Born From Conflict: Introducing the Foreign Fire Insurance License Fee Act

by Shawn P. Flaherty

A local dispute concerning expenditures between the City of Crystal Lake and its Foreign Fire Insurance Board (“FFIB”) has resulted in the Foreign Fire Insurance License Fee Act (65 ILCS 5/11-10-0.01), first effective on January 1, 2022. The Act applies to municipal foreign fire insurance boards and limits the ability of municipalities to regulate or otherwise control the operations of a FFIB.

Background

Section 11-10-1 of the Illinois Municipal Code calls for municipalities and fire protection districts to assess a “tax or license fee” by ordinance against foreign fire insurance issuers “in a sum not exceeding 2% of the gross receipts received from fire insurance upon property situated within the municipality or district.” 65 ILCS 5/11-10-1. Historically, these amounts have been collected by the Illinois Municipal League or another third-party organization and forwarded to the corresponding municipality or fire district for use by the FFIB.

Illinois law dictates that these expenditures must be used “for the maintenance, use, and benefit of the department” and the FFIB is required to adhere to other legal, financial, and rulemaking obligations set by statute.

In 2017, the City of Crystal Lake and its FFIB came to a dispute over the City’s suspension of the collection of foreign fire insurance taxes against insurance companies. This followed another argument between the City and FFIB concerning the propriety of certain FFIB expenditures. Ultimately, the McHenry County circuit court upheld the right of the City to not levy this tax, and the FFIB was legally unable to compel the City to assess it. The circuit court also held that the FFIB lacked legal capacity to sue or be sued and the individual members and Firefighters’ Union had no standing to bring suit against the City. See also City of Crystal Lake Fire Rescue Department Foreign Fire Insurance Tax Board et al. v. City of Crystal Lake, 2020 IL App (2d) 190956-U.

The Foreign Fire Insurance License Fee Act

In reaction to the Crystal Lake lawsuit, the General Assembly passed the Act. Among other things, the Act prohibits municipalities and fire districts from prescribing the foreign fire insurance license fees by ordinance; rather it is now set at 2% of gross receipts and it is payable to the treasurer of the FFIB or secretary of the fire protection district. 65 ILCS 5/11-10-1(a). The Act also gives FFIB express authority to bring legal action to recover funds against insurance companies and the third parties that owe or collect the fees, and FFIBs may file suit in the circuit court to enforce these actions. 65 ILCS 5/11-10-1(b).

FFIBs are now empowered to establish, manage, and maintain an account for the holding and expenditure of funds paid, and FFIBs are further permitted to contract for the payment of good and services using these funds, including accounting, auditing, legal and collection services. 65 ILCS 5/11-10-2. FFIB members are no longer required to be bonded by the municipality.

Disputes between the Fire Chief and other FFIB members concerning the maintenance, use, and expenditure of funds are to be resolved through binding arbitration as set forth in the Uniform Arbitration Act, and arbitration is the exclusive remedy to resolve disputes on these topics. 65 ILCS 5/11-10-2. The circuit courts no longer have jurisdiction over disputes involving whether FFIB expenditures fit within the statutory requirement.

This legislation also addresses issues not contemplated in the Crystal Lake case. For one, a FFIB can now directly collect foreign fire licensing fees and bypass using the Illinois Municipal League or other third-party collection agents. 65 ILCS 5/11-10-2.5. The Act also limits the ability of home rule municipalities to regulate FFIBs and their ability to assess license fees. 65 ILCS 5/11-10-1(c).

It is noteworthy that, even though the Act only amends the Illinois Municipal Code, it will also apply in part to FFIBs of fire protection districts to the extent that activities of fire district FFIBs were regulated in Section 11-10-1 of the Municipal Code. It is also interesting that this Act removes all references to “foreign fire insurance tax” in favor of “licensing fees.” Presumably, this language was inserted to avoid restrictions that might otherwise impede the ability of a FFIB to assess a tax.

The Associated Firefighters of Illinois (“AFFI”) have again flexed their muscle in Springfield to obtain legislation that is very friendly to the Union FFIB members at a cost to their employers. The result of the recent FFIB litigation certainly crystallized the AFFI’s resolve in advancing this measure to success.

Many details of how the Act will be influential remain to be seen. We would expect that administrative regulations may be issued to add more clarity as to how these changes would be implemented. Until then, if you have questions about how your FFIB is affected following the Act, we recommend you contact your attorney.