Bill Text: IL SB0683 | 2017-2018 | 100th General Assembly | Chaptered

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Bill Title: Amends the Illinois Insurance Code. Provides that any contract with a third party to provide claim services for a property and casualty company must contain specified language that provides that upon liquidation or rehabilitation of the insurer, the files and related data become the sole property of the estate with the administrator having reasonable access and right to copy files; provides that the requirement shall apply to all contracts entered into after the effective date, and any existing contracts shall have one year to comply with the requirement. In provisions concerning the distribution of general assets of a company's estate that is undergoing liquidation, rehabilitation, or conservation proceedings: Prioritizes costs and expenses of administration, including the reasonable expenses of certain funds and associations, but excluding certain other expenses, and the expenses expressly approved or ratified by the Director of Insurance as liquidator or rehabilitator, including specified costs and expenses, over all other claims. Provides that claims of obligees under surety bonds and undertakings, claims by principals under surety bonds and surety undertakings for wrongful dissipation of collateral by the insurer or its agents, and claims incurred during certain extensions of coverage are granted the same priority level as claims by policyholders, beneficiaries, and insureds, under insurance policies, annuity contracts, and funding agreements. Provides that these changes apply to all pending and future liquidation, rehabilitation, or conservation proceedings. Makes other changes. Effective immediately.

Spectrum: Partisan Bill (Democrat 3-0)

Status: (Passed) 2017-08-25 - Public Act . . . . . . . . . 100-0410 [SB0683 Detail]

Download: Illinois-2017-SB0683-Chaptered.html

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Public Act 100-0410
SB0683 Enrolled LRB100 06876 SMS 16925 b
AN ACT concerning regulation.
Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
Section 5. The Illinois Insurance Code is amended by adding
Section 141b and by changing Sections 205 and 545 as follows:
(215 ILCS 5/141b new)
Sec. 141b. Third party access to files. Any contract with a
third party ("administrator") to provide claim services for a
property and casualty company must contain the following
provisions:
(1) Upon liquidation or rehabilitation of the insurer,
the files and any data related thereto become the sole
property of the estate. The administrator shall have
reasonable access and right to copy files at the
administrator's expense.
(2) In the event electronic files are used, the
administrator must keep all data in such a format that it
is easily separated from other data maintained by the
administrator and timely transferred to the liquidator
upon the entry of an order or liquidation. "Timely
transferred", in this context, means the claim file data
must be transferred to the liquidator within 10 days after
the entry of an order of liquidation.

The provisions of this Section shall apply to all contracts
entered into after the effective date of this amendatory Act of
the 100th General Assembly, and any existing contracts shall
have one year to come into compliance with this Section.
(215 ILCS 5/205) (from Ch. 73, par. 817)
Sec. 205. Priority of distribution of general assets.
(1) The priorities of distribution of general assets from
the company's estate is to be as follows:
(a) The costs and expenses of administration,
including, but not limited to, the following:
(i) The reasonable expenses of the Illinois
Insurance Guaranty Fund, the Illinois Life and Health
Insurance Guaranty Association, and the Illinois
Health Maintenance Organization Guaranty Association
and of any similar organization in any other state,
including overhead, salaries, and other general
administrative expenses allocable to the receivership
(administrative and claims handling expenses and
expenses in connection with arrangements for ongoing
coverage), but excluding expenses incurred in the
performance of duties under Section 547 or similar
duties under the statute governing a similar
organization in another state. For property and
casualty insurance guaranty associations that guaranty
certain obligations of any member company as defined by

Section 534.5, expenses shall include, but not be
limited to, loss adjustment expenses, which shall
include adjusting and other expenses and defense and
cost containment expenses. The expenses of such
property and casualty guaranty associations, including
the Illinois Insurance Guaranty Fund, shall be
reimbursed as prescribed by Section 545, but shall be
subordinate to all other costs and expenses of
administration, including the expenses reimbursed
pursuant to subparagraph (ii) of this paragraph (a).
(ii) The expenses expressly approved or ratified
by the Director as liquidator or rehabilitator,
including, but not limited to, the following:
(1) the actual and necessary costs of
preserving or recovering the property of the
insurer;
(2) reasonable compensation for all services
rendered on behalf of the administrative
supervisor or receiver;
(3) any necessary filing fees;
(4) the fees and mileage payable to witnesses;
(5) unsecured loans obtained by the receiver;
and
(6) expenses approved by the conservator or
rehabilitator of the insurer, if any, incurred in the
course of the conservation or rehabilitation that are

unpaid at the time of the entry of the order of
liquidation.
Any unsecured loan falling under item (5) of
subparagraph (ii) of this paragraph (a) shall have priority
over all other costs and expenses of administration, unless
the lender agrees otherwise. Absent agreement to the
contrary, all other costs and expenses of administration
shall be shared on a pro-rata basis, except for the
expenses of property and casualty guaranty associations,
which shall have a lower priority pursuant to subparagraph
(i) of this paragraph (a). , including the expenses of the
Illinois Insurance Guaranty Fund, the Illinois Life and
Health Insurance Guaranty Association, the Illinois Health
Maintenance Organization Guaranty Association and of any
similar organization in any other state as prescribed in
subsection (c) of Section 545.
(b) Secured claims, including claims for taxes and
debts due the federal or any state or local government,
that are secured by liens perfected prior to the filing of
the complaint.
(c) Claims for wages actually owing to employees for
services rendered within 3 months prior to the date of the
filing of the complaint, not exceeding $1,000 to each
employee unless there are claims due the federal government
under paragraph (f), then the claims for wages shall have a
priority of distribution immediately following that of

federal claims under paragraph (f) and immediately
preceding claims of general creditors under paragraph (g).
(d) Claims by policyholders, beneficiaries, and
insureds, under insurance policies, annuity contracts, and
funding agreements, liability claims against insureds
covered under insurance policies and insurance contracts
issued by the company, claims of obligees (and, subject to
the discretion of the receiver, completion contractors)
under surety bonds and surety undertakings (not to include
bail bonds, mortgage or financial guaranty, or other forms
of insurance offering protection against investment risk),
claims by principals under surety bonds and surety
undertakings for wrongful dissipation of collateral by the
insurer or its agents, and claims incurred during any
extension of coverage provided under subsection (5) of
Section 193, and claims of the Illinois Insurance Guaranty
Fund, the Illinois Life and Health Insurance Guaranty
Association, the Illinois Health Maintenance Organization
Guaranty Association, and any similar organization in
another state as prescribed in Section 545. For purposes of
this Section, "funding agreement" means an agreement
whereby an insurer authorized to write business under Class
1 of Section 4 of this Code may accept and accumulate funds
and make one or more payments at future dates in amounts
that are not based upon mortality or morbidity
contingencies.

(e) Claims by policyholders, beneficiaries, and
insureds, the allowed values of which were determined by
estimation under paragraph (b) of subsection (4) of Section
209.
(f) Any other claims due the federal government.
(g) All other claims of general creditors not falling
within any other priority under this Section including
claims for taxes and debts due any state or local
government which are not secured claims and claims for
attorneys' fees incurred by the company in contesting its
conservation, rehabilitation, or liquidation.
(h) Claims of guaranty fund certificate holders,
guaranty capital shareholders, capital note holders, and
surplus note holders.
(i) Proprietary claims of shareholders, members, or
other owners.
Every claim under a written agreement, statute, or rule
providing that the assets in a separate account are not
chargeable with the liabilities arising out of any other
business of the insurer shall be satisfied out of the funded
assets in the separate account equal to, but not to exceed, the
reserves maintained in the separate account under the separate
account agreement, and to the extent, if any, the claim is not
fully discharged thereby, the remainder of the claim shall be
treated as a priority level (d) claim under paragraph (d) of
this subsection to the extent that reserves have been

established in the insurer's general account pursuant to
statute, rule, or the separate account agreement.
For purposes of this provision, "separate account
policies, contracts, or agreements" means any policies,
contracts, or agreements that provide for separate accounts as
contemplated by Section 245.21.
To the extent that any assets of an insurer, other than
those assets properly allocated to and maintained in a separate
account, have been used to fund or pay any expenses, taxes, or
policyholder benefits that are attributable to a separate
account policy, contract, or agreement that should have been
paid by a separate account prior to the commencement of
receivership proceedings, then upon the commencement of
receivership proceedings, the separate accounts that benefited
from this payment or funding shall first be used to repay or
reimburse the company's general assets or account for any
unreimbursed net sums due at the commencement of receivership
proceedings prior to the application of the separate account
assets to the satisfaction of liabilities or the corresponding
separate account policies, contracts, and agreements.
To the extent, if any, reserves or assets maintained in the
separate account are in excess of the amounts needed to satisfy
claims under the separate account contracts, the excess shall
be treated as part of the general assets of the insurer's
estate.
(2) Within 120 days after the issuance of an Order of

Liquidation with a finding of insolvency against a domestic
company, the Director shall make application to the court
requesting authority to disburse funds to the Illinois
Insurance Guaranty Fund, the Illinois Life and Health Insurance
Guaranty Association, the Illinois Health Maintenance
Organization Guaranty Association, and similar organizations
in other states from time to time out of the company's
marshaled assets as funds become available in amounts equal to
disbursements made by the Illinois Insurance Guaranty Fund, the
Illinois Life and Health Insurance Guaranty Association, the
Illinois Health Maintenance Organization Guaranty Association,
and similar organizations in other states for covered claims
obligations on the presentation of evidence that such
disbursements have been made by the Illinois Insurance Guaranty
Fund, the Illinois Life and Health Insurance Guaranty
Association, the Illinois Health Maintenance Organization
Guaranty Association, and similar organizations in other
states.
The Director shall establish procedures for the ratable
allocation and distribution of disbursements to the Illinois
Insurance Guaranty Fund, the Illinois Life and Health Insurance
Guaranty Association, the Illinois Health Maintenance
Organization Guaranty Association, and similar organizations
in other states. In determining the amounts available for
disbursement, the Director shall reserve sufficient assets for
the payment of the expenses of administration described in

paragraph (1)(a) of this Section. All funds available for
disbursement after the establishment of the prescribed reserve
shall be promptly distributed. As a condition to receipt of
funds in reimbursement of covered claims obligations, the
Director shall secure from the Illinois Insurance Guaranty
Fund, the Illinois Life and Health Insurance Guaranty
Association, the Illinois Health Maintenance Organization
Guaranty Association, and each similar organization in other
states, an agreement to return to the Director on demand funds
previously received as may be required to pay claims of secured
creditors and claims falling within the priorities established
in paragraphs (a), (b), (c), and (d) of subsection (1) of this
Section in accordance with such priorities.
(3) The changes made in this Section by this amendatory Act
of the 100th General Assembly apply to all liquidation,
rehabilitation, or conservation proceedings that are pending
on the effective date of this amendatory Act of the 100th
General Assembly and to all future liquidation,
rehabilitation, or conservation proceedings.
(4) The provisions of this Section are severable under
Section 1.31 of the Statute on Statutes.
(Source: P.A. 92-65, eff. 7-12-01; 92-875, eff. 1-3-03.)
(215 ILCS 5/545) (from Ch. 73, par. 1065.95)
Sec. 545. Effect of paid claims.
(a) Every insured or claimant seeking the protection of

this Article shall cooperate with the Fund to the same extent
as such person would have been required to cooperate with the
insolvent company. The Fund shall have all the rights, duties
and obligations under the policy to the extent of the covered
claim payment, provided the Fund shall have no cause of action
against the insured of the insolvent company for any sums it
has paid out except such causes of action as the insolvent
company would have had if such sums had been paid by the
insolvent company and except as provided in paragraph (d) of
this Section.
(b) The Fund and any similar organization in another state
shall be recognized as claimants in the liquidation of an
insolvent company for any amounts paid by them on covered
claims obligations as determined under this Article or similar
laws in other states and shall receive dividends at the
priority set forth in paragraph (d) of subsection (1) of
Section 205 of this Code; provided that if, at the time that
the liquidator Liquidator issues a cut-off notice to the Fund
in anticipation of closing the estate, a reserve has been
established by the Fund, or any similar organization in another
state, for the amount of their future administrative expenses
and loss development associated with unpaid reported pending
claims, these reserves will be deemed to have been paid as of
the date of the notice and payment shall be made accordingly.
The liquidator of an insolvent company shall be bound by
determinations of covered claim eligibility under the Act and

by settlements of claims made by the Fund or a similar
organization in another state on the receipt of certification
of such payments, to the extent those determinations or
settlements satisfy obligations of the Fund, but the receiver
shall not be bound in any way by those determinations or
settlements to the extent that there remains a claim in the
estate for amounts in excess of the payments by the Fund. In
submitting their claim for covered claim payments the Fund and
any similar organization in another state shall not be subject
to the requirements of Sections 208 and 209 of this Code and
shall not be affected by the failure of the person receiving a
covered claim payment to file a proof of claim.
(c) The expenses of the Fund and of any similar
organization in any other state, other than expenses incurred
in the performance of duties under Section 547 or similar
duties under the statute governing a similar organization in
another state, shall be accorded the same priority over all
claims against the estate, except as provided for in paragraph
(a) of subsection (1) of Section 205 of this Code as the
liquidator's expenses. The liquidator shall make prompt
reimbursement to the Fund and any similar organization for such
expense payments.
(d) The Fund has the right to recover from the following
persons the amount of any covered claims and allocated claims
expenses which the Fund paid or incurred on behalf of such
person in satisfaction, in whole or in part, of liability

obligations of such person to any other person:
(i) any insured whose net worth on December 31 of the
year next preceding the date the company becomes an
insolvent company exceeds $25,000,000; provided that an
insured's net worth on such date shall be deemed to include
the aggregate net worth of the insured and all of its
affiliates as calculated on a consolidated basis.
(ii) any insured who is an affiliate of the insolvent
company.
(Source: P.A. 96-1450, eff. 8-20-10.)
Section 99. Effective date. This Act takes effect upon
becoming law.