On June 24, 2010, Illinois House Bill 5217 ("HB 5217") went to Governor Pat Quinn after passing both houses of the Illinois General Assembly. HB 5217 is set to become law immediately upon Governor Quinn's signature or automatically 60 calendar days after reaching the Governor's desk. This comprehensive reform legislation amends a number of provisions, including the following:

  • Certain provisions of the Illinois Life and Health Insurance Guaranty Association Act that were last amended in 1980 (e.g., 215 ILCS 5/531.04 ("Construction"), 5/531.07 ("Board of Directors"), and 5/531.14 ("Miscellaneous Provisions"); and certain provisions that were amended later (e.g., 215 ILCS 5/531.18 ("Stay of Proceedings-Reopening Default Judgments" in 1981, and 215 ILCS 5/531.03 ("Coverage and Limitations") in 1999);
  • Certain provisions of the Illinois Insurance Guaranty Fund Act that were last amended in 1997 (e.g., 215 ILCS 5/545 ("Effect of Paid Claims"); an
  • Certain provisions of the Illinois Health Maintenance Organization Guaranty Association Law that have not been amended since the original enactment of the statute in 1987 (e.g., 215 ILCS 125/6-9 ("Assessments"), 125/6-10 ("Plan of Operation"), and 125/6-18 ("Stay of Proceedings-Reopening Default Judgments").

Illinois Receivership Act

HB 5217 incorporates language from the NAIC Insurer Receivership Model Act Number 555-1 and:

  • Defines "Netting agreement" and "Qualified financial contract" for the first time in the Illinois Rehabilitation, Liquidation, Conservation and Dissolution of Companies Act (215 ILCS 5/187);
  • Creates a new Section 206.1 that sets forth, among other things, the treatment of transfers and set-offs under netting agreements and qualified financial contracts, the effect of disaffirmance and repudiation, and the conditions under which no person shall be stayed or prohibited from exercising contractual rights in an insolvency or insurer default (215 ILCS 5/206.1); and
  • Eliminates the requirement that proofs of claim must be signed under oath, paving the way to online proof of claim submissions in Illinois receiverships (215 ILCS 5/209).

Illinois Life and Health Insurance Guaranty Association Act

The legislation also incorporates language from the NAIC Life and Health Insurance Guaranty Association Model Act Number 520-1 and:

  • Clarifies coverage under the Illinois Life and Health Insurance Guaranty Association Act based upon residency to avoid duplicate coverage under more than one state's guaranty association law (215 ILCS 5/531.03);
  • Clarifies those products that are expressly excluded from coverage--for example, any unallocated annuity contract issued under the federal Pension Benefit Guaranty Corporation and any policy providing any hospital, medical prescription drug or other health care benefits pursuant to Medicare Part C or D (215 ILCS 5/531.03);
  • Clarifies and provides statutory limitations for health insurance benefits--for example, $300,000 for disability insurance and long-term care insurance, $500,000 for basic hospital medical and surgical insurance or major medical insurance--and limits the Association's aggregate liability (215 ILCS 5/531.03);
  • Expands the size of the Association's board and provides for two public representatives that may be appointed by the Illinois Director of Insurance (215 ILCS 5/531.07);
  • Allows that any deposit held for the benefit of creditors and not turned over to the domiciliary liquidator upon the entry of the receivership order shall be paid to the Association (215 ILCS 5/531.08);
  • Expands the Association's directors' discretion and provides additional protection by recognizing the exercise of "reasonable business judgment" in providing benefits under the Act (215 ILCS 5/531.08);
  • Eliminates the requirement that the Association give an appeal bond in an appeal relating to the Act (215 ILCS 5/531.08);
  • Limits the annual assessments (215 ICLS 5/531.09);
  • Requires member companies to promptly comply with requests for information (215 ILCS 5/531.09); and
  • Extends the stay in receivership from 60 days to 180 days to allow the Association time to set aside a default judgment against the insolvent insurer (215 ILCS 5/531.18).

Illinois Insurance Guaranty Fund Act

HB 5217 amends the Illinois Insurance Guaranty Fund applicable to property and casualty insurance, and among other things:

  • Increases the statutory coverage from $300,000 to $500,000 for any liquidations occurring after January 1, 2011, except for workers compensation claims and claims for a refund of the first $100 of any unearned premium over $10,000 under any one policy (215 ILCS 5/537.2); and
  • Expands the Fund's ability to receive receivership assets when "the 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, the reserves will be deemed to have been paid as of the date of the notice and payment shall be made accordingly." (215 ILCS 5/545). Currently, the Guaranty Fund may only be reimbursed for the amounts actually paid.

Illinois HMO Guaranty Association Law

HB 5217 amends the Illinois Health Maintenance Organization Guaranty Association Law and, among other things:

  • Clarifies those products that are excluded from coverage under the Law--for example, any policy providing any hospital, medical, prescription drug, or other health care benefits pursuant to Medicare Part C or D (215 ILCS 125/6-8);
  • Expands the Association's directors' discretion and provides additional protection by recognizing the exercise of "reasonable business judgment" in providing benefits under the Law (215 ILCS 125/6-8);
  • Eliminates the requirement that the Association give an appeal bond in an appeal relating to the Law (215 ILCS 125/6-8); and
  • Requires member companies to promptly comply with requests for information (215 ILCS 125/6-9).

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