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Illinois Moves One Step Closer to Enacting Captive Reform

On November 14, the second day of its 2018 veto session, the Illinois Senate voted unanimously to override Governor Rauner’s amendatory veto of Senate Bill 1737 (Bill). As we have previously reported, the Bill is a proposed new law that would reform the Illinois Insurance Code’s regulatory framework for captive insurance companies and significantly drop the state’s current premium tax rate on self-procured insurance. The Illinois General Assembly passed the Bill on May 31, 2018, with bi-partisan support. The Illinois Department of Insurance, key industry groups and several large Illinois-based taxpayers also support the legislation.

If it becomes law, the Bill would create a much more favorable regulatory framework for Illinois captives, following the lead of multiple jurisdictions, including Vermont, Hawaii, South Carolina and the District of Columbia.

The Bill also would substantially drop the premium tax rate for contracts of insurance independently procured directly from an unauthorized insurer by an industrial insured (self-procured insurance) from 3.5 percent to 0.5 percent of gross premium.

On August 26, 2018, Illinois Governor Bruce Rauner issued an amendatory veto of the Bill, in which he vetoed aspects of the Bill that were unrelated to the captive reform provisions. The governor said he supported the Bill’s captive insurance provisions, as well as its reinsurance provisions. The governor issued an Amendatory Veto Message in connection with his action.

Only three days of the Illinois General Assembly’s veto session remain, on November 27 – 29. We’ll be watching closely to see if the Illinois House follows the Senate’s lead and votes to override the amendatory veto, thereby assuring the enactment of this helpful legislation. If the Illinois House does not act, the Bill will die and would need to be reintroduced and reapproved in the next legislative session, which will begin (with new Illinois Governor JB Pritzker) in January 2019.

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About this Author

Counsel

Thomas J. Murphy is of counsel in the law firm of McDermott Will & Emery LLP and is based in the Firm's Chicago office.  He is head of the Securities & Capital Markets Affinity Group and co-head of the Firm's Corporate Responsibility practice.  Tom focuses his practice primarily in corporate and securities transactions and compliance, including:  representation of issuers and underwriters in public and private offerings of equity and debt securities; representation of acquiring and selling companies in negotiated and unnegotiated acquisitions; counseling regarding compliance with...

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Mary Kay McCalla Martire, McDermott, local tax disputes lawyer, Internal Audits Attorney
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Mary Kay McCalla Martire focuses her practice on state and local tax disputes. She helps clients with audits, tax-related litigation, letter rulings and settlement conferences. Mary Kay has experience resolving disputes involving income, sales and use, utility and telecommunications taxes, as well as premium and retaliatory tax.

Mary Kay has an extensive litigation background in state and federal court, as well as administrative tribunals. She has particular experience in the defense of qui tam (whistleblower) claims filed in the state tax arena, and has won the dismissal of many Illinois False Claims Act cases. Mary Kay played a key role in most of the reported decisions issued by the Illinois appellate court in this area over the last decade. She also has experience defending clients against class action and consumer fraud claims.

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