On May 21, 2021, the Illinois legislature passed SB 1753, which eliminates the surplus lines producers’ diligent search effort with respect to commercial risks when those risks are referred to the surplus lines producer by an unaffiliated Illinois-licensed insurance producer. The legislation is currently awaiting the Governor’s signature. The underlying logic of the change is that an unaffiliated licensed producer is unlikely to send the risk to the surplus lines producer, and thus share the commissions, unless the unaffiliated producer was unable to find an admitted insurer willing to write the risk.

The new law also clarifies the diligent search requirement with respect to group coverage issued by surplus lines carriers.  It provides that a surplus lines producer may make the diligent search of the admitted market once annually on the master policy or “program business” policy, rather than having to complete the diligent search for each individual insured added to the policy or program throughout the year. When completing the diligent search, the producer must include all variable aspects of the policy. For purposes of the new legislation, “program business” means a “clearly defined group of insurance contracts procured by a licensed ‎surplus line producer from an unauthorized insurer, under a single agreement between the producer ‎and insurer, for insureds with the same or similar characteristics and containing the same or similar ‎contract terms.”‎

In addition, with respect to payment of the surplus lines premium tax, the new law provided that there shall be no penalties, interest or late fees where the surplus lines producer makes a good faith determination that the home state for tax purposes is a state other than Illinois, and the Illinois Director determines that the producer’s determination was incorrect and the home state is in fact Illinois. In such a scenario, the surplus lines producer may, at the Director’s discretion, be required to submit the contract to the Surplus Line Association of Illinois and pay the applicable taxes and recording fees.

Once signed by the Governor, the new law will take effect on January 1, ‎‎2022.

The full text of the legislation can be found here: https://www.ilga.gov/legislation/fulltext.asp?DocName=&SessionId=110&GA=102&DocTypeId=SB&DocNum=1753&GAID=16&LegID=134393&SpecSess=&Session

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