
21 March 2000

NO. 4-97-0538



IN THE APPELLATE COURT



OF ILLINOIS



FOURTH DISTRICT



DYNAMIC SYSTEMS, INC.,				)	Appeal from

Plaintiff-Appellant,		)	Circuit Court of

v.	(No. 95-MR-311)		)	Sangamon County

MARK BOOZELL, Director of			)	Nos. 95MR311

Insurance, Illinois Department of		)		95CH10657

Insurance,						)

Defendant,				)

and						)

ILLINOIS LIFE AND HEALTH INSURANCE		)

GUARANTY ASSOCIATION,				)

Defendant-Appellee.			)

---------------------------------------	)

ILLINOIS LIFE AND HEALTH INSURANCE		)

GUARANTY ASSOCIATION,				)

Plaintiff-Appellee,			)

v.	(No. 95-CH-10657)		)

MARK BOOZELL, Director of Insurance,	)

and DYNAMIC SYSTEMS, INC., 401k PLAN 	)

& TRUST,							)

Defendants,				)

and						)	Honorable

DYNAMIC SYSTEMS, INC.,				)	Robert J. Eggers,

Defendant-Appellant.		)	Judge Presiding.

_________________________________________________________________





JUSTICE COOK delivered the opinion of the court:



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 poli­

cies, annuity contracts and health or medical care service con­tracts *** due to the impair­

ment or insol­vency of the insurer issuing such policies or contracts."  215 ILCS 5/531.02 (West 1992).

The Illinois Life and Health Insurance Guaranty Associ­

ation (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 legiti

mately 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 cer

tificate 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 certifi­

cate."  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 con­

tract holder covered by any unallocated annuity contract" does not exceed $5 million in benefits "irrespective of the number of such contracts held by that contractholder."  215 ILCS 5/531.03(3)(b)(iii) (West 1992).  

Dynamic Systems, Inc. (DSI), is a Maryland corporation headquartered in Alexandria, Virginia.  DSI sponsored the DSI Savings Enhancement Plan (Plan), a 401k plan, for its eligible employees.  The Plan is participant-directed in that each em

ployee who contributes to the Plan has the "right to direct the investment" of his contributions "among the investment funds authorized by the Plan committee."  The Plan's assets are held in a trust (Trust) and are invested by the trust­ees.  Plan partic­i­

pants receive bene­fits upon termi­na­tion of their employ­ment, retire­ment, or perma­nent dis­ability by way of an annuity pur­

chased on behalf of the employee, among other alterna­tives.

DSI Plan participants directed that some part of their contributions be invested in an option offered by Inter-Ameri­can Life Insurance Company of Illinois (Inter-Ameri­can).  The trust­

ees used these contributions to purchase three "window guaranteed investment contracts" (Contracts) from Inter-American.  The "contractholder" of the Contracts was defined by the Contracts as the "qualified employee benefit plan and trust to which this Contract is issued."  The Plan and Trust are the sole owners of the Con­tracts.

The Trust could withdraw amounts that accrued under the Contracts to provide Plan benefits to participants.  The Con

tracts provided that "[u]pon receipt of a notice from the [c]ontractholder to purchase an annuity under this Contract for a person in accordance with the Plan, [Inter-American] will effect the purchase of such annuity."

On Decem­ber 23, 1991, Inter-Ameri­can was placed under an order of liqui­dation by the Cook County circuit court due to its insolvency.  The value accumulat­ed under the Contracts exceeded $1.6 million.  At that time, the Trust's two trustees both resided in Virginia.

As a result of Inter-American's insolvency, the Plan sought coverage for the Contracts under our Guaranty Law.  On May 28, 1992, DSI filed a claim with the Guaran­ty Associ­a­tion on behalf of the Plan partic­ipants, none of whom were Illinois residents.  On March 15, 1993, the Guaran­ty Associ­a­tion denied DSI's claim for cover­age under the Guaranty Law.  The Guaran­ty Associa­tion concluded the Contracts were "unallocated annuity con­tracts" because the Contracts were issued by Inter-Ameri­can to the Trust as "contractholder."  Since the Trust was a resident of Virginia for purposes of the Guaranty Law and because Inter-

American was licensed in Virginia, the Trust was not covered under the Guaran­ty Law's nonresident provisions.  215 ILCS 5/531.03(1)(b)(ii)(B) (West 1992). 

DSI appealed the Guaranty Association's decision to the Illinois Director of Insurance (Director) (215 ILCS 5/531.11(3) (West 1992)), con­tend­ing that the Plan participants were covered by the Guaran­ty Law.  DSI argued the Con­tracts were 
not
 "unallocated annuity con­tracts," that instead they were "allo­

cated" annuity contracts since each Plan partic­ipant was guaran­

teed a benefit under the terms of the Contracts.  DSI also argued that the Plan participants were owners under the Con­tracts. 

The Director issued an order on September 29, 1995, revers­ing in part the Guaranty Association's decision.  The Director rejected the Guaranty Association's conclusion that the Contracts were "unallocated annuity contracts."  The Director found the Con­tracts were "allocated" annuity contracts even though they were owned by and issued to the Plan and Trust, and the Plan and Trust were named the "contractholder."  The Director conclud­ed as follows:

"Looking at the contracts, the Trust and the Plan itself, it is clear that the contracts contem­plated the beneficiary status of the individual partici­pants of the Plan, and although the contractual relation­ship legally exists between the insurance [c]ompany and the Trust­ee, the con­tracts themselves ac

knowledge the beneficia­ries' ownership and the guaranteed benefits provided thereby.  Pursuant to the definition of 'unallocated annuity contracts' as provided in section 531.05(15), the con­tracts owned by the Trust guarantee annuity benefits to individu­al partici­pants, under the Plan."  

The Director also concluded that the Plan participants were "non-

resident certifi­cate holders under group contracts," but subse­quently abandoned that conclu­sion as unsupported in an amended order.  

The Direc­tor con­cluded that whether a Plan partic­ipant was covered by the Guaranty Law depended on where the indi­vidual Plan partici­pant resided.  Because the Direc­tor found that the Con­tracts were "allo­cated" annuity con­tracts, as well as the fact that Inter-American was not licensed to do business in Maryland, he ruled that the 12 Plan partic­ipants who were residents of Maryland and had invest­ments under the Con­tracts were covered under the Guaranty Law.  The Director ordered the Guaranty Associ­ation to provide coverage for those 12 individ­uals.  The Director affirmed the Guaranty Association's denial of coverage for participants who were residents of Virginia or other states where Inter-American held licenses or certificates of authority.

DSI sought administrative review of the Director's decision insofar as it denied coverage (Sangamon County case No. 95-MR-311); the Guaranty Association filed a separate petition for review of the Director's decision insofar as it required it to cover the 12 Maryland Plan participants (Cook County case No. 95-CH-10657).  By order of the Cook County circuit court, that court transferred its chancery case to Sangamon County and, by agreement of the parties, the cases were consolidated for consid

eration by the court.

On May 27, 1997, the circuit court of Sangamon County affirmed the Director in the DSI-initiated case, No. 95-MR-311, and reversed the Director in the Guaranty Association-initiated case, No. 95-CH-10657.  Citing the Virginia Supreme Court case 
Bennet v. Virginia Life, Accident & Sickness Insurance Guaran­ty Ass'n
, 251 Va. 382, 468 S.E.2d 910 (1996), the circuit court con­

clud­ed that Guaran­ty Law cover­age was not avail­able for the Contracts with respect to the 12 Maryland Plan participants because "as a matter of law *** the con­tracts in question were unallocated annuity con­tracts."  

On appeal, DSI argues that the circuit court erred in re­versing the Director's order and concluding the Contracts were "unallocated annuity contracts."  DSI contends that the Con­tracts are "allo­cated" annuity con­tracts and that the 12 Maryland Plan participants are covered under the Guaranty Law.

The Director is not a party to this appeal.  Since he issued his order in this case, the Director moved voluntarily to dismiss his appeal, which was granted and leaves DSI alone to contest the judgment of the circuit court.  Further­more, in his subsequent decisions, the Director has abandoned the position he took in deciding this case.  In fact, in an action regarding other con­tracts issued by Inter-American, the Director determined the contracts were "unallocated annuity contracts," concluding no contract was issued to and owned by an individual plan partici­

pant and that Inter-American promised no annuity benefits to an individual until an actual annuity was issued to an indi­vidual participant.  See 
In re Life & Health Insurance Guaranty Ass­'n Claim Beaven Companies, Inc.
, Ill. Dept. of Ins. Hearing No. 3445 (October 21, 1997) (Director's order).  The Director has also rejected a retirement plan's "beneficial ownership" argu­ment subse­quent to his decision in this case.  See 
In re the Life & Health Insur­ance Guaranty Ass'n Denial of Claim of Unisys Corp­. & Corestates Bank, N.A., as Trustee for Unisys Savings Thrift Trust on Executive Life Policy Nos. CG01238A3A, CG01238B3A, CG0126703A, CG01279A3A
, Ill. Dept. of Ins. Hearing No. 3473 (November 25, 1997) (Director's order).  

In this case, no factual dispute exists, as the only contention on appeal is whether the Contracts are "unallocated annuity contracts" under the Guaranty Law.  Because a ques­tion of law is before us, the standard of review is 
de
 
novo
.  
Illinois Life & Health Insur­ance Guaran­ty Ass'n v. Boozell
, 289 Ill. App. 3d 621, 628, 682 N.E.2d 291, 296 (1997).

Simply stated, we must deter­mine whether the Con­tracts are owned by the Plan and Trust, making them "unallocated annuity con­tracts," or whether the Con­tracts are owned by the individual Plan partic­ipants, making the Con­tracts "allocated" annuity contracts.  Whether the Contracts are "allo­cated" or "unallo­

cated" determines how the nonresident coverage provi­sion of section 531.03(b) is applied and whether the Guaranty Associ­ation must cover the 12 Maryland Plan partici­pants.  If the Con­tracts are "unallocated," then we look to the state where the Plan and Trust reside, Virgin­ia, to determine if the section 531.03(b) require­ments have been met.  If the Contracts are "allocated," we look to the state where the individual Plan participants reside, Maryland, to deter­mine if those individuals meet the section 531.03(b) nonresident re­quire­ments. 

We note the deci­sion of the Virgin­ia Supreme Court in 
Bennet
, 251 Va. 382, 468 S.E.2d 910.  In that case, DSI sought coverage under Virginia's guaran­ty law for the same Contracts at issue in this case.  The Virgin­ia Supreme Court essentially held that the Con­tracts were unallocated annuity contracts.  
Bennet
, 251 Va. at 386-88, 468 S.E.2d at 913-14.  Unlike the Guaranty Law, the Virgin­ia law provides no coverage for unallocated annuity con­tracts.  
Bennet
, 251 Va. at 386, 468 S.E.2d at 913, citing Va. Code Ann. §38.2-1700(C)(5) (Michie 1994).  

DSI offers several arguments why the Contracts should be considered "allocated" annuity contracts.  First, DSI contends that although the Contracts designated the Trust as the legal "owner" of the Contracts, the Plan participants were equitable and beneficial owners under the Contracts, thereby making them allo­cat­ed annuity contracts.  In support of its proposition, DSI notes several significant indicia of participant ownership:  the trustees administered the Plan for the exclusive benefit of the participants; the participants decided when and how to direct the investment of their funds; and an annuity could be purchased on behalf of an individual participant. 

An "unallocated annuity contract" is "any annuity contract or group annuity certificate which is not issued to 
and
 owned by an individual."  (Emphasis added.)  215 ILCS 5/531.05(15) (West 1992).  So, for an annuity con­tract to be "allocated," it must be both issued to 
and
 owned by an indi­vidu­

al.  
Bennet
, 251 Va. at 386, 468 S.E.2d at 913; 
Unisys Corp. v. Texas Life, Accident, Health & Hospital Service Insurance Guar

anty Ass'n
, 943 S.W.2d 133, 138 (Tex. App. 1997).  Here, accord

ing to the terms of the Contracts, they were issued to the "contracthold­er," which was the Plan and Trust.  No con­tract or policy was issued to an indi­vidual partic­ipant until the Plan directed Inter-American to purchase an annuity for an individual partici­pant to provide bene­fits under the Plan.  The Con­tracts were not issued to an indi­vidual.  We also con­clude that the Con­

tracts were not owned by an individual.  The Contracts provided the "contractholder" was the sole owner.  

We also reject DSI's equitable ownership argu­ment.  In 
Bennet
, DSI ad­vanced its equitable ownership argu­ment when it sought cover­age for these Contracts under Virginia's guaranty laws.  
Bennet
, 251 Va. at 386, 468 S.E.2d at 913.  Inter­preting the opening provision of Virginia's guaranty law, which excluded unallocated annuity contracts from its scope in language similar to that of the Illinois definitional provision ("[a]ny contract or 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" (Va. Code Ann. §38.2-1700(C)(5) (Michie 1994); 215 ILCS 5/531.05(15) (West 1992))), the Virgin­ia Supreme Court concluded that nothing in the statutory language permits an interpretation that mere beneficial or equitable ownership could satisfy the "issued to" and "owned by" require­ments.  
Bennet
, 251 Va. at 386, 468 S.E.2d at 913.  Similarly, in 
Unisys Corp.
, the Texas appel­late court rejected an equitable ownership argument made under Texas' "unallocated annuity contract" definitional provision, which also contained language nearly identical to that of the Illinois provision (compare Tex. Ins. Code Ann. art. 21.28-D §5(14) (West Supp. 2000), with 215 ILCS 5/531.05(15) (West 1992)), concluding that the Texas guaranty act contemplated only legal ownership.  
Unisys Corp.
, 943 S.W.2d at 139.  The guaranteed interest or investment contracts, often referred to as GICs, at issue in 
Unisys Corp.
 were contracts strictly between the insur­ance company and the plans' trustees, and individual partic­ipants did not "'own' or 'hold' contracts over which they have no control and in which they are allocated no benefits until they have elected to create individu­al contracts with the [insurance company] via the bank trustee."  
Unisys Corp.
, 943 S.W.2d at 140; accord 
Unisys Corp. v. Commissioner of Insurance
, 236 Mich. App. 686, 693, 601 N.W.2d 155, 159 (1999); but see 
Arizona Life & Disability Insurance Guaranty Fund v. Honeywell, Inc.
, 190 Ariz. 84, 95, 945 P.2d 805, 816 (1997) (Arizona resident plan partici

pants were equitable owners of the GICs).  Likewise, the Illinois Director of Insur­ance, subsequent to his order in this case, has rejected the beneficial ownership argument and maintained that no evidence shows that the legisla­ture ever intended beneficial ownership to control when determin­ing what constitutes an "unallocated annuity contract."  See 
In re the Life & Health Insur­ance Guaranty Ass'n Denial of Claim of Unisys Corporation & CoreStates Bank, N.A., as Trustee for Unisys Savings Thrift Trust on Executive Life Policy Nos. CG01238A3A, CG01238B3A, CG0126703A, CG01279A3A
, Ill. Dept. of Ins. Hearing No. 3473 (November 25, 1997) (Director's order).

We agree that beneficial and equitable ownership is not enough to satisfy the "issued to" and "owned by" requirements under the Guaran­ty Law.  The indi­vidual Plan participants had no control over the Con­tracts.  The Trust­ees con­ducted all finan­cial transactions between the Plan and Inter-American.  The Plan and Trust were specifical­ly issued the Contracts and were named as the contractholders and sole owners.  No individ­ual was specifi­

cal­ly identi­fied as an owner of a Contract, and nothing in the language of the statute indi­cates equitable ownership alone satis­fies its standards.  Not until an annuity was purchased on behalf of an individual partic­ipant did an individual become an owner of a contract.

DSI also contends that the Contracts are "allocated" annuity contracts because they fit within the exception clause of the "unallocated annuity contract" definition.  An annuity contract is "allocated" if "any annuity benefits [are] guaranteed to an individual by an insurer under such contract or certifi­

cate."  215 ILCS 5/531.05(15) (West 1992).  DSI con­tends that promo­tion­al book­lets dis­trib­ut­ed to Plan partici­pants, explaining the Plan's terms and the Inter-American option, should be consid­

ered part of the Con­tracts, and so state­ments made in the book­

lets should be read into and as part of the Contracts.  See 
Dobosz v. State Farm Fire & Casualty Co.
, 120 Ill. App. 3d 674, 679, 458 N.E.2d 611, 614 (1983) (descriptive booklets may be treated as part of an insur­ance contract).  DSI's interest in having the booklets construed as part of the Contracts is that the language of the booklets, including such statements as "your account is 100% yours" and that Inter-Ameri­can "guar­an­tees your principal and the earnings on every dollar you invest" made the Contracts allocated annuity con­tracts.  DSI reasons that these state­ments constituted "annuity bene­fits guaran­teed to an indi­

vidual by an insurer under such con­tract."  215 ILCS 5/531.05(15) (West 1992).  

DSI argues that the book­lets should be consid­ered part of the Con­tracts since they contained state­ments of Inter-Ameri­

can.  The Guaranty Association asserts that the booklets contain statements of DSI regarding the Plan, not statements of Inter-

Ameri­can, so that they cannot be made a part of the Contracts.  

In his order, the Director made no finding regard­ing who drafted and distributed the booklets, nor did he find that the booklets were part of the Contracts.  Although the booklets may not have been prepared by the Plan, no evidence shows they were prepared by Inter-American either.  Even assuming Inter-

American made the statements that it guaranteed the participants' principal and interest on their invest­ments, those statements re­

ferred to market fluctua­tions under these "guaranteed investment contracts."  Even if the state­ments con­tained guaran­tees, they were not guarantees of annuity bene­fits "to an indi­vidual."

Inter-American had no relationship with the individ­ual Plan participants until and unless the Plan requested that Inter-

Ameri­can pur­chase an annuity on behalf of an individual Plan partici­pant in order to provide benefits under the Plan.  See 
Unisys Corp.
, 943 S.W.2d at 138.  "An undertaking to pur­chase an annuity in the future is not a present guarantee of annuity benefits."  
Bennet
, 251 Va. at 388, 468 S.E.2d at 914; see also 
Messagephone, Inc. v. Texas Life, Accident, Health & Hospital Service Insurance Guaranty Ass'n
, 966 S.W.2d 133, 137-38 (Texas App. 1998) (discussing GICs).  Further­more, the provisions in the Con­tracts, and the booklet, are in general terms, they do not specif­ically identify any individu­al participants, nor do they identify a fixed sum or series of fixed sums payable to an individual participant.  Not until an annuity is purchased on behalf of a specified individual are any annuity bene­fits guaran­

teed by an insur­er.  See, 
e.g.
, 
In re Life & Health Insur­ance Guaranty Ass­'n Claim Beaven Cos.
, Ill. Dept. of Ins. Hearing No. 3445 (October 21, 1997) (Director's order).  Promis­ing Plan partici­pants a general return on their investment does not rise to the level of a guaranty of annuity benefits as required by the statute because no amount is allo­cated to an individual Plan participant.  See Proceedings of the Nat'l Ass'n of Insurance Commission­ers, 1986 (Official Comment to section 3:  Coverage and Limita­tions) (1986-1 NAIC Proc. LEXIS 293, *308 (in record provided by parties)).  

Our decision is in line with the policy behind the Guaranty Law.  The Guaranty Law limits Guaranty Associa­tion liability to $5 million in the case of "unallocated annuity contracts."  215 ILCS 5/531.03(3)(b)(iii) (West 1992).  If contracts issued to employee benefit plans were treated as "allocated" annuity contracts, the Guaranty Association's liabil

ity could well exceed the $5 million limita­tion applicable to such contracts, something not contemplated by the Guaranty Law.

We hold that the Inter-American Contracts at issue are "unallocated annuity contracts."  Coverage under the Guaranty Law is limited to the "contractholders" of "unallocated annuity contracts," and here the "contractholder," by the terms of the Contracts, was the Plan and Trust.  At the time of Inter-Amer

ican's insolvency, the two trustees resided in Virginia, making the Trust a resident of Virginia for purposes of the Guaranty Law.  215 ILCS 5/531.05(13) (West 1992); 
Illinois Life & Health Insurance Guaranty Ass'n
, 289 Ill. App. 3d at 630-31, 682 N.E.2d at 298.  Inter-Ameri­can was also li­censed in Virginia.  Conse

quently, the 12 Mary­land Plan partic­ipants are not covered by the nonresident provisions of the Guaranty Law of the State of Illinois.  215 ILCS 5/531.03(1)(b)(ii)(A) through (D) (West 1992).  

We note that the 1970 Model Act provided coverage for all policyholders in the state where the insurer was incorporated ("domiciled"), no matter where the policyholders resided.  A state in which policyholders resided did not cover those resi

dents if the state where the insurer was incorporated provided the policyholders substantially similar protection.  W. B. Dunham, Jr., & D.A. Kinney, 
Life and Health Insurance Guaranty Associations
, in Insurance Company Insolvency 277, 282 (PLI Commercial Law & Prac. Course Handbook Series No. 580, 1991) (hereinafter Dunham & Kinney).  In a major insolvency, however, the state in which the insurer was incorporated may not have sufficient assessment capacity to meet its obligations.  

For example, in 1983, life insurer subsidiaries of Baldwin-United Corporation, including National Investors Life Insurance Company (Arkansas) and University Life Insurance Company of America (Indiana), failed.  These insurers had sold about $4 billion in single-premium deferred annuities to about 136,000 policyholders in 36 states, principally through securi

ties brokers, and included interest rate guarantees higher than their competition.  Dunham & Kinney at 277.  Fewer than two-

thirds of the states had then enacted state insolvency guaranty laws for life and health insurers, and those largely followed the Model Act.  The Baldwin-United insolvency was handled via a multistate cooperative plan.  The National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) reported that its member associations had been assessed $63,350,159 for the Baldwin-United insolvency.  Dunham & Kinney at 292-94.

The huge losses that would be imposed on the state in which an insolvent insurer was incorporated thus provided impetus for changes to the Model Act in 1985, including adoption of a "residents only" approach, whereunder each state association in which the insolvent insurer was a member had responsibility for covering policyowners resident in that state.  Model Act §5(j), Proceedings of the Nat'l Ass'n of Insurance Commissioners, December 1984 (available at 1985-1 NAIC Proc. LEXIS 107, *110 (in record provided by parties)); see also J. Blaine, 
Organization and Capabilities of Life and Health Guaranty Associations in the United States
, in Law and Practice of Life Insurance Company Insolvency 6-4 (ABA Tort & Insurance Prac. Sec. Committee on Public Regulation of Insurance Law (ed. D. Spector 1993) (herein

after Blaine).  This "residents-only" approach spreads the loss among the states in which the insurer is licensed to do business.  Blaine at 6-5.  

In 1987, the Model Act was further revised, adding the definition of "unallocated insurance contracts," introducing a $5 million limit on liability to any one contractholder covered by any unallocated annuity contract irrespective of the number of contracts held by that contractholder (a nonstacking-type provi

sion), and adding the following for coverage:

"This Act shall provide coverage to the per

sons specified in Subsection A for direct, nongroup life, health, annuity and supplemen

tal policies or contracts, for certificates under direct group policies and contracts, and for unallocated annuity contracts issued by member insurers, except as limited by this Act.  Annuity contracts and certificates under group annuity contracts include but are not limited to guaranteed investment con

tracts, deposit administration contracts, unallocated funding agreements, allocated funding agreements, structured settlement agreements, lottery contracts[,] and any immediate or deferred annuity contracts."  Model Act §3(B)(1) (Model Regulation Serv., July 1998).

In 1991, Executive life Insurance Company (ELIC) failed.  Total guaranty association liabilities were said to be $2 billion, split roughly at $800 million in life insurance and $1.2 billion in annuities.  ELIC's 1991 failure was followed by First Capital, Fidelity Bankers, Mutual Benefit Life, and others in that year.  Blaine, at 6-5.  In December 1991, Inter-American was adjudicated insolvent in Cook County, Illinois, leading to the instant case.

The NAIC has adopted further amendments to the Model Act through the years.  Likewise, the various states have enacted statutes creating insurance guaranty associations covering life and health insurance to fund, via involuntary assessment of licensed insurers, the continuation of coverage and payment of claims of policyholders for member insurers on insolvency.  Most of these statutes are based in substantial part on the Model Act but not all states have enacted substantially the current Model Act.  Blane, at 6-1.  "The major coverage differences lie in the treatment of pension products between those states that cover unallocated annuities (guaranteed interest contracts and deposit administration contracts), and those that do not cover them either by specific exclusion or silence."  Blaine, at 6-8 to 6-9.

Numerous states have, for example, codified the 1987 revisions to the Model Act substantially, including Illinois (Pub. Act 86-753, §1, eff. January 1, 1990 (1989 Ill. Laws 3989, 4011-24)).  See also, 
e.g.
, Alaska Stat. §§21.79.010 through 21.79.990 (Lexis 1998); Ark. Code Ann. §§23-96-101 through 23-96-

121 (Lexis Supp. 1999); Cal. Ins. Code §§1067 through 1067.18 (Deering Supp. 1999); Conn. Gen. Stat. Ann. §§38a-858 through 38a-875 (West 1992 & Supp. 1999); Del. Code Ann. tit. 18, §§4401 through 4419 (1989 & Supp. 1998); Haw. Rev. Stat. Ann. §§431:16-

201 through 431:16-219 (Michie 1998); Kan. Stat. Ann. §§40-3001 through 40-3018 (1993 & Supp. 1998); Ky. Rev. Stat. Ann. §§304.42-010 through 304.42-190 (Banks-Baldwin 1995 & Supp. 1998); La. Rev. Stat. Ann. §§22:1395.1 through 22:1395.19 (West 1995 & Supp. 1999); Mich. Comp. Laws Ann. §§500.1701 through 500.7780 (West 1993 & Supp. 1999); Miss. Code Ann. §§83-23-201 through 83-23-235 (1999); Mo. Ann. Stat. §§376.715 through 376.758 (West 1991 & Supp. 1999); Mont. Code Ann. §§33-10-201 through 33-10-230 (1999); N.J. Stat. Ann. §§17B:32A-1 through 17B:32A-19 (West 1996); N.C. Gen. Stat. §§58-62-2 through 58-62-

95 (1994 & Supp. 1998); N.D. Cent. Code §§26.1-38.1-01 through 26.1-38.1-16 (Michie 1995 & Supp. 1999); Ohio Rev. Code Ann. §§3956.01 through 3956.20 (Anderson 1996 & Supp. 1998); Pa. Stat. Ann. tit. 40, §§991.1701 through 991.1718 (West Supp. 1999); S.D. Codified Laws §§58-29C-1 through 58-29C-43 (Michie 1996 & Lexis Supp. 1999); Tenn. Code Ann. §§56-12-118 through 56-12-220 (1994 & Supp. 1999); Tex. Ins. Code Ann., art. 21.28-D, §§1 through 21 (West Supp. 1999); Utah Code Ann. §§31A-28-101 through 31A-28-221 (1999); Vt. Stat. Ann. tit. 8, §§4151 through 4185 (1993 & Supp. 1999); Wash. Rev. Code Ann. §§48.32A.010 through 48.32A.931 (West 1999); W. Va. Code §§33-26A-1 through 33-26A-19 (Michie 1996).  Numerous other states have adopted some variant thereof.  See, 
e.g.
, Colo. Rev. Stat. Ann. §§10-20-101 through 10-20-117 (West Supp. 1999); D.C. Code Ann. §§35-1941 through 35-1956 (1997 & Lexis Supp. 1999); Fla. Stat. Ann. §§631.711 through 631.737 (West 1996 & Supp. 1999); Ga. Code Ann. §§33-38-1 through 33-38-

22 (Michie 1996); Idaho Code §§41-4301 through 41-4319 (Michie 1998); Ind. Code Ann. §§27-8-8-1 through 27-8-8-18 (Michie 1994 & Lexis Supp. 1999); Iowa Code Ann. §§508C.1 through 508C.19 (West 1998 & Supp. 1999); Me. Rev. Stat. Ann. tit. 24-A, §§4601 through 4619 (West 1990 & Supp. 1998); Md. Code Ann., Ins. §§9-401 through 9-419 (Michie 1997); Mass. Ann. Laws ch. 175 §146B (Lexis-Nexis 1997); Minn. Stat. Ann. §§61B.18 through 61B.32 (West 1996 & Supp. 1999); Neb. Rev. Stat. Ann. §§44-2701 through 44-2720 (Michie 1995 & Lexis Supp. 1999); Nev. Rev. Stat. Ann. §§686C.010 through 686C.370 (Michie 1997); Okla. Stat. Ann. tit. 36, §§2021 through 2043 (West 1999); Or. Rev. Stat. §§734.750 through 734.890 (1995); R.I. Gen. Laws §§27-34.1-1 through 27-

34.1-20 (1998); Wyo. Stat. Ann. §§26-42-101 through 26-42-118 (Lexis 1999).

The statutory schemes of other states, however, differ from these in varying degrees.  New York, for example, whose legislature mandated the first association in 1941 (R. B. Lurie & D.G. Harris, 
1991 Life and Health Insurer Solvency Legislation
, 20 Colo. Law. 1767, 1768 (1991)), has largely kept its own statutory scheme (N.Y. Ins. Law §§7501 through 7507, 7411, 7412 (McKinney 1985 & West Supp. 1999-2000)); Wisconsin, which enacted its scheme in 1977, has done the same (Wis. Stat. Ann. §§646.01 through 646.71, 645.86, 645.87 (West 1995 & Supp. 1999)).  New Hampshire adopted an act consistent with the 1970 Model Act in 1971, which remains largely unchanged (N.H. Rev. Stat. Ann. §§404-D:1 through 404-D:18 (Lexis 1998)); New Mexico and South Carolina adopted acts that were variants of the 1970 Model Act, which likewise remain largely unchanged (N.M. Stat. Ann. §§59A-

42-1 through 59A-42-16 (Michie 1995 Repl. & Supp. 1999) (enacted in 1984); S. Ca. Code Ann. §§38-29-10 through 38-29-200 (West Supp. 1999) (enacted in 1976)).  Finally, several states that adopted acts based on the 1970 Model Act (Ala. Code §§27-44-1 through 27-44-21 (Lexis 1998) (enacted in 1982 and amended in 1993); Va. Code Ann. §§38.2-1700 through 38.2-1721 (Michie 1999) (enacted in 1976)), or a variant of it (Ariz. Rev. Stat. Ann. §§20-681 through 20-695 (West 1990 & Supp. 1999) (enacted in 1977 and amended in 1995 and 1998)), have amended them only to a limited extent.

 		Administrative problems can arise in determining residency of policyowners of, 
e.g.
, structured settlement annu

ities which, for federal tax reasons, may be "owned by someone other than the annuity's payee, whereas the residence of the payee of these annuities seems more consistent with the revised Model Act's 'residents-only' coverage."  Blane, at 6-9; see also, 
e.g.
, 
Missouri Life & Health Insurance Guaranty Ass'n v. Cameron Mutual Insurance Co.
, 991 S.W.2d 676, 679 (Mo. App. 1999) (find

ing annuities purchased in fulfillment of agreements to settle tort claims to be within statutory exception affording coverage because allocated to benefit specific individuals, although purchasing companies retained ownership for tax benefit of annuitants and payees; distinguishing GICs). 

DSI's beneficial and equitable ownership analysis seeks to achieve a result that contradicts legislative efforts to address coverage issues for financial instruments now common in the marketplace.  

The judgment of the circuit court of Sangamon County is affirmed. 

Affirmed.

GARMAN and KNECHT, JJ., concur.

