215 ILCS 5/531.03

Current through Public Act 103-1052

Section 215 ILCS 5/531.03 - Coverage and limitations

(1) This Article shall provide coverage for the policies and contracts specified in subsection (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, including health care providers rendering services covered under a health insurance policy or certificate, of the persons covered under paragraph (b) of this subsection, and

(b) to persons who are owners of or certificate holders or enrollees under the policies or contracts (other than unallocated annuity contracts and structured settlement annuities) and in each case who:

(i) are residents; or

(ii) are not residents, but only under all of the following conditions:

(A) the member insurer that issued the policies or contracts is domiciled in this State;

(B) the states in which the persons reside have associations similar to the Association created by this Article;

(C) the persons are not eligible for coverage by an association in any other state due to the fact that the insurer or health maintenance organization was not licensed in that state at the time specified in that state's guaranty association law.

(c) For unallocated annuity contracts specified in subsection (2), paragraphs (a) and (b) of this subsection (1) shall not apply and this Article shall (except as provided in paragraphs (e) and (f) of this subsection) provide coverage to:

(i) persons who are the owners of the unallocated annuity contracts if the contracts are issued to or in connection with a specific benefit plan whose plan sponsor has its principal place of business in this State; and

(ii) persons who are owners of unallocated annuity contracts issued to or in connection with government lotteries if the owners are residents.

(d) For structured settlement annuities specified in subsection (2), paragraphs (a) and (b) of this subsection (1) shall not apply and this Article shall (except as provided in paragraphs (e) and (f) of this subsection) provide coverage to a person who is a payee under a structured settlement annuity (or beneficiary of a payee if the payee is deceased), if the payee:

(i) is a resident, regardless of where the contract owner resides; or

(ii) is not a resident, but only under both of the following conditions:

(A) with regard to residency:

(I) the contract owner of the structured settlement annuity is a resident; or

(II) the contract owner of the structured settlement annuity is not a resident but the insurer that issued the structured settlement annuity is domiciled in this State and the state in which the contract owner resides has an association similar to the Association created by this Article; and

(B) neither the payee or beneficiary nor the contract owner is eligible for coverage by the association of the state in which the payee or contract owner resides.

(e) This Article shall not provide coverage to:

(i) a person who is a payee or beneficiary of a contract owner resident of this State if the payee or beneficiary is afforded any coverage by the association of another state; or

(ii) a person covered under paragraph (c) of this subsection (1), if any coverage is provided by the association of another state to that person.

(f) This Article is intended to provide coverage to a person who is a resident of this State and, in special circumstances, to a nonresident. In order to avoid duplicate coverage, if a person who would otherwise receive coverage under this Article is provided coverage under the laws of any other state, then the person shall not be provided coverage under this Article. In determining the application of the provisions of this paragraph in situations where a person could be covered by the association of more than one state, whether as an owner, payee, enrollee, beneficiary, or assignee, this Article shall be construed in conjunction with other state laws to result in coverage by only one association.

(2)

(a) This Article shall provide coverage to the persons specified in subsection (1) of this Section for policies or contracts of direct, (i) nongroup life insurance, health insurance (that, for the purposes of this Article, includes health maintenance organization subscriber contracts and certificates), annuities and supplemental contracts to any of these, (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 this 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) Except as otherwise provided in paragraph (c) of this subsection, this Article shall not provide coverage for:

(i) that portion of a policy or contract not guaranteed by the member insurer, or under which the risk is borne by the policy or contract owner;

(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;

(iii) any portion of a policy or contract to the extent that the rate of interest on which it is based or the interest rate, crediting rate, or similar factor is determined by use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value:

(A) averaged over the period of 4 years prior to the date on which the member insurer becomes an impaired or insolvent insurer under this Article, whichever is earlier, exceeds the rate of interest determined by subtracting 2 percentage points from Moody's Corporate Bond Yield Average averaged for that same 4-year period or for such lesser period if the policy or contract was issued less than 4 years before the member insurer becomes an impaired or insolvent insurer under this Article, whichever is earlier; and

(B) on and after the date on which the member insurer becomes an impaired or insolvent insurer under this Article, whichever is earlier, exceeds the rate of interest determined by subtracting 3 percentage points from Moody's Corporate Bond Yield Average as most recently available;

(iv) any unallocated annuity contract issued to or in connection with a benefit plan protected under the federal Pension Benefit Guaranty Corporation, regardless of whether the federal Pension Benefit Guaranty Corporation has yet become liable to make any payments with respect to the benefit plan;

(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;

(vi) an obligation that does not arise under the express written terms of the policy or contract issued by the member insurer to the enrollee, certificate holder, contract owner, or policy owner, including without limitation:

(A) a claim based on marketing materials;

(B) a claim based on side letters, riders, or other documents that were issued by the member insurer without meeting applicable policy or contract form filing or approval requirements;

(C) a misrepresentation of or regarding policy or contract benefits;

(D) an extra-contractual claim; or

(E) a claim for penalties or consequential or incidental damages;

(vii) any stop-loss insurance, as defined in clause (b) of Class 1 or clause (a) of Class 2 of Section 4;

(viii) any policy or contract providing any hospital, medical, prescription drug, or other health care benefits pursuant to Part C or Part D of Subchapter XVIII, Chapter 7 of Title 42 of the United States Code (commonly known as Medicare Part C & D), Subchapter XIX, Chapter 7 of Title 42 of the United States Code (commonly known as Medicaid), or any regulations issued pursuant thereto;

(ix) any portion of a policy or contract to the extent that the assessments required by Section 531.09 of this Code with respect to the policy or contract are preempted or otherwise not permitted by federal or State law;

(x) any portion of a policy or contract issued to a plan or program of an employer, association, or other person to provide life, health, or annuity benefits to its employees, members, or others to the extent that the plan or program is self-funded or uninsured, including, but not limited to, benefits payable by an employer, association, or other person under:

(A) a multiple employer welfare arrangement as defined in 29 U.S.C. Section 1002;

(B) a minimum premium group insurance plan;

(C) a stop-loss group insurance plan; or

(D) an administrative services only contract;

(xi) any portion of a policy or contract to the extent that it provides for:

(A) dividends or experience rating credits;

(B) voting rights; or

(C) payment of any fees or allowances to any person, including the policy or contract owner, in connection with the service to or administration of the policy or contract;

(xii) any policy or contract issued in this State by a member insurer at a time when it was not licensed or did not have a certificate of authority to issue the policy or contract in this State;

(xiii) any contractual agreement that establishes the member insurer's obligations to provide a book value accounting guaranty for defined contribution benefit plan participants by reference to a portfolio of assets that is owned by the benefit plan or its trustee, which in each case is not an affiliate of the member insurer;

(xiv) any portion of a policy or contract to the extent that it provides for interest or other changes in value to be determined by the use of an index or other external reference stated in the policy or contract, but which have not been credited to the policy or contract, or as to which the policy or contract owner's rights are subject to forfeiture, as of the date the member insurer becomes an impaired or insolvent insurer under this Code, whichever is earlier. If a policy's or contract's interest or changes in value are credited less frequently than annually, then for purposes of determining the values that have been credited and are not subject to forfeiture under this Section, the interest or change in value determined by using the procedures defined in the policy or contract will be credited as if the contractual date of crediting interest or changing values was the date of impairment or insolvency, whichever is earlier, and will not be subject to forfeiture; or

(xv) that portion or part of a variable life insurance or variable annuity contract not guaranteed by a member insurer.

(c) The exclusion from coverage referenced in subdivision (iii) of paragraph (b) of this subsection shall not apply to any portion of a policy or contract, including a rider, that provides long-term care or other health insurance benefits.

(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 member 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) for health insurance benefits:

(I) $100,000 for coverages not defined as disability income insurance or health benefit plans or long-term care insurance, including any net cash surrender and net cash withdrawal values;

(II) $300,000 for disability income insurance and $300,000 for long-term care insurance; and

(III) $500,000 for health benefit plans;

(C) $250,000 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 benefit 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, $250,000 in present value annuity benefits, including net cash surrender and net cash withdrawal values;

(iii) with respect to each payee of a structured settlement annuity or beneficiary or beneficiaries of the payee if deceased, $250,000 in present value annuity benefits, in the aggregate, including net cash surrender and net cash withdrawal values, if any; or

(iv) with respect to either (1) one contract owner provided coverage under subparagraph (ii) of paragraph (c) of subsection (1) of this Section or (2) one plan sponsor whose plans own directly or in trust one or more unallocated annuity contracts not included in subparagraph (ii) of paragraph (b) of this subsection, $5,000,000 in benefits, irrespective of the number of contracts with respect to the contract owner or plan sponsor. However, in the case where one or more unallocated annuity contracts are covered contracts under this Article and are owned by a trust or other entity for the benefit of 2 or more plan sponsors, coverage shall be afforded by the Association if the largest interest in the trust or entity owning the contract or contracts is held by a plan sponsor whose principal place of business is in this State. In no event shall the Association be obligated to cover more than $5,000,000 in benefits with respect to all these unallocated contracts.

In no event shall the Association be obligated to cover more than (1) an aggregate of $300,000 in benefits with respect to any one life under subparagraphs (i), (ii), and (iii) of this paragraph (b) except with respect to benefits for health benefit plans under item (B) of subparagraph (i) of this paragraph (b), in which case the aggregate liability of the Association shall not exceed $500,000 with respect to any one individual or (2) with respect to one owner of multiple nongroup policies of life insurance, whether the policy or contract owner is an individual, firm, corporation, or other person and whether the persons insured are officers, managers, employees, or other persons, $5,000,000 in benefits, regardless of the number of policies and contracts held by the owner.

The limitations set forth in this subsection are limitations on the benefits for which the Association is obligated before taking into account either its subrogation and assignment rights or the extent to which those benefits could be provided out of the assets of the impaired or insolvent insurer attributable to covered policies. The costs of the Association's obligations under this Article may be met by the use of assets attributable to covered policies or reimbursed to the Association pursuant to its subrogation and assignment rights.

For purposes of this Article, benefits provided by a long-term care rider to a life insurance policy or annuity contract shall be considered the same type of benefits as the base life insurance policy or annuity contract to which it relates.

(4) In performing its obligations to provide coverage under Section 531.08 of this Code, the Association shall not be required to guarantee, assume, reinsure, reissue, or perform or cause to be guaranteed, assumed, reinsured, reissued, or performed the contractual obligations of the insolvent or impaired insurer under a covered policy or contract that do not materially affect the economic values or economic benefits of the covered policy or contract.

215 ILCS 5/531.03

Amended by P.A. 103-0718,§ 25, eff. 7/19/2024.

Amended by P.A. 100-0863,§ 335, eff. 8/14/2018.

Amended by P.A. 100-0687,§ 5, eff. 8/3/2018.

Amended by P.A. 096-1450,§ 5, eff. 8/20/2010.

P.A. 90-177, eff. 7-23-97; 91-357, eff. 7-29-99.