LL Surplus Lines Series (Entry 22): Illinois Introduces Changes to Surplus Lines Laws Regarding Declinations and Group Policies
February 24, 2020

On February 14, 2020, Illinois introduced legislation (SB3783) that would make significant changes in the manner certain surplus lines placements are made in Illinois.  Illinois would be the latest state to amend their surplus lines laws and improve efficiency in the placement of surplus lines risks.

First, the legislation would eliminate the declination requirement under certain circumstances. This would apply to commercial insurance contracts and only in those situations where the risk was referred to the surplus lines producer by an Illinois licensed insurance producer who is not affiliated with the surplus line producer.  Illinois would join the small minority of states have done away with the diligent search requirement, at least for Illinois with respect to wholesale commercial insurance placements.

Second, with respect to group master policies and program business, the diligent search effort to procure the insurance would only need to be accomplished annually rather than individually for each insured added during the policy period.  This helps clarify how to treat nonaffiliated groups in the surplus lines context.  While the Nonadmitted and Reinsurance Reform Act of 2010 (the “NRRA”) addresses how to treat group policies where all insureds are affiliated, the NRRA is ‎silent as to determining the home state of nonaffiliated groups.  As a result, many states take the ‎position that every certificate issued to an insured should be treated as its own policy and the certificateholder’s domiciliary ‎state is considered the home state for each such certificate.  Declinations would then be required for each certificateholder.  Under the Illinois legislation, Illinois would only require a declination once a year for all insureds in a nonaffiliated group, which would significantly ease the administrative burden of obtaining declinations each time.  We typically see these clarifications with respect to surplus ‎lines group policies issued through risk purchasing groups (RPGs) but not in the more general group context.‎  Despite alleviating the diligent search requirement, the proposed legislation doesn’t expressly grant relief from filing each certificate with the Surplus Line Association of Illinois.

The legislation would also eliminate the need for surplus lines brokers to file zero reports.  A surplus lines broker is required to submit a report with the Surplus Line Association of Illinois before February 1 and August 1 of each year on surplus lines insurance produced during the preceding 6-month period ending December 31 or June 30 respectively.  If no insurance was produced from unauthorized insurers during the reporting period, a report would no longer be required to be filed by the broker.  Finally, the legislation clarifies that every premium bearing endorsement, in addition to the insurance contract, must be filed with the Surplus Line Association of Illinois for recording.

We will continue to monitor the progress of the bill.  If adopted, it becomes effective on January 1, 2021.

*Locke Lord is proud to publish the Locke Lord Excess and Surplus Lines Manual on an annual basis, located here.

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