line producer so licensed shall keep a separate
10account of the business transacted thereunder for 7 years from
11the policy effective date which shall be open at all times to
12the inspection of the Director or his representative.
13    No later than July 21, 2012, the State of Illinois shall
14participate in the national insurance producer database of the
15NAIC, or any other equivalent uniform national database, for
16the licensure of surplus line producers and the renewal of
17such licenses.
18    (3) Taxes and reports.
19        (a) Surplus line tax and penalty for late payment. The
20    surplus line tax rate for a surplus line insurance policy
21    or contract is determined as follows:
22            (i) 3% for policies or contracts with an effective
23        date prior to July 1, 2003;
24            (ii) 3.5% for policies or contracts with an
25        effective date of July 1, 2003 or later.
26        A surplus line producer shall file with the Director

 

 

10300HB3521ham001- 14 -LRB103 29647 BMS 59236 a

1    on or before February 1 and August 1 of each year a report
2    in the form prescribed by the Director on all surplus line
3    insurance procured from unauthorized insurers and
4    submitted to the Surplus Line Association of Illinois
5    during the preceding 6 month period ending December 31 or
6    June 30 respectively, and on the filing of such report
7    shall pay to the Director for the use and benefit of the
8    State a sum equal to the surplus line tax rate multiplied
9    by the gross taxable premiums less returned taxable
10    premiums upon all surplus line insurance submitted to the
11    Surplus Line Association of Illinois during the preceding
12    6 months.
13        Any surplus line producer who fails to pay the full
14    amount due under this subsection is liable, in addition to
15    the amount due, for such late fee, penalty, and interest
16    charges as are provided for under Section 412 of this
17    Code. The Director, through the Attorney General, may
18    institute an action in the name of the People of the State
19    of Illinois, in any court of competent jurisdiction, for
20    the recovery of the amount of such taxes, late fees,
21    interest, and penalties due, and prosecute the same to
22    final judgment, and take such steps as are necessary to
23    collect the same.
24        (b) Fire Marshal Tax. Each surplus line producer shall
25    file with the Director on or before February 1 of each year
26    a report in the form prescribed by the Director on all fire

 

 

10300HB3521ham001- 15 -LRB103 29647 BMS 59236 a

1    insurance procured from unauthorized insurers and
2    submitted to the Surplus Line Association of Illinois
3    during the previous year that is subject to tax under
4    Section 12 of the Fire Investigation Act and shall pay to
5    the Director the fire marshal tax required thereunder.
6        (c) Taxes and fees charged to insured. The taxes
7    imposed under this subsection and the recording fees
8    charged by the Surplus Line Association of Illinois may be
9    charged to and collected from surplus line insureds.
10    (4) (Blank).
11    (5) Submission of documents to Surplus Line Association of
12Illinois. A surplus line producer shall submit every insurance
13contract and premium-bearing endorsement issued under his or
14her license to the Surplus Line Association of Illinois for
15recording. The submission and recording may be effected
16through electronic means. The submission shall set forth:
17        (a) the name of the insured;
18        (b) the description and location of the insured
19    property or risk;
20        (c) (blank);
21        (d) the gross premiums charged or returned;
22        (e) the name of the unauthorized insurer from whom
23    coverage has been procured;
24        (f) the kind or kinds of insurance procured; and
25        (g) amount of premium subject to tax required by
26    Section 12 of the Fire Investigation Act.

 

 

10300HB3521ham001- 16 -LRB103 29647 BMS 59236 a

1    Proposals, endorsements, and other documents which are
2incidental to the insurance but which do not affect the
3premium charged are exempted from the submission and recording
4requirements.
5    The submission of insuring contracts to the Surplus Line
6Association of Illinois constitutes a certification by the
7surplus line producer or by the insurance producer who
8presented the risk to the surplus line producer for placement
9as a surplus line risk that after diligent effort, where
10required, the required insurance could not be procured from
11authorized insurers and that such procurement was otherwise in
12accordance with the surplus line law.
13    (6) Evidence of recording required. It shall be unlawful
14for an insurance producer to deliver any unauthorized insurer
15contract or premium-bearing endorsement unless it contains
16evidence of recording by the Surplus Line Association of
17Illinois.
18    (7) Inspection of records. A surplus line producer shall
19maintain separate records of the business transacted under his
20or her license for 7 years from the policy effective date,
21including complete copies of surplus line insurance contracts
22maintained on paper or by electronic means, which records
23shall be open at all times for inspection by the Director and
24by the Surplus Line Association of Illinois.
25    (8) Violations and penalties. The Director may suspend or
26revoke or refuse to renew a surplus line producer license for

 

 

10300HB3521ham001- 17 -LRB103 29647 BMS 59236 a

1any violation of this Code. In addition to or in lieu of
2suspension or revocation, the Director may subject a surplus
3line producer to a civil penalty of up to $2,000 for each cause
4for suspension or revocation. Such penalty is enforceable
5under subsection (5) of Section 403A of this Code.
6    Whenever it appears to the satisfaction of the Director
7that a surplus line producer has made a documented good faith
8determination of the home state for a surplus line insurance
9contract and has paid the surplus line taxes to a state other
10than Illinois, and the Director determines that the producer's
11good faith determination was incorrect and the home state is
12Illinois, the surplus line producer may, at the discretion of
13the Director, be required to submit the contract to the
14Surplus Line Association of Illinois and pay applicable taxes
15and recording fees, but there shall be no penalty, interest,
16or late fee assessed.
17    (9) Director may declare insurer ineligible. If the
18Director determines that the further assumption of risks might
19be hazardous to the policyholders of an unauthorized insurer,
20the Director may order the Surplus Line Association of
21Illinois not to accept and record insurance contracts
22evidencing insurance in such insurer and order surplus line
23producers to cease procuring insurance from such insurer.
24    (10) Service of process upon Director. Insurance contracts
25delivered under this Section from unauthorized insurers, other
26than domestic surplus line insurers as defined in Section

 

 

10300HB3521ham001- 18 -LRB103 29647 BMS 59236 a

1445a, shall contain a provision designating the Director and
2his successors in office the true and lawful attorney of the
3insurer upon whom may be served all lawful process in any
4action, suit or proceeding arising out of such insurance.
5Service of process made upon the Director to be valid
6hereunder must state the name of the insured, the name of the
7unauthorized insurer and identify the contract of insurance.
8The Director at his option is authorized to forward a copy of
9the process to the Surplus Line Association of Illinois for
10delivery to the unauthorized insurer or the Director may
11deliver the process to the unauthorized insurer by other means
12which he considers to be reasonably prompt and certain.
13    (10.5) Required notice to policyholder. Insurance
14contracts delivered under this Section from unauthorized
15insurers, other than domestic surplus line insurers as defined
16in Section 445a, shall have stamped or imprinted on the first
17page thereof in not less than 12-pt. bold face type the
18following legend: "Notice to Policyholder: This contract is
19issued, pursuant to Section 445 of the Illinois Insurance
20Code, by a company not authorized and licensed to transact
21business in Illinois and as such is not covered by the Illinois
22Insurance Guaranty Fund." Insurance contracts delivered under
23this Section from domestic surplus line insurers as defined in
24Section 445a shall have stamped or imprinted on the first page
25thereof in not less than 12-pt. bold face type the following
26legend: "Notice to Policyholder: This contract is issued by a

 

 

10300HB3521ham001- 19 -LRB103 29647 BMS 59236 a

1domestic surplus line insurer, as defined in Section 445a of
2the Illinois Insurance Code, pursuant to Section 445, and as
3such is not covered by the Illinois Insurance Guaranty Fund."
4    (11) Marine, aviation, and transportation. The Illinois
5Surplus Line law does not apply to insurance of property and
6operations of railroads or aircraft engaged in interstate or
7foreign commerce, insurance of vessels, crafts or hulls,
8cargoes, marine builder's risks, marine protection and
9indemnity, or other risks including strikes and war risks
10insured under ocean or wet marine forms of policies.
11    (12) Applicability of Illinois Insurance Code. Surplus
12line insurance procured under this Section, including
13insurance procured from a domestic surplus line insurer, is
14not subject to the provisions of the Illinois Insurance Code
15other than Sections 123, 123.1, 401, 401.1, 402, 403, 403A,
16408, 412, 445, 445a, 445.1, 445.2, 445.3, 445.4, and all of the
17provisions of Article XXXI to the extent that the provisions
18of Article XXXI are not inconsistent with the terms of this
19Act.
20(Source: P.A. 102-224, eff. 1-1-22.)".