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Article XXXIII 1/2 - Life and Health Insurance Guaranty Association

      (215 ILCS 5/Art. XXXIII.5 heading)ARTICLE XXXIII 1/2. LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION

(215 ILCS 5/531.01) (from Ch. 73, par. 1065.80‑1)     Sec. 531.01. Title.) This Article is known and may be cited as the Illinois Life and Health Insurance Guaranty Association Law. (Source: P.A. 81‑899.)

(215 ILCS 5/531.01a) (from Ch. 73, par. 1065.80‑1a)     Sec. 531.01a. Existing Liability. Any liabilities of the Association for any member company which was an insolvent insurer as defined by this Article prior to January 1, 1986 shall be determined under the law which was in effect at the time the member company became an insolvent insurer as if there had been no amendment to that law. Any liabilities of the Association for a member company which became an insolvent insurer on or after January 1, 1986, shall be determined under the law in effect at the time when the member became an insolvent insurer, notwithstanding any prior law.     On or after January 1, 1986, any assessments made against other member companies to meet Association liabilities shall be made based on the law which was in effect when the member company was an impaired or insolvent insurer as defined by this Article. If different assessment methods are used in any one year, those assessments shall be aggregated for purposes of calculating the aggregate assessment under Sections 531.09 and 531.13. (Source: P.A. 84‑1035.)

(215 ILCS 5/531.02) (from Ch. 73, par. 1065.80‑2)     Sec. 531.02. Purpose. The purpose of this Article is to protect, subject to certain limitations, the persons specified in paragraph (1) of Section 531.03 against failure in the performance of contractual obligations, under life or health insurance policies, annuity contracts and health or medical care service contracts specified in paragraph (2) of Section 531.03, due to the impairment or insolvency of the insurer issuing such policies or contracts. To provide this protection, (1) an association of insurers is created to enable the guaranty of payment of benefits and of continuation of coverages, (2) members of the Association are subject to assessment to provide funds to carry out the purpose of this Article, and (3) the Association is authorized to assist the Director, in the prescribed manner, in the detection and prevention of insurer impairments or insolvencies. (Source: P.A. 86‑753.)

(215 ILCS 5/531.03) (from Ch. 73, par. 1065.80‑3)     Sec. 531.03. Coverage and limitations.     (1) This Article shall provide coverage for the policies and contracts specified in paragraph (2) of this Section:         (a) to persons who, regardless of where they reside

(except for non‑resident certificate holders under group policies or contracts), are the beneficiaries, assignees or payees of the persons covered under subparagraph (1)(b), and

(b) to persons who are owners of or certificate

holders under such policies or contracts; or, in the case of unallocated annuity contracts, to the persons who are the contract holders, and who

(i) are residents of this State, or             (ii) are not residents, but only under all of

the following conditions:

(A) the insurers which issued such policies

or contracts are domiciled in this State;

(B) such insurers never held a license or

certificate of authority in the states in which such persons reside;

(C) such states have associations similar to

the association created by this Act; and

(D) such persons are not eligible for

coverage by such associations.

(2)(a) This Article shall provide coverage to the persons specified in paragraph (l) of this Section for direct, (i) nongroup life, health, annuity and supplemental policies, or contracts, (ii) for certificates under direct group policies or contracts, (iii) for unallocated annuity contracts and (iv) for contracts to furnish health care services and subscription certificates for medical or health care services issued by persons licensed to transact insurance business in this State under the Illinois Insurance Code. Annuity contracts and certificates under group annuity contracts include but are not limited to guaranteed investment contracts, deposit administration contracts, unallocated funding agreements, allocated funding agreements, structured settlement agreements, lottery contracts and any immediate or deferred annuity contracts.     (b) This Article shall not provide coverage for:         (i) that portion or part of such policies or

contracts under which the risk is borne by the policyholder; provided however, that nothing in this subparagraph (i) shall make this Article inapplicable to assessment life and accident and health insurance policies or contracts; or

(ii) any such policy or contract or part thereof

assumed by the impaired or insolvent insurer under a contract of reinsurance, other than reinsurance for which assumption certificates have been issued; or

(iii) any portion of a policy or contract to the

extent such portion represents an accrued value that the rate of interest on which it is accrued

(A) averaged over the period of four years prior

to the date on which the Association becomes obligated with respect to such policy or contract, exceeds a rate of interest determined by subtracting two percentage points from Moody's Corporate Bond Yield Average averaged for that same four year period or for such lesser period if the policy or contract was issued less than four years before the Association became obligated; and

(B) on and after the date on which the

Association becomes obligated with respect to such policy or contract, exceeds the rate of interest determined by subtracting three percentage points from Moody's Corporate Bond Yield Average as most recently available; or

(iv) any unallocated annuity contract issued to an

employee benefit plan protected under the federal Pension Benefit Guaranty Corporation; or

(v) any portion of any unallocated annuity contract

which is not issued to or in connection with a specific employee, union or association of natural persons benefit plan or a government lottery; or

(vi) any burial society organized under Article XIX

of this Act, any fraternal benefit society organized under Article XVII of this Act, any mutual benefit association organized under Article XVIII of this Act, and any foreign fraternal benefit society licensed under Article VI of this Act; or

(vii) any health maintenance organization

established pursuant to the Health Maintenance Organization Act including any health maintenance organization business of a member insurer; or

(viii) any health services plan corporation

established pursuant to the Voluntary Health Services Plans Act; or

(ix) (blank); or         (x) any dental service plan corporation established

pursuant to the Dental Service Plan Act; or

(xi) any stop‑loss insurance, as defined in clause

(b) of Class 1 or clause (a) of Class 2 of Section 4, and further defined in subsection (d) of Section 352; or

(xii) that portion or part of a variable life

insurance or variable annuity contract not guaranteed by an insurer.

(3) The benefits for which the Association may become liable shall in no event exceed the lesser of:         (a) the contractual obligations for which the

insurer is liable or would have been liable if it were not an impaired or insolvent insurer, or

(b)(i) with respect to any one life, regardless of

the number of policies or contracts:

(A) $300,000 in life insurance death benefits,

but not more than $100,000 in net cash surrender and net cash withdrawal values for life insurance;

(B) $300,000 in health insurance benefits,

including any net cash surrender and net cash withdrawal values;

(C) $100,000 in the present value of annuity

benefits, including net cash surrender and net cash withdrawal values;

(ii) with respect to each individual participating

in a governmental retirement plan established under Section 401, 403(b) or 457 of the U.S. Internal Revenue Code covered by an unallocated annuity contract or the beneficiaries of each such individual if deceased, in the aggregate, $100,000 in present value annuity benefits, including net cash surrender and net cash withdrawal values; provided, however, that in no event shall the Association be liable to expend more than $300,000 in the aggregate with respect to any one individual under subparagraph (1) and this subparagraph;

(iii) with respect to any one contract holder

covered by any unallocated annuity contract not included in subparagraph (3)(b)(ii) of this Section above, $5,000,000 in benefits, irrespective of the number of such contracts held by that contract holder.

(Source: P.A. 90‑177, eff. 7‑23‑97; 91‑357, eff. 7‑29‑99.)

(215 ILCS 5/531.04) (from Ch. 73, par. 1065.80‑4)     Sec. 531.04. Construction.) This Article is to be liberally construed to effect the purpose under Section 531.02 which constitutes an aid and guide to interpretation. (Source: P.A. 81‑899.)

(215 ILCS 5/531.05) (from Ch. 73, par. 1065.80‑5)     Sec. 531.05. Definitions. As used in this Act:     (1) "Account" means either of the 3 accounts created under Section 531.06.     (2) "Association" means the Illinois Life and Health Insurance Guaranty Association created under Section 531.06.     (3) "Director" means the Director of Insurance of this State.     (4) "Contractual obligation" means any obligation under a policy or contract or certificate under a group policy or contract, or portion thereof for which coverage is provided under Section 531.03.     (5) "Covered person" means any person who is entitled to the protection of the Association as described in Section 531.02.     (6) "Covered policy" means any policy or contract within the scope of this Article under Section 531.03.     (7) "Impaired insurer" means a member insurer deemed by the Director after the effective date of this Article to be potentially unable to fulfill its contractual obligations and not an insolvent insurer.     (8) "Insolvent insurer" means (a) a member insurer either at the time the policy was issued or when the insured event occurred, or any company which has acquired such direct policy obligations through purchase, merger, consolidation, reinsurance or otherwise, whether or not such acquiring company held a certificate of authority to transact insurance in this State at the time such policy was issued or when the insured event occurred; and (b) becomes insolvent and is placed under a final order of liquidation, rehabilitation or conservation by a court of competent jurisdiction.     (9) "Member insurer" means any person licensed or who holds a certificate of authority to transact in this State any kind of insurance business to which this Article applies under Section 531.03. For purposes of this Article "member insurer" includes any person whose certificate of authority may have been suspended pursuant to Section 119.     (10) "Moody's Corporate Bond Yield Average" means the Monthly Average Corporates as published by Moody's Investors Service, Inc., or any successor thereto.     (11) "Premiums" means direct gross insurance premiums or subscriptions and annuity considerations received on covered policies or contracts, less return premiums and considerations thereon and dividends paid or credited to policyholders on such direct business. "Premiums" do not include premiums and considerations on contracts between insurers and reinsurers. "Premiums" do not include any amounts received for any policies or contracts or for the portions of any policies or contracts for which coverage is not provided under paragraph (2) of Section 531.03 except that assessable premium shall not be reduced on account of subparagraph (2)(b)(iii) of Section 531.03 relating to interest limitations and subparagraph (3)(b) of Section 531.03 relating to limitations with respect to any one individual, any one participant and any one contractholder; provided that "premiums" shall not include any premiums in excess of five million dollars on any unallocated annuity contract not issued under a governmental retirement plan established under Sections 401, 403(b) or 457 of the United States Internal Revenue Code.     (12) "Person" means any individual, corporation, partnership, association or voluntary organization.     (13) "Resident" means any person who resides in this State at the time the insurer is determined to be impaired or insolvent and to whom contractual obligations are owed. A person may be a resident of only one state which, in the case of a person other than a natural person, shall be its principal place of business.     (14) "Supplemental contract" means any agreement entered into for the distribution of policy or contract proceeds.     (15) "Unallocated annuity contract" means any annuity contract or group annuity certificate which is not issued to and owned by an individual, except to the extent of any annuity benefits guaranteed to an individual by an insurer under such contract or certificate. (Source: P.A. 86‑753.)

    (215 ILCS 5/531.06)(from Ch. 73, par. 1065.80‑6)
    Sec. 531.06. Creation of the Association. There is created a non‑profit legal entity to be known as the Illinois Life and Health Insurance Guaranty Association. All member insurers are and must remain members of the Association as a condition of their authority to transact insurance in this State. The Association must perform its functions under the plan of operation established and approved under Section 531.10 and must exercise its powers through a board of directors established under Section 531.07. For purposes of administration and assessment, the Association must maintain 2 accounts:
        (1) The life insurance and annuity account which

includes the following subaccounts:

(a) Life Insurance Account;             (b) Annuity account; and             (c) Unallocated Annuity Account which shall

include contracts qualified under Section 403(b) of the United States Internal Revenue Code.

(2) The health insurance account.     The Association shall be supervised by the Director and is subject to the applicable provisions of the Illinois Insurance Code. (Source: P.A. 95‑331, eff. 8‑21‑07.)

(215 ILCS 5/531.07) (from Ch. 73, par. 1065.80‑7)     Sec. 531.07. Board of Directors.) The board of directors of the Association consists of not less than 5 nor more than 9 members serving terms as established in the plan of operation. The members of the board are to be selected by member insurers subject to the approval of the Director. Vacancies on the board must be filled for the remaining period of the term in the manner described in the plan of operation. To select the initial board of directors, and initially organize the Association, the Director must give notice to all member insurers of the time and place of the organizational meeting. In determining voting rights at the organizational meeting each member insurer is entitled to one vote in person or by proxy. If the board of directors is not selected within 60 days after notice of the organizational meeting, the Director may appoint the initial members.     In approving selections or in appointing members to the board, the Director must consider, whether all member insurers are fairly represented.     Members of the board may be reimbursed from the assets of the Association for expenses incurred by them as members of the board of directors but members of the board may not otherwise be compensated by the Association for their services. (Source: P.A. 81‑899.)

(215 ILCS 5/531.08) (from Ch. 73, par. 1065.80‑8)     Sec. 531.08. Powers and duties of the Association. In addition to the powers and duties enumerated in other Sections of this Article:         (1) If a domestic insurer is an impaired insurer,

the Association may, subject to any conditions imposed by the Association other than those which impair the contractual obligations of the impaired insurer, and approved by the impaired insurer and the Director:

(a) Guarantee or reinsure, or cause to be

guaranteed, assumed or reinsured, any or all of the covered policies of covered persons of the impaired insurer;

(b) Provide such monies, pledges, notes,

guarantees, or other means as are proper to effectuate paragraph (a), and assure payment of the contractual obligations of the impaired insurer pending action under paragraph (a);

(c) Loan money to the impaired insurer;         (2) If a domestic, foreign, or alien insurer is an

insolvent insurer, the Association shall, subject to the approval of the Director;

(a)(i) Guarantee, assume or reinsure or cause to

be guaranteed, assumed, or reinsured the covered policies of covered persons of the insolvent insurer;

(ii) Assure payment of the contractual

obligations of the insolvent insurer to covered persons;

(iii) Provide such monies, pledges, notes,

guaranties, or other means as are reasonably necessary to discharge such duties; or

(b) with respect to only life and health

insurance policies, provide benefits and coverages in accordance with Section 531.08(3).

(c) Provided however that this subsection (2)

shall not apply when the Director has determined that the foreign or alien insurers domiciliary jurisdiction or state of entry provides, by statute, protection substantially similar to that provided by this Article for residents of this State and such protection will be provided in a timely manner.

(3) When proceeding under subparagraph (2)(b) of

this Section the Association shall, with respect to only life and health insurance policies:

(a) assure payment of benefits for premiums

identical to the premiums and benefits (except for terms of conversion and renewability) that would have been payable under the policies of the insolvent insurer, for claims incurred:

(i) with respect to group policies, not

later than the earlier of the next renewal date under such policies or contracts or sixty days, but in no event less than thirty days, after the date on which the Association becomes obligated with respect to such policies;

(ii) with respect to non‑group policies, not

later than the earlier of the next renewal date (if any) under such policies or one year, but in no event less than thirty days, from the date on which the Association becomes obligated with respect to such policies;

(b) make diligent efforts to provide all known

insureds or group policyholders with respect to group policies thirty days notice of the termination of the benefits provided; and

(c) with respect to non‑group policies, make

available to each known insured, or owner if other than the insured, and with respect to an individual formerly insured under a group policy who is not eligible for replacement group coverage, make available substitute coverage on an individual basis in accordance with the provisions of subparagraph (3)(d) of this Section, if the insureds had a right under law or the terminated policy to convert coverage to individual coverage or to continue a non‑group policy in force until a specified age or for a specified time, during which the insurer has no right unilaterally to make changes in any provision of the policy or had a right only to make changes in premium by class.

(d)(i) In providing the substitute coverage

required under subparagraph (3)(c) of this Section, the Association may offer either to reissue the terminated coverage or to issue an alternative policy.

(ii) Alternative or reissued policies shall be

offered without requiring evidence of insurability, and shall not provide for any waiting period or exclusion that would not have applied under the terminated policy.

(iii) The Association may reinsure any

alternative or reissued policy.

(e)(i) Alternative policies adopted by the

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