Bill
SB 3505
Illinois SB3505 tightens claim handling by increasing public adjuster oversight, boosting attorney-fee caps, and adding replacement-cost rules to protect insured property owners.
SB3505 (104th General Assembly, Illinois) – Summary of Bill Content and Impact
Overview
- Jurisdiction: Illinois
- Session: 104th
- Introduced: February 5, 2026
- Primary sponsor: Sen. Julie A. Morrison (co-sponsor also Julie Morrison)
- Topic: Regulation of insurance claims practices and public adjusters; updates to fees, certifications, and standards under the Illinois Insurance Code
Purpose and intent
- Modernize and tighten various aspects of first- and third-party property insurance claims handling, including fees, public adjuster regulation, and required procedures to protect insured property owners during loss settlements.
- Increase the cap on certain taxable costs/attorney fees in vexatious claim disputes.
- Establish stronger requirements related to public adjusters, including contracts, disclosures, fees, and conduct standards.
- Introduce and enforce replacement-cost-based adjustments for property losses, including uniform appearance requirements.
Key Provisions and Changes
1) Taxable Costs and Attorney Fees (Sections 154.6 and 155)
- Attorney fees in vexatious or unreasonable claim-delay actions:
- The cap on taxable costs and fees changes from $60,000 to $240,000 (and includes a “60% of the amount recovered” alternative in some cases).
- Allows the court to award attorney fees as part of taxable costs up to:
- 60% of the amount recovered (exclusive of costs),
- or a fixed cap of $240,000 (up from $60,000),
- or the excess of recovery over prior settlement offers.
- Practical effect: Potentially higher fee-shifting incentives to encourage prompt and fair claim resolution against insurers.
2) Certificate Before Payment for High-Value Losses (Section 397.1)
- For fire/explosion losses where amount recoverable exceeds $100,000 (up from $25,000), insurers must obtain and present a certificate before paying the claim.
- Insurer designation and process for notifying the county State’s Attorney with details (property owner name, address, legal description, tax ID, claim amount).
- Defines “amount recoverable,” “proceeds,” “delinquent property taxes,” and related terms; clarifies priority on payments to delinquent taxes and demolition expenses if applicable.
3) Replacement Cost and Repair Standards (Section 154.6, b and c)
- When loss is based on replacement cost and repair/replacement is needed, consequential damage from repairs is included in the loss; deductible applies.
- If replacement items do not match adjacent items in quality/color/size, insurer must replace with like-kind/materials to ensure a reasonably uniform appearance (interior and exterior covered losses).
4) Public Adjuster Regulation and Fees (Section 1570)
- Caps and rules on public adjuster compensation:
- General cap: 10% of the insurance settlement payment for catastrophes not involving personal residences (subject to director approval for excess over 10% in catastrophic events).
- Personal residences: Cap remains at 10%.
- Expanded direction-to-pay mechanism:
- Insurer must follow the insured’s direction for payment naming, with written direction signed by all named insureds (for non-commercial claims) or as applicable.
- Public adjuster fees restricted to amounts not exceeding the contract and limited to the payable amount (insurer must pay only up to the public adjuster’s fee per contract terms).
- Special rule for catastrophe scenarios: Director can approve excess over 10% with written justification; defined catastrophe includes events like fire, flood, earthquake, wind, etc., with Governor-declared disaster status.
5) Public Adjuster-Insured Contract Requirements (Section 1575)
- Contracts must be in writing and include:
- Full name, contact details, license number, contract title, insured identifiers, loss description, scope of services, signatures, date/time, bond attestation, and compensation details (including caps).
- Direction-to-pay provisions:
- Public adjuster may be named as co-payee with clear percentage and initial expense reimbursements.
- Insurer must allocate proceeds appropriately, with insured-balances and payees clearly identified.
- Handling and disclosure requirements:
- Contracts must be duplicated for insurer and public adjuster; one contract must be accessible to the Director.
- Insureds receive a separate disclosure document explaining types of adjusters (company, independent, public) and the insured’s rights.
- 5-business-day window to deliver contract copy to insurer; 5-day right of rescission for insured, with explicit revocation process.
6) Standards of Conduct for Public Adjusters (Section 1590)
- General duties: objectivity, loyalty to the insured, and avoidance of conflicts of interest.
- Prohibitions: soliciting or representing while a loss-producing event is ongoing; unlicensed employees acting; undisclosed financial interests; referral to preferred contractors without disclosure; and other deceptive practices.
- Prohibitions on legal advice or acts of unauthorized practice of law.
- Provisions regarding proceeds delivery, disclosures of compensation sources, and ethical requirements for competence and honesty.
- Requirements for distribution of insurance proceeds (especially for personal residences) to insured and, where applicable, the insured’s designee or attorney; deadlines for release of funds.
Affected Parties and Impacts
- Insurance Companies: Must comply with the new certification, replacement-cost requirements, and updated public adjuster fee structures and discharge of claims; stricter claims practices oversight.
- Policyholders/Insured Property Owners: Enhanced protections in claims handling, more transparent disclosure from public adjusters, clearer directions for payments, and stronger safeguards against excessive public adjuster fees.
- Public Adjusters: Subject to new licensing, contract, disclosure, and conduct requirements; potential limits on fees, especially in non-residential catastrophe claims; stricter oversight by the Illinois Department of Insurance.
- Local Government and Tax Bodies: New mechanism for handling delinquent property taxes and demolition costs tied to insurance claim proceeds, including the certificate process and distribution rules.
Procedural and Timeline Aspects
- Effective date and transition are not explicitly stated in the excerpt; many provisions reference “amendatory Act” dates (e.g., Section 2 of the Interest Act timelines are noted in related sections).
- Rulemaking and Director approvals referenced for caps beyond 10% in catastrophe scenarios; director has a 5-business-day decision window for exceptions.
- Several sections include retroactivity provisions (e.g., Section 397.1 references to pre-existing claims; some provisions apply to policies issued or renewed after a specified date).
Notes
- The bill consolidates multiple current Illinois Insurance Code sections (154.6, 155, 397.1, 1570, 1575, 1590) and introduces new thresholds, procedures, and governance around insurance claims handling, public adjusting, and related fees.
- The amendments appear to increase consumer protections while expanding regulatory oversight of public adjusters and the handling of high-value property losses.
Compiled from official sources — confirm details with the bill’s official record.
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