94TH GENERAL ASSEMBLY
State of Illinois
2005 and 2006
SB0466

 

Introduced 2/16/2005, by Sen. William R. Haine

 

SYNOPSIS AS INTRODUCED:
 
215 ILCS 5/445   from Ch. 73, par. 1057

    Amends the Illinois Insurance Code. Reduces the tax paid by surplus line producers on policies effective prior to July 1, 2003. Requires that the tax rate in effect at the time of the policy effective date shall be the tax rate on all subsequent endorsements for that policy. Requires surplus line producers to file with the Director of Insurance (now, the Secretary of Financial and Professional Regulation) certain information pertaining to submissions made by the producer to the Surplus Line Association of Illinois and at the time of the filing to pay to the Director the required surplus line taxes. Requires surplus line producers to file with the Director certain information pertaining to submissions made by the producer to the Surplus Line Association of Illinois concerning fire insurance policies and at the time of the filing to pay to the Director the taxes required by the Fire Investigation Act. Effective immediately.


LRB094 07126 LJB 37278 b

FISCAL NOTE ACT MAY APPLY

 

 

A BILL FOR

 

SB0466 LRB094 07126 LJB 37278 b

1     AN ACT concerning insurance.
 
2     Be it enacted by the People of the State of Illinois,
3 represented in the General Assembly:
 
4     Section 5. The Illinois Insurance Code is amended by
5 changing Section 445 as follows:
 
6     (215 ILCS 5/445)  (from Ch. 73, par. 1057)
7     Sec. 445. Surplus line.
8     (1) Surplus line defined; surplus line insurer
9 requirements. "Surplus line insurance" means insurance on an
10 Illinois risk of the kinds specified in Classes 2 and 3 of
11 Section 4 of this Code procured from an unauthorized insurer
12 after the insurance producer representing the insured or the
13 surplus line producer is unable, after diligent effort, to
14 procure said insurance from authorized insurers.
15     "Authorized insurer" means an insurer that holds a
16 certificate of authority issued by the Director but, for the
17 purposes of this Section, does not include a domestic surplus
18 line insurer as defined in Section 445a or any residual market
19 mechanism.
20     "Residual market mechanism" means an association,
21 organization, or other entity described in Article XXXIII of
22 this Code or Section 7-501 of the Illinois Vehicle Code or any
23 similar association, organization, or other entity.
24     "Unauthorized insurer" means an insurer that does not hold
25 a valid certificate of authority issued by the Director but,
26 for the purposes of this Section, shall also include a domestic
27 surplus line insurer as defined in Section 445a.
28     Insurance producers may procure surplus line insurance
29 only if licensed as a surplus line producer under this Section
30 and may procure that insurance only from an unauthorized
31 insurer:
32         (a) that based upon information available to the

 

 

SB0466 - 2 - LRB094 07126 LJB 37278 b

1     surplus line producer has a policyholders surplus of not
2     less than $15,000,000 determined in accordance with
3     accounting rules that are applicable to authorized
4     insurers; and
5         (b) that has standards of solvency and management that
6     are adequate for the protection of policyholders; and
7         (c) where an unauthorized insurer does not meet the
8     standards set forth in (a) and (b) above, a surplus line
9     producer may, if necessary, procure insurance from that
10     insurer only if prior written warning of such fact or
11     condition is given to the insured by the insurance producer
12     or surplus line producer.
13     Insurance producers shall not procure from an unauthorized
14 insurer an insurance policy:
15         (i) that is designed to satisfy the proof of financial
16     responsibility and insurance requirements in any Illinois
17     law where the law requires that the proof of insurance is
18     issued by an authorized insurer or residual market
19     mechanism;
20         (ii) that covers the risk of accidental injury to
21     employees arising out of and in the course of employment
22     according to the provisions of the Workers' Compensation
23     Act; or
24         (iii) that insures any Illinois personal lines risk, as
25     defined in subsection (a), (b), or (c) of Section 143.13 of
26     this Code, that is eligible for residual market mechanism
27     coverage, unless the insured or prospective insured
28     requests limits of liability greater than the limits
29     provided by the residual market mechanism. In the course of
30     making a diligent effort to procure insurance from
31     authorized insurers, an insurance producer shall not be
32     required to submit a risk to a residual market mechanism
33     when the risk is not eligible for coverage or exceeds the
34     limits available in the residual market mechanism.
35     Where there is an insurance policy issued by an authorized
36 insurer or residual market mechanism insuring a risk described

 

 

SB0466 - 3 - LRB094 07126 LJB 37278 b

1 in item (i), (ii), or (iii) above, nothing in this paragraph
2 shall be construed to prohibit a surplus line producer from
3 procuring from an unauthorized insurer a policy insuring the
4 risk on an excess or umbrella basis where the excess or
5 umbrella policy is written over one or more underlying
6 policies.
7     (2) Surplus line producer; license. Any licensed producer
8 who is a resident of this State, or any nonresident who
9 qualifies under Section 500-40, may be licensed as a surplus
10 line producer upon:
11         (a) completing a prelicensing course of study. The
12     course provided for by this Section shall be conducted
13     under rules and regulations prescribed by the Director. The
14     Director may administer the course or may make
15     arrangements, including contracting with an outside
16     educational service, for administering the course and
17     collecting the non-refundable application fee provided for
18     in this subsection. Any charges assessed by the Director or
19     the educational service for administering the course shall
20     be paid directly by the individual applicants. Each
21     applicant required to take the course shall enclose with
22     the application a non-refundable $20 application fee
23     payable to the Director plus a separate course
24     administration fee. An applicant who fails to appear for
25     the course as scheduled, or appears but fails to complete
26     the course, shall not be entitled to any refund, and shall
27     be required to submit a new request to attend the course
28     together with all the requisite fees before being
29     rescheduled for another course at a later date; and
30         (b) payment of an annual license fee of $400; and
31         (c) procurement of the surety bond required in
32     subsection (4) of this Section.
33     A surplus line producer so licensed shall keep a separate
34 account of the business transacted thereunder which shall be
35 open at all times to the inspection of the Director or his
36 representative.

 

 

SB0466 - 4 - LRB094 07126 LJB 37278 b

1     The prelicensing course of study requirement in (a) above
2 shall not apply to insurance producers who were licensed under
3 the Illinois surplus line law on or before January 1, 2002.
4     (3) Taxes and reports.
5         (a) Surplus line tax and penalty for late payment.
6         For each policy or contract of insurance issued under
7     his or her license, and any subsequent endorsements
8     thereto, a surplus line producer shall compute a surplus
9     line tax based on the gross premium less returned premium
10     according to the following table:
11    Policy Effective Date    Tax Rate
12    Prior to July 1, 2003    3.0%
13    July 1, 2003 & thereafter    3.5%
14         The tax rate in effect on the policy effective date
15     shall apply to the policy and to all subsequent
16     endorsements for that policy.
17         A surplus line producer shall file with the Director on
18     or before February 1 and August 1 of each year a report in
19     the form prescribed by the Director on all surplus line
20     insurance policies and endorsements filed with the Surplus
21     Line Association of Illinois pursuant to subsection (5) of
22     this Section procured from unauthorized insurers during
23     the preceding 6 month period ending December 31 or June 30
24     respectively, and on the filing of such report shall pay to
25     the Director for the use and benefit of the State the
26     surplus line taxes for the reported policies and
27     endorsements. At no time shall a surplus line producer pay
28     surplus line tax that is different than the tax computed at
29     the rate that was in effect at the time of that policy's
30     inception. a sum equal to 3.5% of the gross premiums less
31     returned premiums upon all surplus line insurance procured
32     or cancelled during the preceding 6 months.
33         Any surplus line producer who fails to pay the full
34     amount due under this subsection is liable, in addition to
35     the amount due, for such penalty and interest charges as
36     are provided for under Section 412 of this Code. The

 

 

SB0466 - 5 - LRB094 07126 LJB 37278 b

1     Director, through the Attorney General, may institute an
2     action in the name of the People of the State of Illinois,
3     in any court of competent jurisdiction, for the recovery of
4     the amount of such taxes and penalties due, and prosecute
5     the same to final judgment, and take such steps as are
6     necessary to collect the same.
7         (b) Fire Marshal Tax.
8         Each surplus line producer shall file with the Director
9     on or before March 31 of each year a report in the form
10     prescribed by the Director on all fire insurance policies
11     and endorsements filed with the Surplus Line Association of
12     Illinois pursuant to subsection (5) of this Section during
13     the preceding calendar year and procured from unauthorized
14     insurers subject to tax under Section 12 of the Fire
15     Investigation Act and shall pay to the Director the fire
16     marshal tax required thereunder for the reported policies
17     and endorsements. At no time shall a surplus line producer
18     pay fire marshal tax relating to a surplus line insurance
19     policy or endorsement that is different than the tax
20     computed at the rate that was in effect at the time of that
21     policy's inception.
22         (c) Taxes and fees charged to insured. The taxes
23     imposed under this subsection and the countersigning fees
24     charged by the Surplus Line Association of Illinois may be
25     charged to and collected from surplus line insureds.
26     (4) Bond. Each surplus line producer, as a condition to
27 receiving a surplus line producer's license, shall execute and
28 deliver to the Director a surety bond to the People of the
29 State in the penal sum of $20,000, with a surety which is
30 authorized to transact business in this State, conditioned that
31 the surplus line producer will pay to the Director the tax,
32 interest and penalties levied under subsection (3) of this
33 Section.
34     (5) Submission of documents to Surplus Line Association of
35 Illinois. A surplus line producer shall submit every insurance
36 contract issued under his or her license to the Surplus Line

 

 

SB0466 - 6 - LRB094 07126 LJB 37278 b

1 Association of Illinois for recording and countersignature.
2 The submission and countersignature may be effected through
3 electronic means. The submission shall set forth:
4         (a) the name of the insured;
5         (b) the description and location of the insured
6     property or risk;
7         (c) the amount insured;
8         (d) the gross premiums charged or returned;
9         (e) the name of the unauthorized insurer from whom
10     coverage has been procured;
11         (f) the kind or kinds of insurance procured; and
12         (g) amount of premium subject to tax required by
13     Section 12 of the Fire Investigation Act.
14     Proposals, endorsements, and other documents which are
15 incidental to the insurance but which do not affect the premium
16 charged are exempted from filing and countersignature.
17     The submission of insuring contracts to the Surplus Line
18 Association of Illinois constitutes a certification by the
19 surplus line producer or by the insurance producer who
20 presented the risk to the surplus line producer for placement
21 as a surplus line risk that after diligent effort the required
22 insurance could not be procured from authorized insurers and
23 that such procurement was otherwise in accordance with the
24 surplus line law.
25     (6) Countersignature required. It shall be unlawful for an
26 insurance producer to deliver any unauthorized insurer
27 contract unless such insurance contract is countersigned by the
28 Surplus Line Association of Illinois.
29     (7) Inspection of records. A surplus line producer shall
30 maintain separate records of the business transacted under his
31 or her license, including complete copies of surplus line
32 insurance contracts maintained on paper or by electronic means,
33 which records shall be open at all times for inspection by the
34 Director and by the Surplus Line Association of Illinois.
35     (8) Violations and penalties. The Director may suspend or
36 revoke or refuse to renew a surplus line producer license for

 

 

SB0466 - 7 - LRB094 07126 LJB 37278 b

1 any violation of this Code. In addition to or in lieu of
2 suspension or revocation, the Director may subject a surplus
3 line producer to a civil penalty of up to $2,000 for each cause
4 for suspension or revocation. Such penalty is enforceable under
5 subsection (5) of Section 403A of this Code.
6     (9) Director may declare insurer ineligible. If the
7 Director determines that the further assumption of risks might
8 be hazardous to the policyholders of an unauthorized insurer,
9 the Director may order the Surplus Line Association of Illinois
10 not to countersign insurance contracts evidencing insurance in
11 such insurer and order surplus line producers to cease
12 procuring insurance from such insurer.
13     (10) Service of process upon Director. Insurance contracts
14 delivered under this Section from unauthorized insurers, other
15 than domestic surplus line insurers as defined in Section 445a,
16 shall contain a provision designating the Director and his
17 successors in office the true and lawful attorney of the
18 insurer upon whom may be served all lawful process in any
19 action, suit or proceeding arising out of such insurance.
20 Service of process made upon the Director to be valid hereunder
21 must state the name of the insured, the name of the
22 unauthorized insurer and identify the contract of insurance.
23 The Director at his option is authorized to forward a copy of
24 the process to the Surplus Line Association of Illinois for
25 delivery to the unauthorized insurer or the Director may
26 deliver the process to the unauthorized insurer by other means
27 which he considers to be reasonably prompt and certain.
28     (10.5) Insurance contracts delivered under this Section
29 from unauthorized insurers, other than domestic surplus line
30 insurers as defined in Section 445a, shall have stamped or
31 imprinted on the first page thereof in not less than 12-pt.
32 bold face type the following legend: "Notice to Policyholder:
33 This contract is issued, pursuant to Section 445 of the
34 Illinois Insurance Code, by a company not authorized and
35 licensed to transact business in Illinois and as such is not
36 covered by the Illinois Insurance Guaranty Fund." Insurance

 

 

SB0466 - 8 - LRB094 07126 LJB 37278 b

1 contracts delivered under this Section from domestic surplus
2 line insurers as defined in Section 445a shall have stamped or
3 imprinted on the first page thereof in not less than 12-pt.
4 bold face type the following legend: "Notice to Policyholder:
5 This contract is issued by a domestic surplus line insurer, as
6 defined in Section 445a of the Illinois Insurance Code,
7 pursuant to Section 445, and as such is not covered by the
8 Illinois Insurance Guaranty Fund."
9     (11) The Illinois Surplus Line law does not apply to
10 insurance of property and operations of railroads or aircraft
11 engaged in interstate or foreign commerce, insurance of
12 vessels, crafts or hulls, cargoes, marine builder's risks,
13 marine protection and indemnity, or other risks including
14 strikes and war risks insured under ocean or wet marine forms
15 of policies.
16     (12) Surplus line insurance procured under this Section,
17 including insurance procured from a domestic surplus line
18 insurer, is not subject to the provisions of the Illinois
19 Insurance Code other than Sections 123, 123.1, 401, 401.1, 402,
20 403, 403A, 408, 412, 445, 445.1, 445.2, 445.3, 445.4, and all
21 of the provisions of Article XXXI to the extent that the
22 provisions of Article XXXI are not inconsistent with the terms
23 of this Act.
24 (Source: P.A. 92-386, eff. 1-1-02; 93-29, eff. 6-20-03; 93-32,
25 eff. 7-1-03; 93-876, eff. 8-6-04.)
 
26     Section 99. Effective date. This Act takes effect upon
27 becoming law.