Background on Insurance Receivership and OSD
Following the National Association of Insurance Commissioners’ (the “NAIC”) model law and state accreditation requirement, Article XIII (215 ILCS 5/187 et seq.) of the Illinois Insurance Code provides that Illinois Director of Insurance is the statutory receiver for insolvent or financially troubled Illinois insurance companies placed in judicially supervised receivership. As receiver, the Director functions like a bankruptcy trustee. Subject to court supervision, the Director marshals assets and distributes those assets to consumers and other creditors pursuant to statutory claim procedures. All of this is done at no taxpayer expense, as the expenses of the receivership are paid by the insolvent receivership estate.
The Insurance Code provides that the Director may appoint a Special Deputy and other employees to assist in the administration of these receiverships. The Special Deputy acts as the Receiver’s agent, assisting him in his statutory duties pursuant to authority granted under Article XIII (215 ILCS 5/202(a)). Since at least 1981, the Director has appointed one Special Deputy for all receivership estates, and utilized a group of employees to provide the core servicing of the receivership estates. In 1991, an Illinois not-for-profit corporation, Office of the Special Deputy Receiver (“OSD”) was formed to serves as a corporate vehicle for employing the professional and clerical staff that service the receivership estates for the Director and Special Deputy. In 1993, the Illinois Legislature amended certain provisions of Article XIII in order to give statutory structure to many of the OSD’s practices, including obtaining annual independent audits of the OSD and each receivership estate, copies of which are annually provided to the Governor, legislative leaders and the Auditor General, who also reviews the independent auditor’s workpapers. As of May 1, 2012, OSD has 45 employees and is servicing 23 receivership estates.