Appeal from Circuit Court of Sangamon County Nos. 95MR311 95CH10657
The opinion of the court was delivered by: Justice Cook
Honorable Robert J. Eggers, Judge Presiding.
This appeal involves application of the Illinois Life and Health Insurance Guaranty Association Law (Guaranty Law) (215 ILCS 5/531.01 et seq. (West 1992)). The Guaranty Law is based on the Life and Health Insurance Guaranty Association Model Act (Model Act) and its amendments (Nat'l Ass'n of Insurance Commissioners (hereinafter NAIC) Life and Health Insurance Guaranty Ass'n Model Act (Model Regulation Serv., July 1988)). The purpose of the Guaranty Law is:
"to protect, subject to certain limitations, [specified persons] against failure in the performance of contractual obligations, under [specified] life or health insurance policies, annuity contracts and health or medical care service contracts *** due to the impairment or insolvency of the insurer issuing such policies or contracts." 215 ILCS 5/531.02 (West 1992).
The Illinois Life and Health Insurance Guaranty Association (Guaranty Association or Association) was created to effectuate the purpose of the Guaranty Law. 215 ILCS 5/531.02, 531.06 (West 1992). The Guaranty Association is comprised of insurers who transact business in Illinois; and to have the authority to transact insurance in Illinois, they must remain members of the Association. 215 ILCS 5/531.06 (West 1992). One of the duties of the Association is to "[a]ssure payment of the contractual obligations" of an insolvent insurer "to covered persons." 215 ILCS 5/531.08(2)(a)(ii) (West 1992). The Guaranty Association provides the funds to cover the contractual obligations of insolvent insurers by assessing its member insurers. 215 ILCS 5/531.09(1) (West 1993). Those assessments are passed on to individual policyholders as "each policyholder, through a slightly increased cost, purchases protection for himself against the insolvency of his insurer." Proceedings of the Nat'l Ass'n of Insurance Commissioners, 1971 (Conclusions of the Subcommittee to Study Life and Disability Insurance Insolvencies and Prepare Any Necessary Legislation) (available at 1971-1 NAIC Proc. LEXIS 157, *158 (in record provided by parties)).
The Guaranty Law provides which persons and what policies or contracts are covered. The Guaranty Law provides coverage for specified policies and contracts:
"(b) to persons who are owners of or certificateholders under such policies or contracts; or, in the case of unallocated annuity contracts, to the persons who are the contract holders, and who
(i) are residents of this State, or
(ii) are not residents, but only under all of the following conditions:
(A) the insurers which issued such policies or contracts are domiciled in this State;
(B) such insurers never held a license or certificate of authority in the states in which such persons reside;
(C) such states have associations similar to the association created by this Act; and
(D) such persons are not eligible for coverage by such associations." 215 ILCS 5/531.03(1)(b) (West 1992).
Thus, the protection afforded by the Guaranty Law is "primarily extended to resident persons but certain nonresidents under specific circumstances will be protected by this Act [(the Model Act)] if the insolvent insurer was domiciled in [Illinois]." (Emphasis added.) Proceedings of the Nat'l Ass'n of Insurance Commissioners, 1986 (Official Comment to section 3: Coverage and Limitations of the Life and Health Insurance Guaranty Association Model Act) (available at 1986-1 NAIC Proc. LEXIS 293, *307 (in record provided by parties)). The State of Illinois is legitimately concerned with making benefits available to nonresidents when those benefits are derived from assessments on Illinois residents and through regulations imposed on Illinois insurers that other states choose not to impose.
Section 531.03 of the Guaranty Law provides for coverage for the "contractholders" of "unallocated annuity contracts." 215 ILCS 5/531.03(1)(b), (2)(a)(iii) (West 1992). An "unallocated annuity contract" is defined as follows:
"any annuity contract or group annuity certificate which is not issued to and owned by an individual, except to the extent of any annuity benefits guaranteed to an individual by an insurer under such contract or certificate." 215 ILCS 5/531.05(15) (West 1992) (added by Pub. Act 86-753, §1, eff. January 1, 1990) (1989 Ill. Laws 3989, 4015)).
The Guaranty Association's liability to "any one contract holder covered by any unallocated annuity contract" does not exceed $5 million in benefits "irrespective of the number of such contracts held by that ...