[ Home ] [ ILCS ] [ Search ] [ Bottom ]
[ Other General Assemblies ]
Public Act 92-0140
HB2556 Enrolled LRB9207828JSpcA
AN ACT concerning insurers.
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 10, 40, 131.20a, 187, and 188 and adding
Section 131.20b as follows:
(215 ILCS 5/10) (from Ch. 73, par. 622)
Sec. 10. Directors.
(1) After the date of incorporation, as determined by
Section 18, and until the first meeting of shareholders, the
incorporators shall have the powers and perform the duties
ordinarily possessed and exercised by a board of directors.
(2) Upon the issuance of a certificate of authority to a
company organized under this article, the corporate powers
shall be exercised by, and its business and affairs shall be
under the control of, a board of directors composed of not
less than 3 nor more than 21 natural persons who are
shareholders, except where the Company is a wholly owned
subsidiary, and who are at least 18 years of age and at least
3 of whom are residents and citizens of this State. After
June 30, 2002, at least 20%, but not less than one, of the
directors of a company that is not subject to Section 131.20b
shall be persons who are not officers or employees of the
company. A person convicted of a felony may not be a
director, and all directors shall be of good character and
known professional, administrative, or business ability, such
business ability to include a practical knowledge of
insurance, finance, or investment. The first board of
directors shall be elected at the first meeting of
shareholders, and, except as provided in subsection (3)
below, all directors shall be elected annually thereafter.
(3) If the board of directors consists of 6 or more
members, in lieu of electing the membership of the whole
board of directors annually, the articles of incorporation
may provide that the directors shall be divided into two or
three classes, each class to be as nearly equal in number as
is possible. The term of office of directors of the first
class shall expire at the first annual meeting of
shareholders after their election, that of the second class
shall expire at the second annual meeting after their
election, and that of the third class, if any, shall expire
at the third annual meeting after their election. At each
annual meeting after such classification, a number of
directors equal to the number of directors in the class whose
terms expire at the time of such meeting shall be elected to
hold office until the second succeeding annual meeting, if
there are two classes, or until the third succeeding annual
meeting, if there are three classes.
(4) In all elections for directors every shareholder of
common shares has the right to vote, in person or by proxy,
for the number of common shares owned by him, for as many
persons as there are directors to be elected, or to cumulate
his shares, and give one candidate as many votes as the
number of directors multiplied by the number of his shares
equals, or to distribute them on the same principle among as
many candidates as he thinks fit, and directors shall not be
elected in any other manner.
(5) Meetings of the board of directors, regular or
special, may be held either within or without the State.
Meetings of the board of directors shall be upon such notice
as the by-laws may prescribe. Attendance of a director at any
meeting shall constitute a waiver of notice of such meeting
except where a director attends the meeting for the express
purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the board of directors need
be specified in the notice or waiver of notice of such
meeting, unless expressly otherwise provided by this Code.
Unless specifically prohibited by the articles of
incorporation or by-laws, members of the board of directors
or of any committee of the board of directors may participate
in and act at any meeting of such board or committee through
the use of a conference telephone or other communications
equipment by means of which all persons participating in the
meeting can hear each other. Participation in such meeting
shall constitute attendance and presence in person at the
meeting of the person or persons so participating. Unless
specifically prohibited by the articles of incorporation or
by-laws, members of the board of directors or of any
committee of the board of directors may take action without a
meeting, if a consent in writing setting forth the action so
taken shall be signed by all of the directors entitled to
vote with respect to the subject matter thereof, or by all of
the members of such committee, as the case may be. The
consent shall be evidenced by one or more written approvals,
each of which sets forth the action taken and bears the
signature of one or more directors or committee members. All
approvals evidencing the consent shall be filed in the
company's corporate records. The action taken shall be
effective when all of the directors, or members of the
committee, have approved the consent unless the consent
specifies a different effective date.
(6) If the number of directors provided for in the
articles of incorporation be indefinite, the number of
directors to be elected, within the minimum and maximum
limits set forth in paragraph (2), shall be as provided in
the by-laws. The number of directors may be increased or
decreased from time to time by amendment to the by-laws. The
by-laws may establish a variable range for the size of the
board by prescribing a minimum and maximum number of
directors. The maximum may not exceed the minimum by more
than 5. If a variable range is established, the number of
directors may be fixed or changed from time to time, within
the minimum and maximum, by the directors or the shareholders
without further amendment to the by-laws.
(7) (a) A company may indemnify any person who was or is
a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative
(other than an action by or in the right of the company) by
reason of the fact that he or she is or was a director,
officer, employee or agent, against expenses (including
attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, if such
person acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to the best
interests of the company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
or her conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the
best interest of the company or, with respect to any criminal
action or proceeding, that the person had reasonable cause to
believe that his or her conduct was unlawful.
(b) A company may indemnify any person who was or is a
party, or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
company to procure a judgment in its favor by reason of the
fact that such person is or was a director, officer, employee
or agent of the company, or is or was serving at the request
of the company as a director, officer, employee or agent of
another company, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, if
such person acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to the best
interests of the company, provided that no indemnification
shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his or her
duty to the company, unless, and only to the extent that the
court in which such action or suit was brought shall
determine upon application that, despite the adjudication of
liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to
indemnification for such expenses as the court shall deem
proper.
(c) To the extent that a director, officer, employee or
agent of a company has been successful, on the merits or
otherwise, in the defense of any action, suit or proceeding
referred to in subsections (a) and (b), or in defense of any
claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection
therewith.
(d) Any indemnification under subsections (a) and (b)
(unless ordered by a court) shall be made by the company only
as authorized in the specific case, upon a determination that
indemnification of the director, officer, employee or agent
is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in subsections (a)
or (b). Such determination shall be made (1) by the board of
directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or
even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion,
or (3) by the shareholders.
(e) Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the company in
advance of the final disposition of such action, suit or
proceeding, as authorized by the board of directors in the
specific case, upon receipt of an undertaking by or on behalf
of the director, officer, employee or agent to repay such
amount, unless it shall ultimately be determined that he or
she is entitled to be indemnified by the company as
authorized in this Section.
(f) The indemnification provided by this Section shall
not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any by-law,
agreement, vote of shareholders or disinterested directors,
or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased
to be a director, officer, employee or agent, and shall inure
to the benefit of the heirs, executors and administrators of
such a person.
(g) A company may purchase and maintain insurance on
behalf of any person who is or was a director, officer,
employee or agent of the company, or who is or was serving at
the request of the company as a director, officer, employee
or agent of another company, partnership, joint venture,
trust or other enterprise, against any liability asserted
against such person and incurred by such person in any such
capacity, or arising out of his or her status as such,
whether or not the company would have the power to indemnify
such person against such liability under the provisions of
this Section.
(h) If a company has paid indemnification or has
advanced expenses to a director, officer, employee or agent,
the company shall report the indemnification or advance in
writing to the shareholders with or before the notice of the
next shareholders meeting.
(i) For purposes of this Section, references to "the
company" shall include, in addition to the surviving company,
any merging company (including any company having merged with
a merging company) absorbed in a merger which, if its
separate existence had continued, would have had the power
and authority to indemnify its directors, officers, and
employees or agents, so that any person who was a director,
officer, employee or agent of such merging company, or was
serving at the request of such merging company as a director,
officer, employee or agent of another company, partnership,
joint venture, trust or other enterprise, shall stand in the
same position under the provisions of this Section with
respect to the surviving company as such person would have
with respect to such merging company if its separate
existence had continued.
(j) For purposes of this Section, references to "other
enterprises" shall include employee benefit plans; references
to "fines" shall include any excise taxes assessed on a
person with respect to any employee benefit plan; and
references to "serving at the request of the company" shall
include any service as a director, officer, employee or agent
of the company which imposes duties on, or involves services
by such director, officer, employee, or agent with respect to
any employee benefit plan, its participants, or
beneficiaries. A person who acted in good faith and in a
manner he or she reasonably believed to be in the best
interests of the participants and beneficiaries of any
employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interest of the company" as
referred to in this Section.
(Source: P.A. 88-648, eff. 9-16-94.)
(215 ILCS 5/40) (from Ch. 73, par. 652)
Sec. 40. Directors or trustees.
(1) After the date of incorporation, as determined by
Section 48, and until the first meeting of the members, the
incorporators shall have the powers and perform the duties
ordinarily possessed and exercised by a board of directors.
(2) Upon the issuance of a certificate of authority to a
company organized under this Article, the corporate powers
shall be exercised by, and its business and affairs shall be
under the control of, a board of directors or trustees
composed of not less than 3 nor more than 21 natural persons
who are members and who are at least 18 years of age and at
least 3 of whom are residents and citizens of this State.
After June 30, 2002, at least 20%, but not less than one, of
the directors of a company that is not subject to Section
131.20b shall be persons who are not officers or employees of
the company. A person convicted of a felony may not be a
director, and all directors shall be of good character and
known professional, administrative, or business ability, such
business ability to include a practical knowledge of
insurance, finance, or investment. The first board of
directors or trustees shall be elected at the first meeting
of the members, and all directors or trustees shall be
elected annually thereafter, except only as provided in
subsection (3).
(3) The articles of incorporation may provide for the
division of the board into classes, as nearly equal in number
as possible, and fix the term of office for each class, but
no term shall be for more than 3 years.
(4) Meetings of the board of directors or trustees,
regular or special, may be held either within or without the
State. Meetings of the board of directors or trustees shall
be upon such notice as the by-laws may prescribe. Attendance
of a director or trustee at any meeting shall constitute a
waiver of notice of such meeting except where a director or
trustee attends the meeting for the express purpose of
objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular
or special meeting of the board of directors or trustees need
be specified in the notice or waiver of notice of such
meeting, unless expressly otherwise provided by this Code.
Unless specifically prohibited by the articles of
incorporation or by-laws, members of the board of directors
or of any committee of the board of directors may participate
in and act at any meeting of such board or committee through
the use of a conference telephone or other communications
equipment by means of which all persons participating in the
meeting can hear each other. Participation in such meeting
shall constitute attendance and presence in person at the
meeting of the person or persons so participating. Unless
specifically prohibited by the articles of incorporation or
by-laws, members of the board of directors or of any
committee of the board of directors may take action without a
meeting, if a consent in writing setting forth the action so
taken shall be signed by all of the directors entitled to
vote with respect to the subject matter thereof, or by all of
the members of such committee, as the case may be. The
consent shall be evidenced by one or more written approvals,
each of which sets forth the action taken and bears the
signature of one or more directors or committee members. All
approvals evidencing the consent shall be filed in the
company's corporate records. The action taken shall be
effective when all of the directors, or members of the
committee, have approved the consent unless the consent
specifies a different effective date.
(5) A company may indemnify any person in conformance
with subsection (7) of Section 10.
(Source: P.A. 86-632.)
(215 ILCS 5/131.20a) (from Ch. 73, par. 743.20a)
Sec. 131.20a. Prior notification of transactions;
dividends and distributions.
(1) (a) The following transactions between a domestic
company and any person in its holding company system may not
be entered into unless the company has notified the Director
in writing of its intention to enter into such transaction at
least 30 days prior thereto, or such shorter period as the
Director may permit, and the Director has not disapproved it
within such period:
(i) Sales, purchases, exchanges of assets, loans or
extensions of credit, guarantees, investments, or any
other transaction (A) that involves involving the
transfer of assets from or liabilities to a company equal
to or exceeding the lesser of 3% of the company's
admitted assets or 25% of its surplus as regards
policyholders as of the 31st day of December next
preceding or (B) that is proposed when the domestic
company is not eligible to declare and pay a dividend or
other distribution pursuant to the provisions of Section
27.
(ii) Loans or extensions of credit to any person
that is not an affiliate (A) that which involve the
lesser of 3% of the company's admitted assets or 25% of
the company's surplus, each as of the 31st day of
December next preceding, made with the agreement or
understanding that the proceeds of such transactions, in
whole or in substantial part, are to be used to make
loans or extensions of credit to, to purchase assets of,
or to make investments in, any affiliate of the company
making such loans or extensions of credit or (B) that are
proposed when the domestic company is not eligible to
declare and pay a dividend or other distribution pursuant
to the provisions of Section 27.
(iii) Reinsurance agreements or modifications
thereto, including those agreements that may require as
consideration the transfer of assets from an insurer to a
nonaffiliate, if an agreement or understanding exists
between the insurer and nonaffiliate that any portion of
those assets will be transferred to one or more
affiliates of the insurer.
(iv) All management agreements, service contracts,
cost-sharing arrangements, and any other contracts
providing for the rendering of services on a regular
systematic basis.
(v) Any series of the previously described
transactions that are substantially similar to each
other, that take place within any 180 day period, and
that in total are equal to or exceed the lesser of 3% of
the domestic insurer's admitted assets or 25% of its
policyholders surplus, as of the 31st day of the December
next preceding.
(vi) Any other material transaction that the
Director by rule determines might render the company's
surplus as regards policyholders unreasonable in relation
to the company's outstanding liabilities and inadequate
to its financial needs or may otherwise adversely affect
the interests of the company's policyholders or
shareholders.
Nothing herein contained shall be deemed to authorize or
permit any transactions that, in the case of an insurer not a
member of the same holding company system, would be otherwise
contrary to law.
(b) Any transaction or contract otherwise described in
paragraph (a) of this subsection that is between a domestic
insurer and any person that is not its affiliate and that
precedes or follows within 180 days or is concurrent with a
similar transaction between that nonaffiliate and an
affiliate of the domestic company and that involves amounts
that are equal to or exceed the lesser of 3% of the domestic
insurer's admitted assets or 25% of its surplus as regards
policyholders at the end of the prior year may not be entered
into unless the company has notified the Director in writing
of its intention to enter into the transaction at least 30
days prior thereto or such shorter period as the Director may
permit, and the Director has not disapproved it within such
period.
(c) A company may not enter into transactions which are
part of a plan or series of like transactions with any person
within the holding company system if the purpose of those
separate transactions is to avoid the statutory threshold
amount and thus avoid the review that would occur otherwise.
If the Director determines that such separate transactions
were entered into for such purpose, he may exercise his
authority under subsection (2) of Section 131.24.
(d) The Director, in reviewing transactions pursuant to
paragraph (a), shall consider whether the transactions comply
with the standards set forth in Section 131.20 and whether
they may adversely affect the interests of policyholders.
(e) The Director shall be notified within 30 days of any
investment of the domestic insurer in any one corporation if
the total investment in that corporation by the insurance
holding company system exceeds 10% of that corporation's
voting securities.
(f) Except for those transactions subject to approval
under other Sections of this Code, any such transaction or
agreements which are not disapproved by the Director may be
effective as of the date set forth in the notice required
under this Section.
(g) If a domestic insurer enters into a transaction
described in this subsection without having given the
required notification, the Director may cause the insurer to
pay a civil forfeiture of not more than $250,000. Each
transaction so entered shall be considered a separate
offense.
(2) No domestic company subject to registration under
Section 131.13 may pay any extraordinary dividend or make any
other extraordinary distribution to its securityholders
until: (a) 30 days after the Director has received notice of
the declaration thereof and has not within such period
disapproved the payment, or (b) the Director approves such
payment within the 30-day period. For purposes of this
subsection, an extraordinary dividend or distribution is any
dividend or distribution of cash or other property whose fair
market value, together with that of other dividends or
distributions, made within the period of 12 consecutive
months ending on the date on which the proposed dividend is
scheduled for payment or distribution exceeds the greater of:
(a) 10% of the company's surplus as regards policyholders as
of the 31st day of December next preceding, or (b) the net
income of the company for the 12-month period ending the 31st
day of December next preceding, but does not include pro rata
distributions of any class of the company's own securities.
Notwithstanding any other provision of law, the company
may declare an extraordinary dividend or distribution which
is conditional upon the Director's approval, and such a
declaration confers no rights upon security holders until:
(a) the Director has approved the payment of the dividend or
distribution, or (b) the Director has not disapproved the
payment within the 30-day period referred to above.
(Source: P.A. 90-655, eff. 7-30-98.)
(215 ILCS 5/131.20b new)
Sec. 131.20b. Controlled insurers; management;
directors.
(1) Notwithstanding the control of a domestic insurer by
any person, the officers and directors of the insurer shall
not thereby be relieved of any obligation or liability to
which they would otherwise be subject by law, and the insurer
shall be managed so as to assure its separate operating
identity consistent with Article VIII 1/2 of this Code.
(2) Nothing in this Section shall preclude a domestic
insurer from having or sharing a common management or a
cooperative or joint use of personnel, property, or services
with one or more affiliated persons under arrangements
meeting the standards and requirements of Sections 131.20 and
131.20a.
(3) After June 30, 2002, not less than one-third of the
directors of a domestic insurer that is a member of an
insurance holding company system shall be persons who are not
officers or employees of the insurer or of any entity
controlling, controlled by, or under common control with the
insurer and who are not beneficial owners of a controlling
interest in the voting stock of the insurer or any such
entity. At least one such person shall be included in any
quorum for the transaction of business at any meeting of the
board of directors or any committee thereof.
(4) Subsection (3) of this Section does not apply to a
domestic insurer if the entity controlling the insurer,
whether directly or through an intermediate subsidiary, has a
board of directors composed in accordance with that
subsection.
(5) Subsection (3) of this Section does not apply to a
domestic insurer if the ultimate controlling party of the
domestic insurer is a corporation whose equity securities or
equivalent instruments are listed on the New York Stock
Exchange.
(215 ILCS 5/187) (from Ch. 73, par. 799)
Sec. 187. Scope of Article.
(1) This Article shall apply to every corporation,
association, society, order, firm, company, partnership,
individual, and aggregation of individuals to which any
Article of this Code is applicable, or which is subject to
examination, visitation or supervision by the Director under
any provision of this Code or under any law of this State, or
which is engaging in or proposing or attempting to engage in
or is representing that it is doing an insurance or surety
business, or is undertaking or proposing or attempting to
undertake to provide or arrange for health care services as a
health care plan as defined in subsection (7) of Section 1-2
of the Health Maintenance Organization Act, including the
exchanging of reciprocal or inter-insurance contracts between
individuals, partnerships and corporations in this State, or
which is in the process of organization for the purpose of
doing or attempting or intending to do such business,
anything as to any such corporation, association, society,
order, firm, company, partnership, individual or aggregation
of individuals provided in this Code or elsewhere in the laws
of this State to the contrary notwithstanding.
(2) The word "company" as used in this Article includes
all of the corporations, associations, societies, orders,
firms, companies, partnerships, and individuals specified in
subsections subsection (1), (4), and (5) of this Section and
agents, managing general agents, brokers, premium finance
companies, insurance holding companies, and all other
non-risk bearing entities or persons engaged in any aspect of
the business of insurance on behalf of an insurer against
which a receivership proceeding has been or is being filed
under this Article, including, but not limited to, entities
or persons that provide management, administrative,
accounting, data processing, marketing, underwriting, claims
handling, or any other similar services to that insurer,
whether or not those entities are licensed to engage in the
business of insurance in Illinois, if the entity or person is
an affiliate of that insurer the word "assets" as used in
this article includes all deposits and funds of a special or
trust nature.
(3) The word "court" shall mean the court before which
the conservation, rehabilitation, or liquidation proceeding
of the company is pending, or the judge presiding in such
proceedings.
(4) The word "affiliate" as used in this Article means a
person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under
common control with, the person specified.
(5) The word "person" as used in this Article means an
individual, an aggregation of individuals, a partnership, or
a corporation.
(6) The word "assets" as used in this Article includes
all deposits and funds of a special or trust nature.
(7) The words "receivership proceedings" mean any
conservation, rehabilitation, liquidation, or ancillary
receivership.
(Source: P.A. 87-1012.)
(215 ILCS 5/188) (from Ch. 73, par. 800)
Sec. 188. Grounds for rehabilitation and liquidation of a
domestic company or an unauthorized foreign or alien company.
Whenever any domestic company or any unauthorized foreign or
alien company:
1. is insolvent;
2. has failed or refused to submit its books,
papers, accounts, records or affairs to the reasonable
inspection or examination of the Director or his
actuaries, supervisors, deputies, or examiners;
3. has concealed, removed, altered, destroyed or
failed to establish and maintain books, records,
documents, accounts, vouchers and other pertinent
material adequate for the determination of its financial
condition by examination under Sections 132 through 132.7
or has failed to properly administer claims and to
maintain claims records which are adequate for the
determination of its outstanding claims liability;
4. has failed or refused to observe an order of the
Director to make good within the time prescribed by law
any deficiency, whenever its capital and minimum required
surplus, if a stock company, or its required surplus, if
a company other than stock, has become impaired;
5. has, by articles of consolidation, contract of
reinsurance or otherwise, transferred or attempted to
transfer its entire property or business not in
conformity with this Code, or entered into any
transaction the effect of which is to merge substantially
its entire property or business in any other company
without having first obtained the written approval of the
Director under this Code;
6. is found to be in such condition that its
further transaction of business would be hazardous to its
policyholders, or to its creditors, or to the public;
7. has violated its charter or any law of this
State or has exceeded or is exceeding its corporate
powers;
8. has an officer who has refused upon reasonable
demand to be examined under oath touching its affairs;
9. is found to be in such condition that it could
not meet the requirements for organization and
authorization as required by law, except as to the amount
of the original surplus required of a stock company in
Section 13, and except as to the amount of the surplus
required of a mutual company in excess of the minimum
surplus required by this Code to be maintained, or either
an authorized control level event or a mandatory control
level event as set forth in Article IIA exists;
10. has ceased for the period of one year to
transact insurance business;
11. has commenced, or has attempted to commence,
any voluntary liquidation or dissolution proceeding, or
any proceeding to procure the appointment of a receiver,
liquidator, rehabilitator, sequestrator, or a similar
officer for itself;
12. is a party, whether plaintiff or defendant in
any proceeding in which an application is made for the
appointment of a receiver, custodian, liquidator,
rehabilitator, sequestrator, or similar officer for such
company or its property, or a receiver, custodian,
liquidator, rehabilitator, sequestrator or similar
officer, for such company or its property is appointed by
any court, or such appointment is imminent;
13. consents by a majority of its directors,
stockholders or members;
14. has not organized and obtained a certificate
authorizing it to commence the transaction of its
business within the period of time prescribed by the
sections of this Code under which it is or proposes to be
organized; or
15. has failed or refused to pay any valid final
judgment within 30 days after the rendition thereof, or
whenever it appears to the Director that any person has
committed a violation of Article VIII 1/2 with the result
described in Section 131.26,
sufficient grounds shall be deemed to exist for the
commencement of rehabilitation or liquidation proceedings.
With respect to a domestic company, the Director must
report, and with respect to an unauthorized foreign or alien
company, the Director may report any such case to the
Attorney General of this State whose duty it shall be to
apply forthwith by complaint on relation of the Director in
the name of the People of the State of Illinois, as
plaintiff, to the Circuit Court of Cook County, the Circuit
Court of Sangamon County, or the circuit court of the county
in which such company has, or last had its principal office,
for an order to rehabilitate or liquidate the defendant
company as provided in this Article, and for such other
relief as the nature of the case and the interests of its
policyholders, creditors, members, stockholders or the public
may require.
When, upon investigation, the Director finds that a
company is engaged in any aspect of the business of insurance
on behalf of or in association with any domestic insurance
company, against which a receivership proceeding has been or
is being filed under this Article, the controlling interest
of any domestic insurance company has been acquired by
another corporation and that the purchasing corporation is
operating the acquired company in a manner that which appears
to be detrimental to policyholders, creditors, members,
shareholders, or the interests of the persons insured,
minority shareholders and the general public, the Director
may after notice and hearing under Article XXIV issue an
order stating such finding and report such case to the
Attorney General of this State, whose duty it is to apply
forthwith by complaint on relation of the Director in the
name of the People of the State of Illinois, as plaintiff, to
the Circuit Court of Cook County, the Circuit Court of
Sangamon County, or the circuit court in which of the
receivership proceeding is pending county in which such
acquired or controlled company has, or last had its principal
office, for an order to appoint the Director as receiver to
assume control of the assets and operation of the company
pending a complete investigation and determination of the
rights of the policyholders, creditors, members,
shareholders, and the general public.
(Source: P.A. 88-364; 89-97, eff. 7-7-95; 89-206, eff.
7-21-95; 89-626, eff. 8-9-96.)
Section 10. The Health Maintenance Organization Act is
amended by changing Section 3-1 and adding Section 2-10 as
follows:
(215 ILCS 125/2-10 new)
Sec. 2-10. Directors.
(a) After June 30, 2002, the corporate powers for
domestic organizations issued a certificate of authority
under this Act must be exercised by, and its business and
affairs must be under the control of, a board of directors
composed of not less than 3 nor more than 21 natural persons
who are at least 18 years of age. At least 3 of the
directors must be residents and citizens of this State. A
person convicted of a felony may not be a director. A
director must be of good character and known professional,
administrative, or business ability. The requisite ability
must include a practical knowledge of managed health care,
insurance, finance, or investment.
(b) After June 30, 2002, not less than one-third of the
directors of a domestic organization that is not a controlled
insurer for purposes of Section 131.20b of the Illinois
Insurance Code must be persons who are not officers or
employees of the organization. At least one of those persons
must be included in any quorum for the transaction of
business at any meeting of the board of directors or any
committee thereof.
(215 ILCS 125/3-1) (from Ch. 111 1/2, par. 1407.3)
Sec. 3-1. Investment Regulations.
(a) Any health maintenance organization may invest its
funds as provided in this Section and not otherwise. A
health maintenance organization that is organized as an
insurance company may also acquire the investment assets
authorized for an insurance company pursuant to the laws
applicable to an insurance company in the organization's
state of domicile. Notwithstanding the provisions of this
Section, the Director may, after notice and hearing, order an
organization to limit or withdraw from certain investments,
or discontinue certain investment practices, to the extent
the Director finds that such investments or investment
practices are hazardous to the financial condition of the
organization.
(b) No investment or loan shall be made or engaged in by
any health maintenance organization unless the same have been
authorized or ratified by the board of directors or by a
committee thereof charged with the duty of supervising
investments and loans. Nothing contained in this subsection
shall prevent the board of directors of any such organization
from depositing any of its securities with a committee
appointed for the purpose of protecting the interest of
security holders or with the authorities of any state where
it is necessary to do so in order to secure permission to
transact its appropriate business therein, and nothing
contained in this subsection shall prevent the board of
directors of such organization from depositing any securities
as collateral for the securing of any bond required for the
business of the organization.
(c) No health maintenance organization shall pay any
commission or brokerage for the purchase or sale of property
whether real or personal, in excess of that usual and
customary at the time and in the locality where such
purchases or sales are made, and information regarding
payments of commissions and brokerage shall be maintained.
(d) A health maintenance organization may not directly
or indirectly, unless it has notified the Director in writing
of its intention to enter into the transaction at least 30
days prior thereto, or any shorter period as the Director may
permit, and the Director has not disapproved it within that
period:
(1) make a loan to or other investment in an
officer or director of the organization or a person in
which the officer or director has any direct or indirect
financial interest;
(2) make a guarantee for the benefit of or in favor
of an officer or director of the organization or a person
in which the officer or director has any direct or
indirect financial interest; or
(3) enter into an agreement for the purchase or
sale of property from or to an officer or director of the
organization or a person in which the officer or director
has any direct or indirect financial interest.
For the purposes of this Section, an officer or director
shall not be deemed to have a financial interest by reason of
an interest that is held directly or indirectly through the
ownership of equity interests representing less than 2% of
all outstanding equity interests issued by a person that is a
party to the transaction, or solely by reason of that
individual's position as a director or officer of a person
that is a party to the transaction.
This subsection does not apply to a transaction between
an organization and any of its subsidiaries or affiliates
that is entered into in compliance with Section 131.20a of
the Illinois Insurance Code, other than a transaction between
an insurer and its officer or director.
No such Health Maintenance Organization shall knowingly
invest in or loan upon any property, directly or indirectly,
whether real or personal, in which any officer or director of
such organization has a financial interest, nor shall any
such organization make a loan of any kind to any officer or
director of such organization, except that this subsection
shall not apply in circumstances where the financial interest
of such officer or director is only nominal, trifling or so
remote as not to give rise to a conflict of interest. In any
case, the Director may approve a transaction between such
organization and its officers or directors under this
subsection if he is satisfied that (i) the transaction is
entered into in good faith for the advantage and benefit of
the organization, (ii) the amount of the proposed investment
or loan does not violate any other provision of this Section
nor exceed the reasonable, normal value of the property or
the interest which the organization proposes to acquire, and
that the transaction is otherwise fair and reasonable, and
(iii) the transaction will not adversely affect, to any
substantial degree, the liquidity of the organization's
investment or its ability thereafter to comply with
requirements of this Act or the payment of its claims and
obligations.
(e) In applying the percentage limitations imposed by
this Section there shall be used as a base the total of all
assets which would be admitted by this Section without regard
to percentage limitations. All legal measurements used as a
base in the determination of all investment qualifications
shall consist of the amounts determined at the most recent
year end adjusted for subsequent acquisition and disposition
of investments.
(f) Valuation of investments. Investments shall be
valued in accordance with the published valuation standards
of the National Association of Insurance Commissioners.
Securities investments as to which the National Association
of Insurance Commissioners has not published valuation
standards in its Valuations of Securities manual or its
successor publication shall be valued as follows:
(1) All obligations having a fixed term and rate shall,
if not in default as to principal or interest, be valued as
follows: if purchased at par, at the par value; if purchased
above or below par, on the basis of the purchase price
adjusted so as to bring the value to par at maturity and so
as to yield in the meantime the effective rate of interest at
which the purchase was made;
(2) Common, preferred or guaranteed stocks shall be
valued at market value.
(3) Other security investments shall be valued in
accordance with regulations promulgated by the Director
pursuant to paragraph (6) of this subsection.
(4) Other investments, including real property, shall be
valued in accordance with regulations promulgated by the
Director pursuant to paragraph (6) of this subsection, but in
no event shall such other investments be valued at more than
the purchase price. The purchase price for real property
includes capitalized permanent improvements, less
depreciation spread evenly over the life of the property or,
at the option of the company, less depreciation computed on
any basis permitted under the Internal Revenue Code and
regulations thereunder. Such investments that have been
affected by permanent declines in value shall be valued at
not more than market value.
(5) Any investment, including real property, not
purchased by the Health Maintenance Organization but acquired
in satisfaction of a debt or otherwise shall be valued in
accordance with the applicable procedures for that type of
investment contained in this subsection. For purposes of
applying the valuation procedures, the purchase price shall
be deemed to be the market value at the time the investment
is acquired or, in the case of any investment acquired in
satisfaction of debt, the amount of the debt, including
interest, taxes and expenses, whichever amount is less.
(6) The Director shall promulgate rules and regulations
for determining and calculating values to be used in
financial statements submitted to the Department for
investments.
(g) Definitions. As used in this Section, unless the
context otherwise requires.
(1) "Business Corporation" means corporations organized
for other than not for profit purposes.
(2) "Business Entity" includes sole proprietorships,
corporations, associations, partnerships and business trusts.
(3) "Bank or Trust Company" means any bank or trust
company organized under the laws of the United States or any
State thereof if said bank or trust company is regularly
examined pursuant to such laws and said bank or trust company
has the insurance protection afforded by an agency of the
United States government.
(4) "Capital" means capital stock paid-up, if any, and
its use in a provision does not imply that a non-profit
Health Maintenance Organization without stated capital stock
is excluded from the provision. The capital of such an
organization will be zero.
(5) "Direct" when used in connection with "obligation"
means that the designated obligor shall be primarily liable
on the instrument representing the obligation.
(6) "Facility" means and includes real estate and any
and all forms of tangible personal property and services used
constituting an operating unit.
(7) "Guaranteed or insured" means that the guarantor or
insurer will perform or insure the obligation of the obligor
or will purchase the obligation to the extent of the guaranty
or insurance.
(8) "Mortgage" shall include a trust deed or other lien
on real property securing an obligation for the payment of
money.
(9) "Servicer" means a business entity that has a
contractual obligation to service a pool of mortgage loans.
The service provided shall include, but is not limited to,
collection of principal and interest, keeping the accounts
current, maintaining or confirming in force hazard insurance
and tax status and providing supportive accounting services.
(10) "Single credit risk" means the direct, guaranteed
or insured obligations of any one business entity including
affiliates thereof.
(11) "Surplus" means the amount properly shown as total
net worth on a company's balance sheet, plus all voluntary
reserves, but not including capital paid-up.
(12) "Tangible net worth" means the par value of all
issued and outstanding capital stock of a corporation (or in
the case of shares having no par value, the stated value) and
the amounts of all surplus accounts less the sum of (a) such
intangible assets as deferred charges, organization and
development expense, discount and expense incurred in
securing capital, good will, trade-marks, trade-names and
patents, (b) leasehold improvements, and (c) any reserves
carried by the corporation and not otherwise deducted from
assets.
(13) "Unconditional" when used in connection with
"obligation" means that nothing remains to be done or to
occur to make the designated obligor liable on the
instrument, and that the legal holder shall have the status
at least equal to that of general creditor of the obligor.
(h) Authorized investments. Any Health Maintenance
Organization, except those organized as an insurance company,
may acquire the assets set forth in paragraphs 1 through 17,
inclusive. A Health Maintenance Organization that is
organized as an insurance company may acquire the investment
assets authorized for an insurance company pursuant to the
laws applicable to an insurance company in the organization's
state of domicile. Any restriction, exclusion or provision
appearing in any paragraph shall apply only with respect to
the authorization of the particular paragraph in which it
appears and shall not constitute a general prohibition and
shall not be applicable to any other paragraph. The
qualifications or disqualifications of an investment under
one paragraph shall not prevent its qualification in whole or
in part under another paragraph, and an investment authorized
by more than one paragraph may be held under whichever
authorizing paragraph the organization elects. An investment
which qualified under any paragraph at the time it was
acquired or entered into by an organization shall continue to
be qualified under that paragraph. An investment in whole or
in part may be transferred from time to time, at the election
of the organization, to the authority of any paragraph under
which it qualifies, whether originally qualifying thereunder
or not.
(1) Direct obligations of the United States for the
payment of money, or obligations for the payment of money to
the extent guaranteed or insured as to the payment of
principal and interest by the United States.
(2) Direct obligations for the payment of money, issued
by an agency or instrumentality of the United States, or
obligations for the payment of money to the extent guaranteed
or insured as to the payment of principal and interest by an
agency or instrumentality of the United States.
(3) Direct, general obligations of any state of the
United States for the payment of money, or obligations for
the payment of money to the extent guaranteed or insured as
to the payment of principal and interest by any state of the
United States, on the following conditions:
(i) Such state has the power to levy taxes for the
prompt payment of the principal and interest of such
obligations; and
(ii) Such state shall not be in default in the payment
of principal or interest on any of its direct, guaranteed or
insured obligations at the date of such investment.
(4) Direct, general obligations of any political
subdivision of any state of the United States for the payment
of money, or obligations for the payment of money to the
extent guaranteed as to the payment of principal and interest
by any political subdivision of any state of the United
States, on the following conditions:
(i) The obligations are payable or guaranteed from ad
valorem taxes;
(ii) Such political subdivision is not in default in the
payment of principal or interest on any of its direct or
guaranteed obligations;
(iii) No investment shall be made under this paragraph
in obligations which are secured only by special assessments
for local improvements; and
(iv) An organization shall not invest under this
paragraph more than 2% of its admitted assets in obligations
issued or guaranteed by any one such political subdivision.
(5) Anticipation obligations of any political
subdivision of any state of the United States, including but
not limited to bond anticipation notes, tax anticipation
notes and construction anticipation notes, for the payment of
money within 12 months from the issuance of the obligation,
on the following conditions:
(i) Such anticipation notes must be a direct obligation
of the issuer under conditions set forth in paragraph 4;
(ii) Such political subdivision is not in default in the
payment of the principal or interest on any of its direct
general obligations or any obligation guaranteed by such
political subdivision;
(iii) The anticipated funds must be specifically pledged
to secure the obligation;
(iv) An organization shall not invest under this
paragraph more than 2% of its admitted assets in the
anticipation obligations issued by any one such political
subdivision.
(6) Obligations of any state of the United States, a
political subdivision thereof, or a public instrumentality of
any one or more of the foregoing, for the payment of money,
on the following conditions:
(i) The obligations are payable from revenues or
earnings of a public utility of such state, political
subdivision, or public instrumentality which are specifically
pledged therefor;
(ii) The law under which the obligations are issued
requires such rates for service shall be charged and
collected at all times that they will produce sufficient
revenue or earnings together with any other revenues or
moneys pledged to pay all operating and maintenance charges
of the public utility and all principal and interest on such
obligations;
(iii) No prior or parity obligations payable from the
revenues or earnings of that public utility are in default at
the date of such investment;
(iv) An organization shall not invest more than 20% of
its admitted assets under this paragraph; and
(v) An organization shall not invest under this Section
more than 2% of its admitted assets in the revenue
obligations issued in connection with any one facility.
(7) Obligations of any state of the United States, a
political subdivision thereof, or a public instrumentality of
any of the foregoing, for the payment of money, on the
following conditions:
(i) The obligations are payable from revenues or
earnings, excluding revenues or earnings from public
utilities, specifically pledged therefor by such state,
political subdivision or public instrumentality;
(ii) No prior or parity obligation of the same issuer
payable from revenues or earnings from the same source has
been in default as to principal or interest during the 5
years next preceding the date of such investment, but such
issuer need not have been in existence for that period, and
obligations acquired under this paragraph may be newly
issued;
(iii) An organization shall not invest in excess of 20%
of its admitted assets under this paragraph; and
(iv) An organization shall not invest under this
paragraph more than 2% of its admitted assets in the revenue
obligations issued in connection with any one facility;
(v) An organization shall not invest under this
paragraph more than 2% of its admitted assets in revenue
obligations payable from revenue or earning sources which are
the contractual responsibility of any one single credit risk.
(8) Direct, unconditional obligations of a solvent
business corporation for the payment of money, including
obligations to pay rent for equipment used in its business or
obligations for the payment of money to the extent guaranteed
or insured as to the payment of principal and interest by any
solvent business corporation, on the following conditions:
(i) The corporation shall be incorporated under the laws
of the United States or any state of the United States;
(ii) The corporation shall have tangible net worth of
not less than $1,000,000;
(iii) No such obligation, guarantee or insurance of the
corporation has been in default as to principal or interest
during the 5 years preceding the date of investment, but the
corporation need not have had obligations guarantees or
insurance outstanding during that period and need not have
been in existence for that period, and obligations acquired
under this paragraph may be newly issued;
(iv) An organization shall not invest more than 2% of
its admitted assets in obligations issued, guaranteed or
insured by any one such corporation;
(v) An organization may invest under this paragraph up
to an additional 2% of its admitted assets in obligations
which (i) are issued, guaranteed or insured by any one or
more such corporations, each having a tangible net worth of
not less than $25,000,000 and (ii) mature within 12 months
from the date of acquisition;
(vi) An organization may invest not more than 1/2 of 1%
of its admitted assets in such obligations of corporations
which do not meet the condition of subparagraph (ii) of this
paragraph; and
(vii) An organization shall not invest more than 75% of
its admitted assets under this paragraph.
(9) Direct, unconditional obligations for the payment of
money issued or obligations for the payment of money to the
extent guaranteed as to principal and interest by a solvent
not for profit corporation, on the following conditions:
(i) The corporation shall be incorporated under the laws
of the United States or of any state of the United States;
(ii) The corporation shall have been in existence for at
least 5 years and shall have assets of at least $2,000,000;
(iii) Revenues or other income from such assets and the
services or commodities dispensed by the corporation shall be
pledged for the payment of the obligations or guarantees;
(iv) No such obligation or guarantee of the corporation
has been in default as to principal or interest during the 5
years next preceding the date of such investment, but the
corporation need not have had obligations or guarantees
outstanding during that period and obligations which are
acquired under this paragraph may be newly issued;
(v) An organization shall not invest more than 15% of
its admitted assets under this paragraph; and
(vi) An organization shall not invest under this
paragraph more than 2% of its admitted assets in the
obligations issued or guaranteed by any one such corporation.
(10) Direct, unconditional nondemand obligations for the
payment of money issued by a solvent bank, mutual savings
bank or trust company on the following conditions:
(i) The bank, mutual savings bank or trust company shall
be incorporated under the laws of the United States, or of
any state of the United States;
(ii) The bank, mutual savings bank or trust company
shall have tangible net worth of not less than $1,000,000;
(iii) Such obligations must be of the type which are
insured by an agency of the United States or have a maturity
of no more than 1 day;
(iv) An organization shall not invest under this
paragraph more than the amount which is fully insured by an
agency of the United States plus 2% of its admitted assets in
nondemand obligations issued by any one such financial
institution; and
(v) An organization may invest under this paragraph up
to an additional 8% of its admitted assets in nondemand
obligations which (1) are issued by any such banks, mutual
savings banks or trust companies, each having a tangible net
worth of not less than $25,000,000 and (2) mature within 12
months from the date of acquisition.
(11) Preferred or guaranteed stocks issued or guaranteed
by a solvent business corporation incorporated under the laws
of the United States or any state of the United States, on
the following conditions:
(i) The corporation shall have tangible net worth of not
less than $1,000,000;
(ii) If such stocks have been outstanding prior to
purchase, an organization shall not invest under this
paragraph in such stock if prescribed current or cumulative
dividends are in arrears;
(iii) An organization shall not invest more than 33 1/3%
of its admitted assets under this paragraph and an
organization shall not invest more than 15% of its admitted
assets under this paragraph in stocks which, at the time of
purchase, are not Sinking Fund Stocks. An issue of preferred
or guaranteed stock shall be a Sinking Fund Stock when (1)
such issue is subject to a 100% mandatory sinking fund or
similar arrangement which will provide for the redemption of
the entire issue over a period not longer than 40 years from
the date of purchase; (2) annual mandatory sinking fund
installments on each issue commence not more than 10 years
from the date of issue; and (3) each annual sinking fund
installment provides for the purchase or redemption of at
least 2 1/2% of the original number of shares of such issue;
and
(iv) An organization shall not invest under this
paragraph more than 2% of its admitted assets in the
preferred or guaranteed stocks of any one such corporation.
(12) Common stock issued by any solvent business
corporation incorporated under the laws of the United States,
or of any state of the United States, on the following
conditions:
(i) The issuing corporation must have tangible net worth
of $1,000,000 or more;
(ii) An organization may not invest more than an amount
equal to its net worth under this paragraph; and
(iii) An organization may not invest under this
paragraph an amount equal to more than 10% of its net worth
in the common stock of any one corporation.
(13) Shares of common stock or units of beneficial
interest issued by any solvent business corporation or trust
incorporated or organized under the laws of the United
States, or of any state of the United States, on the
following conditions:
(i) If the issuing corporation or trust is advised by an
investment advisor which is the organization or an affiliate
of the organization, the issuing corporation or trust shall
have net assets of $100,000 or more, or if the issuing
corporation or trust has an unaffiliated investment advisor,
the issuing corporation or trust shall have net assets of
$10,000,000 or more;
(ii) The issuing corporation or trust is registered as
an investment company with the Securities and Exchange
Commission under the Investment Company Act of 1940, as
amended;
(iii) An organization shall not invest under this
paragraph more than the greater of $100,000 or 10% of its
admitted assets in any one bond fund, municipal bond fund or
money market fund;
(iv) An organization shall not invest under this
paragraph more than 10% of its net worth in any one common
stock fund, balanced fund or income fund;
(v) An organization shall not invest more than 50% of
its admitted assets in bond funds, municipal bond funds and
money market funds under this paragraph; and
(vi) An organization's investments in common stock
funds, balanced funds or income funds when combined with its
investments in common stocks made under paragraph (12) shall
not exceed the aggregate limitation provided by subparagraph
(ii) of paragraph (12).
(14) Shares of, or accounts or deposits with savings and
loan associations or building and loan associations, on the
following conditions:
(i) The shares, accounts, or deposits, or investments in
any form legally issuable shall be of a withdrawable type and
issued by an association which has the insurance protection
afforded by the Federal Savings and Loan Insurance
Corporation; but nonwithdrawable accounts which are not
eligible for insurance by the Federal Savings and Loan
Insurance Corporation shall not be eligible for investment
under this paragraph;
(ii) The association shall have tangible net worth of
not less than $1,000,000;
(iii) The investment shall be in the name of and owned
by the organization, unless the account is under a
trusteeship with the organization named as the beneficiary;
(iv) An organization shall not invest more than 50% of
its admitted assets under this paragraph; and
(v) Under this paragraph, an organization shall not
invest in any one such association an amount in excess of 2%
of its admitted assets or an amount which is fully insured by
the Federal Savings and Loan Insurance Corporation, whichever
is greater.
(15) Direct, unconditional obligations for the payment
of money secured by the pledge of any investment which is
authorized by any of the preceding paragraphs, on the
following conditions:
(i) The investment pledged shall by its terms be legally
assignable and shall be validly assigned to the organization;
(ii) The investment pledged shall have a fair market
value which is at least 25% greater than the amount invested
under this paragraph, except that a loan may be made up to
100% of the full fair market value of collateral that would
qualify as an investment under paragraph (1) provided it
qualifies under condition (i) of this paragraph; and
(iii) An organization's investment under this paragraph
when added to its investment of the category of the
collateral pledged shall not cause the sum to exceed the
limits provided by the paragraph authorizing that category of
investments.
(16) Real estate (including leasehold estates and
leasehold improvements) for the convenient accommodation of
the organization's business operations, including home
office, branch office, medical facilities and field office
operations, on the following conditions:
(i) Any parcel of real estate acquired under this
paragraph may include excess space for rent to others, if it
is reasonably anticipated that such excess will be required
by the organization for expansion or if the excess is
reasonably required in order to have one or more buildings
that will function as an economic unit;
(ii) Such real estate may be subject to a mortgage; and
(iii) The greater of the admitted value of the asset as
determined by subsection (f) or the organization's equity
plus all encumbrances on such real estate owned by a company
under this paragraph shall not exceed 20% of its admitted
assets, except with the permission of the Director if he
finds that such percentage of its admitted assets is
insufficient to provide convenient accommodation for the
company's business; provided, however, an organization that
directly provides medical services may invest an additional
20% of its admitted assets in such real estate, not requiring
the permission of the Director.
(17) Any investments of any kind, in the complete
discretion of the organization, without regard to any
condition of, restriction in, or exclusion from paragraphs
(1) to (16), inclusive, and regardless of whether the same or
a similar type of investment has been included in or omitted
from any such paragraph, on the following condition:
(a) An organization shall not invest under this
paragraph more than the lesser of (i) 10% of its admitted
assets, or (ii) 50% of the amount by which its net worth
exceeds the minimum requirements of a new health maintenance
organization to qualify for a certificate of authority.
(Source: P.A. 90-655, eff. 7-30-98.)
Section 99. Effective date. This Act takes effect upon
becoming law.
Passed in the General Assembly May 03, 2001.
Approved July 24, 2001.
[ Top ]