Article VIIB – Risk Retention Companies

(215 ILCS 5/Art. VIIB heading)

ARTICLE VIIB.
RISK RETENTION COMPANIES
(Article scheduled to be repealed on January 1, 2027)

 

(215 ILCS 5/123B-1) (from Ch. 73, par. 735B-1)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123B-1.
Purpose.
The purpose of this Article is to regulate the formation
or operation, or both, of risk retention groups and purchasing
groups in Illinois formed pursuant to the provisions
of the federal Liability Risk Retention Act of 1986
to the extent permitted by such law.

(Source: P.A. 85-131.)

 

(215 ILCS 5/123B-2) (from Ch. 73, par. 735B-2)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123B-2. Definitions. As used in this Article:

(1) “Director” means the Director of the Department of Insurance.

(2) “Completed operations liability” means liability
arising out of the installation,
maintenance, or repair of any product at a site
which is not owned or controlled by:

• (a) any person who performs that work; or
• (b) any person who hires an independent contractor to perform that work; but shall include liability for activities which are completed or abandoned before the date of the occurrence giving rise to the liability.

(3) “Domicile”, for purposes of determining the state
in which a purchasing group is domiciled, means:

• (a) for a corporation, the state in which the purchasing group is incorporated; and
• (b) for an unincorporated entity, the state of its principal place of business.

(4) “Hazardous financial condition” means that, based
on its present or reasonably anticipated financial condition,
a risk retention group, although not yet financially
impaired or insolvent, is unlikely to be able:

• (a) to meet obligations to policyholders with respect to known claims and reasonably anticipated claims; or
• (b) to pay other obligations in the normal course of business.

(5) “Insurance” means primary insurance, excess insurance,
reinsurance, surplus lines insurance, and any other
arrangement for shifting and distributing risk which
is determined to be insurance under the laws of Illinois.

(6) “Liability” means:

• (a) legal liability for damages (including costs of defense, legal costs and fees, and other claims expenses) because of injuries to other persons, damage to their property, or other damage or loss to such other persons resulting from or arising out of:
• (i) any business (whether for profit or not for profit), trade, product, services (including professional services), premises, or operations; or
• (ii) any activity of any state or local government, or any agency or political subdivision thereof; but
• (b) does not include personal risk liability and an employer’s liability with respect to its employees other than legal liability under the Federal Employers’ Liability Act (45 U.S.C. 51 et seq.).

(7) “Personal risk liability” means liability for
damage because of injury to any person, damage to property,
or other loss or damage resulting from any personal,
familial, or household responsibilities or activities,
rather than from responsibilities or activities referred
to in paragraph (a) of subsection (6) of this Section;

(8) “Plan of operation or a feasibility study” means
an analysis which presents the expected activities and
results of a risk retention group including, at a minimum:

• (a) information sufficient to verify that its members are engaged in businesses or activities similar or related with respect to the liability to which such members are exposed by virtue of any related, similar, or common business, trade, product, services, premises or operations;
• (b) for each state in which it intends to operate, the coverages, deductibles, coverage limits, rates, and rating classification systems for each line of insurance the group intends to offer;
• (c) historical and expected loss experience of the proposed members and national experience of similar exposures to the extent this experience is reasonably available;
• (d) pro forma financial statements and projections;
• (e) appropriate opinions by a qualified, independent casualty actuary, including a determination of minimum premium or participation levels required to commence operations and to prevent a hazardous financial condition;
• (f) identification of management, underwriting and claims procedures, marketing methods, managerial oversight methods, investment policies and reinsurance agreements;
• (f-5) identification of each state in which the risk retention group has obtained, or sought to obtain, a charter and license and a description of its status in each such state; and
• (g) such other matters as may be prescribed by the commissioner of the state in which the group is chartered for liability insurance companies authorized by the insurance laws of such state.

(9) “Product liability” means liability for damages
because of any personal injury, death, emotional harm,
consequential economic damage, or property damage (including
damages resulting from the loss of use of property)
arising out of the manufacture, design, importation,
distribution, packaging, labeling, lease, or sale of
a product, but does not include the liability of any
person for those damages if the product involved was
in the possession of such a person when the incident
giving rise to the claim occurred.

(10) “Purchasing group” means any group which:

• (a) has as one of its purposes the purchase of liability insurance on a group basis;
• (b) purchases such insurance only for its group members and only to cover their similar or related liability exposure, as described in paragraph (c) of this subsection (10);
• (c) is composed of members whose businesses or activities are similar or related with respect to the liability to which members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations; and
• (d) is domiciled in any State.

(11) “Risk retention group” means any corporation
or other limited liability association:

• (a) whose primary activity consists of assuming and spreading all, or any portion, of the liability exposure of its group members;
• (b) which is organized for the primary purpose of conducting the activity described under paragraph (a) of this subsection (11);
• (c) which:
• (i) is organized and licensed as a liability insurance company and authorized to engage in the business of insurance under the laws of any state; or
• (ii) before January 1, 1985 was organized or licensed and authorized to engage in the business of insurance under the laws of Bermuda or the Cayman Islands and, before such date, had certified to the insurance commissioner of at least one state that it satisfied the capitalization requirements of such state, except that any such group shall be considered to be a risk retention group only if it has been engaged in business continuously since such date and only for the purposes of continuing to provide insurance to cover product liability or completed operations liability (as such terms were defined in the Product Liability Risk Retention Act of 1981 before the date of the enactment of the Risk Retention Act of 1986);
• (d) which does not exclude any person from membership in the group solely to provide for members of such a group a competitive advantage over such a person;
• (e) which:
• (i) has as its owners (directly or indirectly) only persons who comprise the membership of the risk retention group and who are provided insurance by such group; or
• (ii) has as its sole owner (directly or indirectly) an organization which:
• (I) has as its members only persons who comprise the membership of the risk retention group; and
• (II) has as its owners only persons who comprise the membership of the risk retention group and who are provided insurance by such group;
• (f) whose members are engaged in businesses or activities similar or related with respect to the liability of which such members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations;
• (g) whose activities do not include the provision of insurance other than:
• (i) liability insurance for assuming and spreading all or any portion of the liability of its group members; and
• (ii) reinsurance with respect to the liability of any other risk retention group (or any members of such other group) which is engaged in businesses or activities so that such group or member meets the requirement described in paragraph (f) of this subsection (11) for membership in the risk retention group which provides such reinsurance; and
• (h) the name of which includes the phrase “Risk Retention Group”.

(12) “State” means any state of the United States
or the District of Columbia.

(13) “NAIC” means the National Association of Insurance Commissioners.

(Source: P.A. 99-512, eff. 1-1-17.)

 

(215 ILCS 5/123B-3) (from Ch. 73, par. 735B-3)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123B-3. Risk retention groups organized in this State.

A. A risk retention group shall either:

• (1) pursuant to the provisions of Articles II or III, be organized to write only liability insurance and, except as provided elsewhere in this Article, must comply with all of the laws, rules, regulations and requirements applicable to such insurers organized in this State and with Section 123B-4 of this Article to the extent such requirements are not a limitation on laws, rules, regulations or requirements of this State; or
• (2) pursuant to the provisions of Article VIIC, be organized to write only liability insurance as a captive insurance company and, except as provided elsewhere in this Article, must comply with all of the laws, rules, regulations and requirements applicable to such insurers organized in this State and with Section 123B-4 of this Article to the extent such requirements are not a limitation on laws, rules, regulations or requirements of this State.

Except that, as of the effective date of this amendatory Act of 1995, a new
risk retention group must qualify under paragraph (1) of this subsection.

B. Before it may offer insurance in any state, each risk retention group
shall also submit for approval to the Director a plan of operation or a
feasibility study and revisions of such plan or study if the group intends to
offer any additional lines of liability insurance. In the event of any
subsequent material change in any item of its plan or study, such risk
retention group shall submit an appropriate revision to the Director within 10
days of any such change for approval by the Director. The group shall not
offer any additional kinds of liability insurance, in this State or in any
other state, until a revision of such plan or study is approved by the
Director.

C. At the time of filing its application for organization, the risk
retention group shall provide to the Director in summary form the following
information: the identity of the initial members of the group, the identity of
those individuals who organized the group or who will provide administrative
services or otherwise influence or control the activities of the group, the
amount and nature of initial capitalization, the coverages to be afforded, and
the states in which the group intends to operate. Upon receipt of this information, the Director shall forward the information to the NAIC. Providing notification to the NAIC is in addition to and shall not be sufficient to satisfy the requirements of Section 123B-4 of this Code or any other provisions of this Article.

D. The name under which a risk retention group may be organized and
licensed shall include the phrase “Risk Retention Group”.

E. Notwithstanding any other provision to the contrary, all risk
retention groups chartered in this State shall file an annual statement with
the Department and NAIC.
The annual statement shall be in a form prescribed by the Director. The
statement may be required to be in diskette form. The statement shall be
completed in accordance with the annual statement instructions and the NAIC
Accounting Practices and Procedures Manual.

F. As used in this subsection F:

“Board of directors” means the governing body of the risk retention group elected by shareholders or members to establish policy, elect or appoint officers and committees, and make other governing decisions.

“Director” means a natural person designated in the articles of the risk retention group, or designated, elected, or appointed by any other manner, name, or title, to act as a director.

“Material relationship” means a relationship of a person with the risk retention group that includes, but is not limited to:

• (a) The receipt in any one 12-month period of compensation or payment of any other item of value by the person, a member of the person’s immediate family, or any business with which the person is affiliated from the risk retention group or a consultant or services provider to the risk retention group is greater than or equal to 5% of the risk retention group’s gross written premium for the 12-month period or 2% of its surplus, whichever is greater, as measured at the end of any fiscal quarter falling in a 12-month period. The person or immediate family member of that person is not independent until one year after his or her compensation from the risk retention group falls below the threshold.
• (b) A relationship with the auditor as follows: a director or an immediate family member of a director who is affiliated with or employed in a professional capacity by a present or former internal or external auditor of the risk retention group is not independent until one year after the end of the affiliation, employment, or auditing relationship.
• (c) A relationship with a related entity as follows: a director or an immediate family member of a director who is employed as an executive officer of another company where any of the risk retention group’s present executives serve on that other company’s board of directors is not independent until one year after the end of the service or the employment relationship.

Within one year after the effective date of this amendatory Act of the 99th General Assembly, existing risk retention groups shall be in compliance with the following governance standards and new risk retention groups shall be in compliance with the standards at the time of licensure:

• (1) The board of directors of the risk retention group shall have a majority of independent directors. If the risk retention group is a reciprocal, then the attorney-in-fact shall adhere to the same standards regarding independence of operations and governance as imposed on the risk retention group’s board of directors or subscribers advisory committee under these standards and, to the extent permissible under State law, service providers of a reciprocal risk retention group shall contract with the risk retention group and not the attorney-in-fact.
• No director qualifies as independent unless the board of directors affirmatively determines that the director has no material relationship with the risk retention group. Each risk retention group shall disclose these determinations to the Department at least annually and the Director may approve or refute the board’s determination. For this purpose, any person that is a direct or indirect owner of or subscriber in the risk retention group (or is an officer, director, or employee of an owner and insured, unless some other position of the officer, director, or employee constitutes a material relationship), as contemplated by 15 U.S.C. 3901(a)(4)(E)(ii), shall be deemed independent.
• A material relationship shall not be deemed to exist by reason that a majority of the membership of the related entity’s board of directors is the same as the membership of the board of directors of the risk retention group unless the director decides otherwise.
• (2) The term of any material service provider contract with the risk retention group shall not exceed 5 years. Any contract, or its renewal, shall require the approval of the majority of the risk retention group’s independent directors. The risk retention group’s board of directors shall have the right to terminate any service provider, audit, or actuarial contracts at any time for cause after providing adequate notice as defined in the contract. The service provider contract is deemed material if the amount to be paid for the contract is greater than or equal to 5% of the risk retention group’s annual gross written premium or 2% of its surplus, whichever is greater.
• No service provider in a material relationship with the risk retention group shall enter into a contract with the risk retention group unless the risk retention group has notified the Director of Insurance in writing of its intention to enter into a transaction at least 30 days prior thereto and the Director of Insurance has not disapproved it within that period.
• For the purposes of this paragraph (2), “service providers” includes captive managers, auditors, accountants, actuaries, investment advisors, lawyers, managing general underwriters, and other parties responsible for underwriting, determination of rates, collection of premium, adjusting and settling claims or preparation of financial statements.
• “Lawyers” does not include defense counsel retained by the risk retention group to defend claims, unless the amount of fees paid to the lawyers meet the definition of a material relationship.
• (3) The risk retention group’s board of directors shall adopt a written policy in the plan of operation as approved by the board that requires the board to:
• (a) ensure that all owner-insureds of the risk retention group receive evidence of ownership interest;
• (b) develop a set of governance standards applicable to the risk retention group;
• (c) oversee the evaluation of the risk retention group’s management, including, but not limited to, the performance of the captive manager, managing general underwriter, or other party or parties responsible for underwriting, determination of rates, collection of premium, adjusting or settling claims or the preparation of financial statements;
• (d) review and approve the amount to be paid for all material service providers; and
• (e) review and approve at least annually:
• (i) the risk retention group’s goals and objectives relevant to the compensation of officers and service providers;
• (ii) the officers’ and service providers’ performance in light of those goals and objectives; and
• (iii) the continued engagement of the officers and material service providers.
• (4) The risk retention group shall have an audit committee composed of at least 3 independent board members as defined in this subsection F. A non-independent board member may participate in the activities of the audit committee, if invited by the members, but cannot be a member of the committee.
• The audit committee shall have a written charter that defines the committee’s purpose, which at a minimum must be to:
• (a) assist board oversight of: (I) the integrity of the financial statements, (II) the compliance with legal and regulatory requirements, and (III) the qualifications, independence, and performance of the independent auditor and actuary;
• (b) discuss the annual audited financial statements and quarterly financial statements with management;
• (c) discuss the annual audited financial statements with its independent auditor and, if advisable, discuss its quarterly financial statements with its independent auditor;
• (d) discuss policies with respect to risk assessment and risk management;
• (e) meet separately and periodically, either directly or through a designated representative of the committee, with management and independent auditors;
• (f) review with the independent auditor any audit problems or difficulties and management’s response;
• (g) set clear hiring policies of the risk retention group as to the hiring of employees or former employees of the independent auditor;
• (h) require the external auditor to rotate the lead or coordinating audit partner having primary responsibility for the risk retention group’s audit as well as the audit partner responsible for reviewing that audit so that neither individual performs audit services for more than 5 consecutive fiscal years; and
• (i) report regularly to the board of directors.
• The Department may waive the requirement to establish an audit committee composed of independent board members if the risk retention group is able to demonstrate to the Department that it is impracticable to do so and the risk retention group’s board of directors itself is otherwise able to accomplish the purposes of an audit committee as described in this paragraph (4).
• (5) The board of directors shall adopt and disclose governance standards, either through electronic or other means, and provide information to members and insureds upon request, including, but not limited to:
• (a) a process by which the directors are elected by the owner or insureds;
• (b) director qualification standards;
• (c) director responsibilities;
• (d) director access to management and, as necessary and appropriate, independent advisors;
• (e) director compensation;
• (f) director orientation and continuing education;
• (g) the policies and procedures that are followed for management succession; and
• (h) the policies and procedures that are followed for annual performance evaluation of the board.
• (6) The board of directors shall adopt and disclose a code of business conduct and ethics for directors, officers, and employees and promptly disclose to the board of directors any waivers of the code for directors or executive officers. The code of business conduct and ethics shall include, but is not limited to, the following topics:
• (a) conflicts of interest;
• (b) matters covered under the corporate opportunities doctrine under the state of domicile;
• (c) confidentiality;
• (d) fair dealing;
• (e) protection and proper use of risk retention group assets;
• (f) compliance with all applicable laws, rules, and regulations; and
• (g) the required reporting of any illegal or unethical behavior that affects the operation of the risk retention group.
• (7) The captive manager, president, or chief executive officer of the risk retention group shall promptly notify the Department in writing if he or she becomes aware of any material non-compliance with any of these governance standards. (Source: P.A. 99-512, eff. 1-1-17.)

 

(215 ILCS 5/123B-4) (from Ch. 73, par. 735B-4)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123B-4. Risk retention groups not organized in this State. Any risk retention group organized and licensed in a state other than this
State and seeking to do business as a risk retention group in this State shall
comply with the laws of this State as follows:

A. Notice of operations and designation of the Director as agent.

Before offering insurance in this State, a risk retention group shall submit
to the Director on a form prescribed by the NAIC:

• (1) a statement identifying the state or states in which the risk retention group is organized and licensed as a liability insurance company, its date of organization, its principal place of business, and such other information, including information on its membership, as the Director may require to verify that the risk retention group is qualified under subsection (11) of Section 123B-2 of this Article;
• (2) a copy of its plan of operations or a feasibility study and revisions of such plan or study submitted to its state of domicile; provided, however, that the provision relating to the submission of a plan of operation or a feasibility study shall not apply with respect to any line or classification of liability insurance which (a) was defined in the Product Liability Risk Retention Act of 1981 before October 27, 1986, and (b) was offered before such date by any risk retention group which had been organized and operating for not less than 3 years before such date; and
• (3) a statement of registration which designates the Director as its agent for the purpose of receiving service of legal documents or process, together with a filing fee of $200 payable to the Director.

A risk retention group shall submit a copy of any material revision to its plan of operation or feasibility study required by subsection B of Section 123B-3 of this Code within 30 days after the date of the approval of the revision by the Director or, if no such approval is required, within 30 days after filing.

B. Financial condition. Any risk retention group doing business in this
State shall submit to the Director:

• (1) a copy of the group’s financial statement submitted to the state in which the risk retention group is organized and licensed, which shall be certified by an independent public accountant and contain a statement of opinion on loss and loss adjustment expense reserves made by a member of the American Academy of Actuaries or a qualified loss reserve specialist (under criteria established by the NAIC);
• (2) a copy of each examination of the risk retention group as certified by the public official conducting the examination;
• (3) upon request by the Director, a copy of any information or document pertaining to any outside audit performed with respect to the risk retention group; and
• (4) such information as may be required to verify its continuing qualification as a risk retention group under subsection (11) of Section 123B-2.

C. Taxation.

• (1) Each risk retention group shall be liable for the payment of premium taxes and taxes on premiums of direct business for risks resident or located within this State, and shall report to the Director the net premiums written for risks resident or located within this State. Such risk retention group shall be subject to taxation, and any applicable fines and penalties related thereto, on the same basis as a foreign admitted insurer.
• (2) To the extent licensed insurance producers are utilized pursuant to Section 123B-11, they shall report to the Director the premiums for direct business for risks resident or located within this State which such licensees have placed with or on behalf of a risk retention group not organized in this State.
• (3) To the extent that licensed insurance producers are utilized pursuant to Section 123B-11, each such producer shall keep a complete and separate record of all policies procured from each such risk retention group, which record shall be open to examination by the Director, as provided in Section 506.1 of this Code. These records shall, for each policy and each kind of insurance provided thereunder, include the following:
• (a) the limit of the liability;
• (b) the time period covered;
• (c) the effective date;
• (d) the name of the risk retention group which issued the policy;
• (e) the gross premium charged; and
• (f) the amount of return premiums, if any.

D. Compliance With unfair claims practices provisions. Any risk retention
group, its agents and representatives shall be subject to the unfair claims
practices provisions of Sections 154.5 through 154.8 of this Code.

E. Deceptive, false, or fraudulent practices. Any risk retention group
shall comply with the laws of this State regarding deceptive, false, or
fraudulent acts or practices. However, if the Director seeks an injunction
regarding such conduct, the injunction must be obtained from a court of
competent jurisdiction.

F. Examination regarding financial condition. Any risk retention group must
submit to an examination by the Director to determine its financial condition
if the commissioner of insurance of the jurisdiction in which the group is
organized and licensed has not initiated an examination or does not initiate an
examination within 60 days after a request by the Director. Any such
examination shall be coordinated to avoid unjustified repetition and conducted
in an expeditious manner and in accordance with the NAIC’s Examiner Handbook.

G. Notice to purchasers. Every application form for insurance from a
risk retention group and the front page and declaration page of every policy
issued by a risk retention group shall contain in 10 point type the following
notice:

“NOTICE

This policy is issued by your risk retention group. Your risk retention group
is not subject to all of the insurance laws and regulations of your state.
State insurance insolvency guaranty fund protection is not available for your
risk retention group”.

H. Prohibited acts regarding solicitation or sale. The following acts by a
risk retention group are hereby prohibited:

• (1) the solicitation or sale of insurance by a risk retention group to any person who is not eligible for membership in such group; and
• (2) the solicitation or sale of insurance by, or operation of, a risk retention group that is in a hazardous financial condition or is financially impaired.

I. Prohibition on ownership by an insurance company. No risk retention
group shall be allowed to do business in this State if an insurance company is
directly or indirectly a member or owner of such risk retention group, other
than in the case of a risk retention group all of whose members are insurance
companies.

J. Prohibited coverage. No risk retention group may offer insurance policy
coverage prohibited by Articles IX or XI of this Code or declared unlawful by
the Illinois Supreme Court; provided however, a risk retention group
organized and licensed in a state other than this State that selects the law of
this State to govern the validity, construction, or enforceability of policies
issued by it is permitted to provide coverage under policies issued by it for
penalties in the nature of compensatory damages including, without limitation,
punitive damages and the multiplied portion of multiple damages, so long as
coverage of those penalties is not prohibited by the law of the state under
which the risk retention group is organized.

K. Delinquency proceedings. A risk retention group not organized in this
State and doing business in this State shall comply with a lawful order issued
in a voluntary dissolution proceeding or in a conservation, rehabilitation,
liquidation, or other delinquency proceeding commenced by the Director or by
another state insurance commissioner if there has been a finding of financial
impairment after an examination under subsection F of Section 123B-4 of this
Article.

L. Compliance with injunctive relief. A risk retention group shall comply
with an injunctive order issued in another state by a court of competent
jurisdiction or by a United States District Court based on a finding of
financial impairment or hazardous financial condition.

M. Penalties. A risk retention group that violates any provision of this
Article will be subject to fines and penalties applicable to licensed insurers
generally, including revocation of its license or the right to do business in
this State, or both.

N. (Blank).

(Source: P.A. 99-512, eff. 1-1-17.)

 

(215 ILCS 5/123B-5) (from Ch. 73, par. 735B-5)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123B-5.
Compulsory associations.

A. No risk retention group shall
be required or permitted
to join or contribute financially to the Illinois Insurance
Guaranty Fund, or any other plan, pool, association or guaranty or
insolvency fund or any similar mechanism, in this State,
nor shall any risk retention group, or its insureds
or claimants against its insureds, receive any benefit
from any such fund or any such plan, pool, association or guaranty or insolvency fund for
claims arising under the insurance
policies issued by such risk retention group.

B. When a purchasing group obtains insurance covering
its members’ risks from an insurer not authorized in
this State or a risk retention group, no such risks,
wherever resident or located, shall be covered by an
insurance guaranty fund or similar mechanism in this
State.

C. When a purchasing group obtains insurance covering
its members’ risks from an authorized insurer, only
risks resident or located in this State shall be covered
by the State guaranty fund subject to the provisions
of Article XXXIV.

(Source: P.A. 85-131.)

 

(215 ILCS 5/123B-6) (from Ch. 73, par. 735B-6)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123B-6.
Countersignatures not required.
Notwithstanding any
contrary provision of this Code,
a policy of insurance issued to a risk retention group
or any member of that group shall not be required to
be countersigned.

(Source: P.A. 85-131.)

 

(215 ILCS 5/123B-7) (from Ch. 73, par. 735B-7)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123B-7. Purchasing groups – exemption from certain laws relating to
the group purchase of insurance.
Any purchasing group meeting the criteria established
under the provisions of the federal Liability Risk Retention
Act of 1986 shall be exempt from any law of this State prohibiting
the creation of risk purchasing of groups for the purchase
of insurance; any countersignature requirements as provided
in this Code; and any prohibition of group purchasing or any
law that would discriminate against a purchasing group
or its members, prohibit a purchasing group from obtaining insurance on a group basis or because the group has not been in existence for a minimum period of time or because any member has not belonged to the group for a minimum period of time, require that a purchasing group must have a minimum number of members, common ownership or affiliation, or certain legal form, or require that a certain percentage of a purchasing group must obtain insurance on a group basis. In addition, an insurer shall be exempt
from any law of this State which prohibits providing,
or offering to provide, to a purchasing group or its
members advantages based on their loss and expense experience
not afforded to other persons with respect to rates,
policy forms, coverages or other matters. A purchasing
group shall be subject to all other applicable laws
of this State.

(Source: P.A. 99-512, eff. 1-1-17.)

 

(215 ILCS 5/123B-8) (from Ch. 73, par. 735B-8)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123B-8.
Notice and registration requirements
of purchasing groups.

A. A purchasing group that intends to do business
in this State shall, prior to doing business, furnish
notice to the Director, on a form prescribed by the Director, that shall:

• (1) identify the state in which the group is domiciled;
• (2) specify the lines and classifications of liability insurance which the purchasing group intends to purchase;
• (3) identify the insurance company from which the group intends to purchase its insurance and the domicile of such company;
• (4) specify the method by which, and the person or persons, if any, through whom insurance will be offered to its members whose risks are resident or located in this State;
• (5) identify the principal place of business of the group;
• (6) identify all other states in which the group intends to do business; and
• (7) provide such other information as may be required by the Director to verify that the purchasing group is qualified under subsection (10) of Section 123B-2 of this Article.

B. A purchasing group shall, within 10 days, notify the Director of any
changes in any item set forth in subsection A of this Section.

C. The purchasing group shall register with and designate
the Director as its agent solely for the purpose of
receiving service of legal documents or process, for
which a filing fee of $100 payable to the Director shall
be required, except that such requirements shall not
apply in the case of a purchasing group:

• (1) which in any state of the United States:
• (a) was domiciled before April 2, 1986; and
• (b) is domiciled on and after October 27, 1986, in any state of the United States;
• (2) which:
• (a) before October 27, 1986, purchased insurance from an insurance carrier licensed in any state; and
• (b) since October 27, 1986, purchased its insurance from an insurance carrier licensed in any state;
• (3) which was a purchasing group under the requirements of the Product Liability Risk Retention Act of 1981 before October 27, 1986; and
• (4) which does not purchase insurance that was not authorized for purposes of an exemption under that Act, as in effect before October 27, 1986.

D. Any purchasing group which was doing business in
this State prior to August 3, 1987, shall,
within 30 days after that date, furnish notice to the Director pursuant to
the provisions of subsection A of this Section and furnish
such information as may be required pursuant to subsection B
of this Section.

(Source: P.A. 87-1090.)

 

(215 ILCS 5/123B-9) (from Ch. 73, par. 735B-9)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123B-9.
Restrictions on insurance purchased by purchasing groups.

A. A purchasing group may not purchase insurance from
a risk retention group that is not organized in a state
or from an insurer not admitted in the state in which
the purchasing group is located, unless the purchase
is effected through a licensed surplus line producer acting
pursuant to the surplus lines laws and regulations of such state.

B. No purchasing group may offer insurance policy
coverage prohibited by this Code or declared unlawful
by the Illinois Supreme Court.

C. A purchasing group which obtains liability insurance
from an insurer not admitted in this State or a risk
retention group shall inform each of the members of
such group which has a risk resident or located in this
State that such risk is not protected by an insurance
insolvency guaranty fund in this State, and that such
risk retention group or such insurer may not be subject
to all insurance laws and regulations of this State.

D. No purchasing group may purchase insurance providing for a deductible
or an aggregate limit unless the deductible or aggregate limit applies
separately to each individual member of the purchasing group.

(Source: P.A. 85-131.)

 

(215 ILCS 5/123B-10) (from Ch. 73, par. 735B-10)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123B-10.
Administrative and procedural authority
regarding risk retention groups and purchasing groups.
The Director is authorized to make use of any of the
powers established under this Code to enforce the laws
of this State so long as those powers are not specifically
preempted by the Product Liability Risk Retention Act
of 1981, as amended by the Risk Retention Amendments
of 1986. This includes, but is not limited to, the
Director’s administrative authority to investigate,
issue subpoenas, conduct depositions and hearings, issue
orders (including without limitation orders pursuant
to Article XII 1/2 and Section 401.1), and impose penalties.
With regard to any investigation, administrative proceedings,
or litigation, the Director can rely on the procedural
law and regulations of this State.

(Source: P.A. 85-131.)

 

(215 ILCS 5/123B-11) (from Ch. 73, par. 735B-11)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123B-11.
Duty on producers to obtain
license.

A. Any person offering, acting or seeking to solicit,
sell, purchase, administer or otherwise
service a liability insurance
contract between a
purchasing group located in this State and a risk retention
group or insurance company, and any person offering,
acting or seeking to solicit, sell, purchase, administer
or otherwise service membership contracts, certificates
or agreements for enrollment in any purchasing group
to any resident of this State, must obtain a license
to act as an insurance producer for casualty
lines of insurance under Article XXXI; provided,
however, that the foregoing provisions of this subsection A, and the
following provisions of this Section 123B-11, shall not apply, if:

• (1) such purchasing group is composed entirely of industrial insureds (as defined in subsection F of Section 123C-1);
• (2) any such purchasing group, that obtains liability insurance from an insurer or risk retention group for one or more members of such group which has risks resident or located in this State, shall file a report in writing with the Director not later than April 1 of each year, in the form prescribed by the Director, signed and sworn to by an officer of such group, setting forth such information as the Director may require to determine whether taxes due this State with respect to the purchase of such insurance have properly been paid; and
• (3) such purchasing group filing a report under paragraph (2) shall furnish to each insurer or risk retention group whose name is set forth in such report a written statement, showing:
• (a) the name and address of the purchasing group making such report;
• (b) such additional information as the Director may require with respect to the liability insurance obtained by such purchasing group from such insurer or risk retention group; and
• (c) that such information has been filed with the Director.
• The written statement required under the preceding sentence shall be furnished in a separate mailing by first-class mail to the insurer or risk retention group on or before April 1 of the year following the calendar year for which the report under paragraph (2) was made and shall be in such form as the Director may prescribe.

B. Any such person shall be subject to all requirements
of and regulations under Article XXXI, except that:

• (1) such person shall be exempt from any residency requirement imposed by statute or rule, if he or she states in writing that the activities to be carried out under the license will be limited to those described in subsection A of this Section; and
• (2) where such person does not qualify for the exemption set forth in paragraph (1) of subsection B of this Section, all residency requirements under the laws of this State shall be applicable; and
• (3) where such person engages in activities, as a licensed insurance producer, beyond those described in subsection A of this Section, all books, records, statements and accounts required to be established and maintained with respect to activities described in subsection A shall be established and maintained on a segregated basis, separate and apart from all other books, records, statements and accounts regarding the licensee’s other transactions. All premiums, commissions or other funds collected as a result of the activities described in subsection A shall be segregated from all other funds of the licensee, shall be held in separate accounts and shall in no event be commingled with any other funds held by the licensee; and
• (4) in addition to any other statutory bonding requirements, any person required to be licensed by this Section shall file with his license application, and thereafter maintain, a fidelity bond in favor of the people of this State executed by a surety company and payable to any party injured by the licensee’s breach of a fiduciary duty under the terms of the bond. Such bond shall be continuous in form and maintained in the amount of the greater of $50,000 or 5% of premiums or contributions projected to be received or collected by the applicant from Illinois residents during the next succeeding year as a result of activities under this Section, but not to exceed $1,000,000. Such bond shall remain in force and effect until the surety is released from liability by the Director or until the bond is cancelled by the surety. The surety may cancel the bond and be released from further liability thereunder upon 30 days’ written notice in advance to the Director. Such cancellation shall not affect any liability incurred or accrued thereunder before the termination of the 30 day period. Upon receipt of any notice of cancellation, the Director shall immediately notify the licensee.

C. Activities described under subsection A of this Section
shall require licensing if carried out, in whole or
in part, within this State either directly or indirectly
by the use of the mails, advertising or other means
of communication with a terminal located in this State.

D. In addition to any other lawful duties, any person
engaging in the activities described in subsection A
of this Section shall be obligated to exercise reasonable
and customary skill and diligence to ascertain that:

• (1) any purchasing group or purchasing group member, to or for whom an offer or solicitation is made, receives a written disclosure that the liability insurance coverage being offered may not be subject to all of the insurance laws and regulations of this State and that, if such company is not otherwise authorized to transact business in this State, insolvency guaranty fund protection is not available for the purchasing group or purchasing group members; and that
• (2) any risk retention group or insurance company which provides a liability insurance policy or certificate to any purchasing group member to or for whom an offer or solicitation is made is:
• (a) solvent, and has standards of solvency and management which are adequate for the protection of policyholders and certificate holders; and
• (b) operating in a lawful manner under this Article.

E. Any insurance producer who breaches a fiduciary
duty or who violates any provision of this Section will
be subject to fine and revocation or suspension of its
license in accordance with the procedures established
under Article XXXI and may be held liable for civil
damages to any person or group resulting from such violation
or breach of a fiduciary duty.

F. Any person retained or employed to solicit, offer,
sell or purchase memberships in a purchasing group may
be ordered to cease any such enrollment activity in
this State whenever the Director has reason to believe
that any such purchasing group has liability insurance
coverage from a risk retention group or insurance company
which is insolvent or in a hazardous financial condition.
Orders entered under this paragraph shall be issued
in accordance with the procedures set forth at Section
401.1.

G. The Director may permit, on a reciprocal basis,
a person licensed in another state to engage in the
activities described in subsection A of this Section,
whenever he is satisfied that the laws of such other
state impose standards and duties
on such licensee no less stringent
than the standards and duties required by this Section.

(Source: P.A. 85-131.)

 

(215 ILCS 5/123B-12) (from Ch. 73, par. 735B-12)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123B-12.
Binding effect of orders issued in
U.S. District Court. An order issued by any United States District Court
enjoining a risk retention group from soliciting or
selling insurance, or operating, in any state (or in
all states or in any territory or possession of the
United States) upon a finding that such a group is in
a hazardous financial condition or financially impaired condition shall be
enforceable in the courts of this State.

(Source: P.A. 85-131.)

 

(215 ILCS 5/123B-13) (from Ch. 73, par. 735B-13)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123B-13.
Rules and regulations.
The Director may establish and from time to time amend
such rules relating to risk retention groups as may
be necessary or desirable to carry out the provisions
of this Article.

(Source: P.A. 85-131.)

 

(215 ILCS 5/123B-14) (from Ch. 73, par. 735B-14)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123B-14.
Severability.
If any clause, sentence, paragraph,
Section or part of this Article or the application thereof to any person or
circumstances, shall, for any reason, be adjudged by any court of competent
jurisdiction to be invalid, such judgment shall not affect, impair or
invalidate the remainder of this Article, and the application thereof to
other persons or circumstances, but shall be confined in its operation to
the clause, sentence, paragraph, Section or part thereof directly involved
in the controversy in which such judgment shall have been rendered and to
the person or circumstances involved.

(Source: P.A. 85-131.)