INTRODUCTION
On February 27, 1985, the current surplus line law (Section 445 of the
Illinois Insurance Code) became effective.
At that time, the new law provided a number of significant changes in
surplus line regulation. These changes
included licensing revisions, changes to the service of suit provisions, new
criteria for the selection of unauthorized insurers, and many others.
The new law also brought about the creation of the Surplus Line Association of
Illinois. The Surplus Line Association is required to countersign all surplus
line contracts covering Illinois risks. As a member, you are required to submit
all applicable documents to the Association for countersignature. This manual
is designed to assist you in filing documents with the Surplus Line
Association of Illinois.
Each licensed surplus line producer is a member of the Surplus Line Association
of Illinois. Membership may be maintained as an individual
or as a firm (see Membership and Plan of
Operation).
Your membership in the Surplus Line Association does not in any way relieve you
of your responsibility to comply with the Association procedures or with the
surplus
line laws and regulations of the
State of Illinois.
MEMBERSHIP
Each Surplus Line Licensee is a member of the Surplus Line Association of Illinois.
a) Types of Membership
Membership in the Association may be maintained as:
1. Individual Member
A surplus line licensee may join the Association as an Individual Member.
2. Firm Member
One or more surplus line licensees who are employed by or associated with the same
firm may join the Association as part of a Firm Member. Each member of the firm membership must complete the
appropriate forms in the Membership Registration Pack.
These forms indicate that you and other licensees in the firm wish to consolidate your
premium writings and have the firm exercise your vote at Association meetings and
exercise all other powers as a member of the Association. One of the
licensees is designated as the tax licensee or tax member, and all premiums will
be consolidated on their tax statements.
b) Term of Membership
Membership in the Association begins on the effective date of your surplus line
license and continues as long as your license remains valid.
c) Other Membership Requirements
1. Current Address and Company Affiliation
It is important that whenever there is a change in your address or company
affiliation that the Association be informed immediately so that the Association
may properly direct your tax forms and other pertinent information.
2. License and Membership Termination
If you determine that you are not going to renew your surplus line license or
if you are surrendering your surplus line license voluntarily, you must
write to
the Association (and the
Department of Insurance) indicating your intentions.
SURPLUS LINE LAW REQUIREMENTS
The Illinois surplus
line law permits a licensed surplus line producer to procure
insurance from an unauthorized or domestic surplus line insurer after the insurance
producer representing the insured or the surplus line producer is unable, after
diligent effort, to procure the insurance from authorized insurers. Even then, the
surplus line producer may only procure the insurance from an unauthorized or domestic
surplus line insurer:
a) that, based upon information available to the surplus line
licensee, has a policyholders surplus of not less than $15 million; and
b) that has standards of solvency and management that are
adequate for the protection of policyholders.
In the event the unauthorized insurer does not meet one or both of these
standards, a surplus line producer may procure the insurance from that insurer if
a prior written warning (see Regulation 2801,
Illustration A) is given to the insured.
Regulation 2801 provides that the
diligent effort required by the Illinois surplus
line law shall be deemed to have been exercised if the surplus line
producer or the insurance producer has submitted the risk to three or more
authorized insurers (other than domestic surplus line insurers), that are
engaged in writing in Illinois the type of coverage sought. If there are no insurers
engaged in writing such coverage, the risk shall be submitted to insurers that, in
the surplus line producer's professional judgment, are the most likely to accept the
risk.
Producers may not procure a primary surplus line policy for: (1) any risk
where there is a law that requires that the insurance be issued by an
“authorized” insurer; (2) workers’ compensation insurance; or (3) any personal
lines risk that is eligible for residual market (like the Auto Plan or FAIR
Plan) coverage at the limits requested by the insured. Producers may procure
surplus line policies for the foregoing on an excess or umbrella basis.
The Illinois surplus
line law does not apply to insurance of property and operations
of railroads or aircraft engaged in interstate or foreign commerce, insurance of vessels,
crafts or hulls, cargoes, marine builders risks, marine protection and indemnity,
or other risks including strikes and war risks insured under ocean or wet
marine forms of policies.
ASSOCIATION FILING PROCEDURES
All surplus line insurance contracts covering Illinois risks must be submitted to
the Association for recording and stamping prior to delivery to the insured.
a) Required Information
The insurance contracts submitted to
the Association shall set forth the following information:
| *1. |
Name of Insured |
|
|
| 2. |
Address of Insured |
|
|
| *3. |
Name of Unauthorized Insurer or Domestic Surplus Line
Insurer |
|
|
| *4. |
Policy Number |
|
|
| 5. |
Type of Coverage |
|
|
| *6. |
Effective Date |
|
|
| 7. |
Term |
|
|
| 8. |
Amount of Coverage |
|
|
| *9. |
Gross Premium Charged or (Returned) |
} |
|
| *10. |
Surplus Line Tax Charged or (Returned) |
} |
#9-#12 must be shown |
| *11. |
Fire Marshal Tax Charged or (Returned) |
} |
on declarations page. |
| *12. |
Stamping Fee Charged or (Returned) |
} |
|
* These are the only necessary items for the
filing of endorsements.
Endorsements and other documents that are part of the insurance contract, even
if they do not affect the premium charged, must be submitted to the
Association for processing and stamping.
b) Notice to Policyholder
1. Surplus Line Insurer
For policies issued by a Surplus Line Insurer pursuant to Section
445, the Illinois Department of Insurance requires that the following legend be located on
the first page in no less than 12 point bold face type:
NOTICE TO POLICYHOLDER: This
contract is issued pursuant to Section 445 of the Illinois Insurance Code, by a company
not authorized and licensed to transact business in Illinois and as such is not covered by
the Illinois Insurance Guaranty Fund.
2. Illinois Domestic Surplus Line Insurer
For policies issued by an Illinois Domestic Surplus Line Insurer pursuant to Section 445a, the Illinois Department of Insurance requires that
the following legend be located on the first page in no less than 12 point bold face type:
NOTICE TO POLICYHOLDER: This
contract is issued by a domestic surplus line insurer, as defined in Section 445a,
pursuant to Section 445 and as such is not covered by the Illinois Insurance Guaranty Fund.
For more information on Illinois Domestic Surplus Line Insurers,
click here.
If the proper Notice to Policyholder is not on the document, the document will be
returned to the producer without countersignature.
c) Service of Suit (Service of Process)
The Illinois surplus
line law requires that all insurance contracts from
unauthorized insurers contain a provision designating the Illinois Director of
Insurance and his successors as attorney of the insurer for service of process in any
action arising out of the insurance contract.
[For policies effective prior to January 1, 2002, the provision must also
designate the surplus line producer or some other resident of the State of Illinois
as an agent of the company, to whom a copy of the service of suit should be forwarded
by the Director for delivery to the unauthorized company. The name and full
Illinois address must be shown. The law changed, effective 1/1/02, eliminating
this requirement.]
The Illinois Department of Insurance has indicated that the Service of Suit required by
Section 445
does not apply to placements with Illinois Domestic Surplus Line Insurers
as defined in Section 445a.
Any service of suit received by the Association will be forwarded to the surplus
line producer, designated Illinois resident, or the insurer (as appropriate) for
handling. If the service of suit provision is inadequate or incomplete, the documents
will be returned to the producer without countersignature.
For sample service of suit wording,
click here.
d) Number of Copies to Submit
Each member must submit the original and one complete copy of the surplus line
insurance contract, endorsement or other insuring document for recording and stamping.
The original will be returned to the producer and the copy will be retained by the
Association.
Additional copies may be submitted for stamping at your option.
e) Batching
All surplus line documents filed with the Association are submitted in batch
form with no more than twenty documents per batch. Each batch must be
submitted using a
Verification Slip which can be downloaded from the
Association website. After completing the Verification Slip, you should keep one copy for
your files (so you have a record of documents sent to the Association) and send two copies
to the Association with your documents. The Association will keep one copy
and return the other copy with your stamped documents.
On the top of the Verification Slip, fill in the date you are preparing the
batch, your SLA member number (which is NOT the same as your license
number) and the surplus line producer name. Show the insured name,
policy/endorsement number, and/or other identifying data in the left column.
In the right column, show the corresponding premium (rounded to the nearest
whole dollar) for each document included in the batch. Return premiums should be indicated with brackets or parentheses, as opposed to
the standard negative sign. For example, a return premium of $100 would be
shown as (100) or <100>. PREMIUM ONLY should be shown in this
column. Do NOT include broker fees, taxes or other fees. Calculate the total net premium for the entire
batch at the bottom of the verification slip. Any errors on the
verification slip will be noted on the copy returned to the producer with the
stamped documents.
f) Return Form
Should the Association find that the producer's documents lack vital information,
the documents will be returned without countersignature along with the Return Form indicating the deficiency.
g) Multi-State Risks
To determine if a contract that has multi-state exposure should be submitted to
the Association, be advised that the Illinois
Department of Insurance has indicated that:
Property Policies—
The Illinois Department of Insurance has approved allocations of taxes, when
there is adequate determination of values between the various locations.
Liability Policies—
The Illinois Department of Insurance has indicated that, if there is exposure in
another state, taxes may be allocated accordingly. Since liability exposure and
premium allocation are not easily determined, unless another state’s laws require
allocation, it is acceptable to the Illinois Department of Insurance to not allocate.
When submitting a multi-state policy to the Association using allocation, be sure
to note the Illinois portion of the premium on the declarations page along with the
appropriate taxes and fees. Only the Illinois portion of the premium
should be shown on the Verification Slip.
ROUNDING RULE
The premium, Surplus Line Tax, Fire Marshal Tax and Association Stamping Fee as
calculated for each document shall be rounded to the nearest whole dollar. Each
calculation involving less than 50 cents shall be rounded down to the next lowest
whole dollar (less that 50 cents show zero) and each item involving 50 cents or more
shall be rounded up to the next highest whole dollar.
RENEWAL CERTIFICATES
The Association has established the following procedure for processing Renewal
Certificates:
a) A copy of the declarations page must accompany the renewal certificate.
b) The amount of current coverage must be shown.
UNDERWRITERS AT LLOYD'S POLICIES
The Illinois Insurance Code requires that all policies written
by Underwriters at Lloyd's, London be processed through the Lloyd's Illinois
representative, Lloyd's Illinois, Inc., and countersigned
in red (for Lloyd’s admitted business) or in
blue (for surplus line business).
Lloyd's policies must be sent to Lloyd's Illinois, Inc. first to obtain
the proper Lloyd's countersignature before being submitted to the Surplus
Line Association. The Association will only process Lloyd's documents that
contain the blue Lloyd's Surplus Line stamp.
For questions, call Lloyd's Illinois, Inc. at 312-407-6200, or
visit them
on the web.
STAMPING FEE
The Association stamping fee applies to each Illinois surplus line premium
processed through the Association at the rate shown on the table below.
The Association will bill the members on a monthly basis for business processed the
preceding month. The stamping fee will be due and payable on or before the last day
of the following month. For example, documents processed in July will be billed in
August, usually between the 10th and the 15th, and the stamping fees will be due
and payable by September 30th.
You are permitted by law to pass the stamping fee as well as the surplus line tax
and fire marshal tax on to the insured. If you pass these fees on to your insureds,
they should be shown as separate items on the declarations page of the insurance
contract.
Return premiums, taxes and fees should be handled in exactly the same manner.
In the event your monthly Association stamping fee is a negative figure, it will
be credited to your account or will be returned by the Association upon request.
The Association is required by law to inform the Illinois Department of Insurance of
any member who is 60 days delinquent in the payment of stamping fees.
TABLE OF STAMPING FEES
| Policy Effective Date |
Stamping Fee Rate for
All Subsequent Transactions |
| July 1, 2006 & Thereafter |
0.1% or (.001) |
| January 1, 1995 - June 30, 2006 |
0.3% or (.003) |
| January 1, 1988 - December 31, 1994 |
0.1% or (.001) |
| August 1, 1986 - December 31, 1987 |
0.2% or (.002) |
| July 1, 1985 - July 31, 1986 |
0.5% or (.005) |
| Prior to July 1, 1985 |
No Stamping Fee Assessed |
MONTHLY REPORTS
The Association will
provide each member a report of all business filed during a given month by the
15th of the following month. The report
will reflect the following information for each surplus line contract:
Name of Insured Address of Insured Name of Unauthorized Insurer or Domestic Surplus Line Insurer Policy Number Type of Coverage Effective Date Term Amount of Coverage Gross Premium Charged or (Returned) Surplus Line Tax Charged or (Returned) Fire Marshal Tax Charged or (Returned) Stamping Fee Charged or (Returned)
A copy of the report will
be supplied to the Illinois Department of Insurance. IT IS
IMPORTANT THAT YOU REVIEW YOUR MONTHLY REPORT SINCE IT IS A REFLECTION OF YOUR
TAX LIABILITY.
TAXES
The State of Illinois imposes two taxes on surplus line business: a Surplus Line Tax and a Fire Marshal Tax.
These taxes are computed in the following manner:
a) Surplus Line Tax
The Surplus Line Tax imposed by the State of Illinois is three and one-half percent (3.5%) of
the net written premium — rounded to the nearest whole dollar. Net written premium is defined as premiums
charged less returned. This tax is collected semiannually; August 1st for premiums written January through June, and
February 1st for premiums written July through December. TAX STATEMENTS MUST BE FILED EVEN WHEN THERE
IS NO TAX DUE. FAILURE TO DO SO WILL SUBJECT THE LICENSEE TO A PENALTY.
b) Fire Marshal Tax
The Fire Marshal Tax imposed by the State of Illinois is one percent (1%) of the net fire premium —
rounded to the nearest whole dollar. The tax applies to fire, sprinkler leakage, riot, civil commotion,
explosion and the fire portion of inland marine, earthquake, automobile physical damage, homeowners, farmowners
and other multiple line policies covering risks within the state. This tax is collected on a calendar year
basis with a due date of March 31st. THIS TAX STATEMENT MUST BE FILED EVEN IF NO TAX IS DUE.
The following table indicates the percentage of the premium subject to the tax:
| Line of Business |
Percentage Subject to Tax |
|
|
|
| Fire |
100% |
1 |
} |
|
| Allied Lines |
25% |
|
} |
|
| Crop Hail |
1% |
|
} |
|
| Farmowners-Multiple Peril |
40% |
2 |
} |
|
| Homeowners-Multiple Peril |
40% |
2 |
} |
of 1% |
| Commercial-Multiple Peril (SMP & Multi-Line) |
40% |
2 |
} |
|
| Inland Marine |
15% |
3 |
} |
|
| Earthquake |
25% |
|
} |
|
| Auto Physical Damage |
5% |
|
} |
|
| All Risk-Real Property |
50% |
|
} |
|
1 Fire premiums that include allied lines are assessed the full
100%. If the premiums are separate and
distinct (fire and allied) the allied line portion may be assessed at 25%.
2 For Multiple Peril policies when the section one premium is
separate and distinct, that portion may be assessed in the same manner as a
fire policy. If the premium for multiple
line policies is a combined premium, the applicable percentages indicated above
for that line of business will apply.
3 Inland Marine, including personal property floaters and other
floater policies.
c) Tax Forms
The Association will generate the necessary tax forms for you at the appropriate
times and send them to you in sufficient time for you to file them and your tax
payments with the State of Illinois. Since, by regulation, taxes are due based
on filings with the Association, never alter the numbers on your tax forms
without first contacting us. Failure to receive the forms does not excuse
the licensee from responsibility for filing and paying taxes in a timely
manner. If you do not receive your tax forms, be sure
to contact the Association.
The Surplus Line Privilege Tax is paid semiannually. Tax on documents processed by
the Association between January 1st and June 30th of any year is due and payable
August 1st of that year. Tax on documents processed between July 1st and
December 31st of any year is due and payable by February 1st of the following
year.
The Fire Marshal Tax is paid annually for the business processed during the previous calendar
year. It is due and payable no later than March 31st of the following year.
Your tax form will indicate the total tax liability for the premiums processed.
Please note: All taxes are paid to the Department of Insurance in Springfield, Illinois.
Licensees that cancel their license or do not renew their license must file a tax statement
up to the cancellation date or non-renewal date. Failure to do so may cause a hold on their
producer license. The Association will generate and send these statements upon notice of
cancellation or non-renewal.
If you hold a surplus line license you MUST file these tax forms,
for each period, EVEN IF NO TAX IS DUE.
INELIGIBLE UNAUTHORIZED INSURERS
The Illinois surplus line law provides that
the Director
of Insurance may declare that the future assumption of risks might be
hazardous to the policyholders of an unauthorized insurer.
The Director may order the Surplus Line Association of Illinois not to countersign
insurance contracts evidencing insurance in
such insurers and order surplus line
producers to cease procuring insurance from such insurers.
DIRECTORY
Association Office
Surplus Line Association of
Illinois
100 S. Wacker Drive, Suite 350
Chicago, Illinois 60606-4020
PHONE: (312) 263-1993
FAX: (312) 263-1996
WEBSITE: www.slai.org
EMAIL:
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