Life & Viatical Settlements

Chapter 5

National Conference of Insurance Legislators (NCOIL)

The following covers the National Conference of the Insurance Legislators (NCOIL) Life Settlement Model Act. For the most part, the language is exactly as they stated it. You will note that it refers to “this state” in many areas. The Model Act makes the assumption that those states adopting these acts will do so in its entirely, so using the phrase “this state” would be appropriate. The term always applies to the adopting state.

While some states may adopt NCOIL’s Life Settlement Model Act, others will adopt the NAIC Model Act and some states may use portions of each or develop their own state-specific requirements. The reader will see many similarities between the National Association of Insurance Commissioner’s recommendations and the National Conference of Insurance Legislature’s recommendations. Differences are often in the details, such as specific definitions that might be more restrictive in one versus the other. Such details may seem relevant only to the attorneys debating the issues, but many of the details will have a bearing on those in the viatical business since it affects how transactions must be carried out. Whatever format the individual states adopt, those who sell and process viatical settlement contracts must follow all state requirements, so it is always important to know and understand your state requirements.

NCOIL NOTE: “It is an essential public policy objective to protect consumers against stranger-originated life insurance (STOLI). STOLI is a practice or plan to initiate a life insurance policy for the benefit of a third party investor who, at the time of policy origination, has no insurable interest in the insured. STOLI practices include but are not limited to cases in which life insurance is purchased with resources or guarantees from or through a person, or entity, who at the time of policy inception, could not lawfully initiate the policy themselves, and where, at the time of inception, there is an arrangement or agreement, whether verbal or written, to directly or indirectly transfer the ownership of the policy and/or the policy benefits to a third party. Trusts, that are created to give the appearance of insurance interest and are used to initiate policies for investors, violate insurable interest laws and the prohibition against wagering on life. STOLI arrangements do not include those practices set forth in Section 2L(2) of this Act.

Trusts that are created to give the appearance of insurable interest and are used to manufacture policies for investors are illegal STOLI schemes. As the Unites States Supreme Court held, a person with insurable interest cannot lend that insurable interest “as a cloak to what is in its inception a wager.”

Grigsby V. Russell, 222 U.S. 149 (1911).

This Act is referred to as the Life Settlement Act.

Definitions

‘Advertisement’ means any written, electronic or printed communication or any communication by means of recorded telephone messages or transmitted on radio, television, the Internet or similar communications media, including film strips, motion pictures and videos, published, disseminated, circulated or placed before the public, directly or indirectly, for the purpose of creating an interest in or inducing a Person to purchase or sell, assign, devise, bequest or transfer the death benefit or ownership of a life insurance policy or an interest in a life insurance policy pursuant to a Life Settlement Contract.

‘Broker’ means a Person who, on behalf of an Owner and for a fee, commission or other valuable consideration, offers or attempts to negotiate Life Settlement Contracts between an Owner and Providers. A Broker represents only the Owner and owes a fiduciary duty to the Owner to act according to the Owner’s instructions, and in the best interest of the Owner, notwithstanding the manner in which the Broker is compensated. A Broker does not include an attorney, certified public accountant or financial planner retained in the type of practice customarily performed in their professional capacity to represent the Owner whose compensation is not paid directly or indirectly by the Provider or any other person, except the Owner.

‘Business of life settlements’ means an activity involved in, but not limited to, offering to enter into, soliciting, negotiating, procuring, effectuating, monitoring, or tracking, of Life Settlement Contracts.

‘Chronically ill’ means:

1. Being unable to perform at least two (2) activities of daily living (i.e., eating, toileting, transferring, bathing, dressing or continence);
   

2. Requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment; or
   

3. Having a level of disability similar to that described in Paragraph (1) as determined by the United States Secretary of Health and Human Services.

‘Commissioner’ means the Commissioner or Superintendent of the Department of Insurance.

‘Financing Entity’ means an underwriter, placement agent, lender, purchaser of securities, purchaser of a policy or certificate from a Provider, credit enhancer, or any entity that has a direct ownership in a policy or certificate that is the subject of a Life Settlement Contract, but:

1. Whose principal activity related to the transaction is providing funds to effect the Life Settlement Contract or purchase of one or more policies; and
   

2. Who has an agreement in writing with one or more Providers to finance the acquisition of Life Settlement Contracts?

Financing Entity does not include a non-accredited investor or Purchaser.

‘Financing Transaction’ means a transaction in which a licensed Provider obtains financing from a Financing Entity including, without limitation, any secured or unsecured financing, any securitization transaction, or any securities offering which either is registered or exempt from registration under federal and state securities law.

‘Fraudulent Life Settlement Act’ includes acts or omissions committed by any person who, knowingly and with intent to defraud, for the purpose of depriving another of property or for pecuniary gain, commits, or permits its employees or its agents to engage in acts including, but not limited to:

1. Broker, insurer, insurance producer or any other person, false material information, or concealing material information, as part of, in support of, or concerning a fact material to one or more of the following:

1. An application for the issuance of a Life Settlement Contract or insurance policy;

2. The underwriting of a Life Settlement Contract or insurance policy;

3. A claim for payment or benefit pursuant to a Life Settlement Contract or insurance policy;

4. Premiums paid on an insurance policy;

5. Payments and changes in ownership or beneficiary made in accordance with the terms of a Life Settlement Contract or insurance policy;

6. The reinstatement or conversion of an insurance policy;

7. In the solicitation, offer to enter into, or effectuation of a Life Settlement Contract, or insurance policy;

8. The issuance of written evidence of Life Settlement Contracts or insurance;

9. Any application for or the existence of or any payments related to a loan secured directly or indirectly by any interest in a life insurance policy; or

10. Enter into any practice or plan which involves STOLI.

2. Failing to disclose to the insurer where the request for such disclosure has been asked for by the insurer that the prospective insured has undergone a life 4 expectancy evaluation by any person or entity other than the insurer or its authorized representatives in connection with the issuance of the policy.

3. Employing any device, scheme, or artifice to defraud in the business of life settlements.

4. In the solicitation, application or issuance of a life insurance policy, employing any device, scheme or artifice in violation of state insurable interest laws.

In the furtherance of a fraud or to prevent the detection of a fraud any person commits or permits its employees or its agents to;

1. Remove, conceal, alter, destroy or sequester from the Commissioner the assets or records of a licensee or other person engaged in the business of life settlements;

2. Misrepresent or conceal the financial condition of a licensee, financing entity, insurer or other person;

3. Transact the business of life settlements in violation of laws requiring a license, certificate of authority or other legal authority for the transaction of the business of life settlements;

4. File with the Commissioner or the chief insurance regulatory official of another jurisdiction a document containing false information or otherwise concealing information about a material fact from the Commissioner;

5. Engage in embezzlement, theft, misappropriation or conversion of monies, funds, premiums, credits or other property of a Provider, insurer, insured, owner, insurance, policy owner or any other person engaged in the business of life settlements or insurance;

6. Knowingly and with intent to defraud, enter into, broker, or otherwise deal in a Life Settlement Contract, the subject of which is a life insurance policy that was obtained by presenting false information concerning any fact material to the policy or by concealing, for the purpose of misleading another, information concerning any fact material to the policy, where the owner or the owner’s agent intended to defraud the policy’s issuer;

7. Attempt to commit, assist, aid or abet in the commission of, or conspiracy to commit the acts or omissions specified in this subsection; or

8. Misrepresent the state of residence of an owner to be a state or jurisdiction that does not have a law substantially similar to this Act for the purpose of evading or avoiding the provisions of this Act.

‘Insured’ means the person covered under the policy being considered for sale in a Life Settlement Contract.

‘Life expectancy’ means the arithmetic mean of the number of months the Insured under the life insurance policy to be settled can be expected to live as determined by a life expectancy company considering medical records and appropriate experiential data.

‘Life insurance producer’ means any person licensed in this state as a resident or nonresident insurance producer who has received qualification or authority for life insurance coverage or a life line of coverage.

‘Life Settlement Contract’ means a written agreement entered into between a Provider and an Owner, establishing the terms under which compensation or anything of value will be paid, which compensation or thing of value is less than the expected death benefit of the insurance policy or certificate, in return for the owner’s assignment, transfer, sale, devise or bequest of the death benefit or any portion of an insurance policy or certificate of insurance for compensation, provided, however, that the minimum value for a Life Settlement Contract shall be greater than a cash surrender value or accelerated death benefit available at the time of an application for a Life Settlement Contract. “Life Settlement Contract” also includes the transfer for compensation or value of ownership or beneficial interest in a trust or other entity that owns such policy if the trust or other entity was formed or availed of for the principal purpose of acquiring one or more life insurance contracts, which life insurance contract insures the life of a person residing in this State.

1. ‘Life Settlement Contract’ also includes

1. a written agreement for a loan or other lending transaction, secured primarily by an individual or group life insurance policy; or

2. a premium finance loan made for a policy on or before the date of issuance of the policy where:

1. The loan proceeds are not used solely to pay premiums for the policy and any costs or expenses incurred by the lender or the borrower in connection with the financing; or

 

2. The Owner receives on the date of the premium finance loan a guarantee of the future life settlement value of the policy; or

3. The Owner agrees on the date of the premium finance loan to sell the policy or any portion of its death benefit on any date following the issuance of the policy.

2. ‘Life Settlement Contract’ does not include:

1. A policy loan by a life insurance company pursuant to the terms of the life insurance policy or accelerated death provisions contained in the life insurance policy, whether issued with the original policy or as a rider;

2. A premium finance loan, as defined herein, or any loan made by a bank or other licensed financial institution, provided that neither default on such loan nor the transfer of the policy in connection with such default is pursuant to an agreement or understanding with any other person for the purpose of evading regulation under this Act;

3. A collateral assignment of a life insurance policy by an owner;

4. A loan made by a lender that does not violate [insert reference to state’s insurance premium finance law], provided such loan is not described in Paragraph (1) above, and is not otherwise within the definition of Life Settlement Contract;

5. An agreement where all the parties [i] are closely related to the insured by blood or law or [ii] have a lawful substantial economic interest in the continued life, heath and bodily safety of the person insured, or are trusts established primarily for the benefit of such parties;

6. Any designation, consent or agreement by an insured who is an employee of an employer in connection with the purchase by the employer, or trust established by the employer, of life insurance on the life of the employee;

7. A bona fide business succession planning arrangement:

   • Between one or more shareholders in a corporation or between a corporation and one or more of its shareholders or one or more trust established by its shareholders;

   • Between one or more partners in a partnership or between a partnership and one or more of its partners or one or more trust established by its partners; or

   • Between one or more members in a limited liability company or between a limited liability company and one or more of its members or one or more trust established by its members;

8. An agreement entered into by a service recipient, or a trust established by the service recipient, and a service provider, or a trust established by the service provider, who performs significant services for the service recipient’s trade or business; or

9. Any other contract, transaction or arrangement from the definition of Life Settlement Contract that the Commissioner determines is not of the type intended to be regulated by this Act.

‘Net death benefit’ means the amount of the life insurance policy or certificate to be settled less any outstanding debts or liens.

‘Owner’ means the owner of a life insurance policy or a certificate holder under a group policy, with or without a terminal illness, who enters or seeks to enter into a Life Settlement Contract. For the purposes of this article, an Owner shall not be limited to an Owner of a life insurance policy or a certificate holder under a group policy that insures the life of an individual with a terminal or chronic illness or condition except where specifically addressed. The term ‘Owner’ does not include:

1. any Provider or other licensee under this Act;

2. a qualified institutional buyer as defined in Rule 144A of the federal Securities Act of 1933, as amended;

3. a financing entity;

4. a special purpose entity; or

5. a related provider trust.

‘Patient identifying information’ means an insured’s address, telephone number, facsimile number, electronic mail address, photograph or likeness, employer, employment status, social security number, or any other information that is likely to lead to the identification of the insured.

‘Policy’ means an individual or group policy, group certificate, contract or arrangement of life insurance owned by a resident of this state, regardless of whether delivered or issued for delivery in this state.

‘Premium Finance Loan’ is a loan made primarily for the purposes of making premium payments on a life insurance policy, which loan is secured by an interest in such life insurance policy.

‘Person’ means any natural person or legal entity, including but not limited to, a partnership, Limited Liability Company, association, trust or corporation.

‘Provider’ means a Person, other than an Owner, who enters into or effectuates a Life Settlement Contract with an Owner, A Provider does not include:

1. any bank, savings bank, savings and loan association, credit union;

2. a licensed lending institution or creditor or secured party pursuant to a Premium Finance Loan agreement which takes an assignment of a life insurance policy or certificate issued pursuant to a group life insurance policy as collateral for a loan;

3. the insurer of a life insurance policy or rider to the extent of providing accelerated death benefits or riders under [refer to law or regulation implementing or accelerated death benefits provision] or cash surrender value;

4. any natural Person who enters into or effectuates no more than one agreement in a calendar year for the transfer of a life insurance policy or certificate issued pursuant to a group life insurance policy, for compensation or anything of value less than the expected death benefit payable under the policy;

5. a Purchaser;

6. any authorized or eligible insurer that provides stop loss coverage to a provider; purchaser, financing entity, special purpose entity, or related provider trust;

7. a Financing Entity;

8. a Special Purpose Entity;

9. a Related Provider Trust;

10. a Broker; or

11. an accredited investor or qualified institutional buyer as defined in respectively in regulation D, rule 501 or rule 144A of the federal securities act of 1933, as amended, who purchases a life settlement policy from a Provider.

‘Purchased Policy’ means a policy or group certificate that has been acquired by a Provider pursuant to a Life Settlement Contract.

‘Purchaser’ means a Person who pays compensation or anything of value as consideration for a beneficial interest in a trust which is vested with, or for the assignment, transfer or sale of, an ownership or other interest in a life insurance policy or a certificate issued pursuant to a group life insurance policy which has been the subject of a Life Settlement Contract.

‘Related Provider Trust’ means a titling trust or other trust established by a licensed Provider or a Financing Entity for the sole purpose of holding the ownership or beneficial interest in purchased policies in connection with a Financing Transaction. In order to qualify as a Related Provider Trust, the trust must have a written agreement with the licensed Provider under which the licensed Provider is responsible for ensuring compliance with all statutory and regulatory requirements and under which the trust agrees to make all records and files relating to life settlement transactions available to the Department of Insurance as if those records and files were maintained directly by the licensed Provider.

‘Settled policy’ means a life insurance policy or certificate that has been acquired by a Provider pursuant to a Life Settlement Contract.

‘Special Purpose Entity’ means a corporation, partnership, trust, limited liability company, or other legal entity formed solely to provide either directly or indirectly access to institutional capital markets for a financing entity or provider; or

1. in connection with a transaction in which the securities in the special purpose entity are acquired by the owner or by a “qualified institutional buyer” as defined in Rule 144 promulgated under The Securities Act of 1933, as amended; or

2. the securities pay a fixed rate of return commensurate with established asset-backed institutional capital markets.

‘Stranger-Originated Life Insurance’ or ‘STOLI’ is a practice or plan to initiate a life insurance policy for the benefit of a third party investor who, at the time of policy origination, has no insurable interest in the insured. STOLI practices include but are not limited to cases in which life insurance is purchased with resources or guarantees from or through a person, or entity, who, at the time of policy inception, could not lawfully initiate the policy himself or itself, and where, at the time of inception, there is an arrangement or agreement, whether verbal or written, to directly or indirectly transfer the ownership of the policy and/or the policy benefits to a third party. Trusts, that are created to give the appearance of insurable interest, and are used to initiate policies for investors, violate insurable interest laws and the prohibition against wagering on life. STOLI arrangements do not include those practices set forth in Section 2L(2) of this Act.

‘Terminally Ill’ means having an illness or sickness that can reasonably be expected to result in death in twenty-four (24) months or less.

Licensing Requirements

All individuals who plan to act as a provider or broker with an owner or multiple owners residing in the state must first obtain a license from the state commissioner. If there is more than one owner on a single policy and the owners are residents of different states, the Life Settlement Contract will be governed by the law of the state in which the owner having the largest percentage ownership resides or, if the owners hold equal ownership, the state of residence of one owner agreed upon in writing by all owners.

When applying for a provider or broker license the prescribed form must be presented to the Commissioner. The established fee must accompany the application. The license and renewal fees for a provider license must be reasonable; the license and renewal fees for a broker license will not exceed those established for an insurance producer.

A life insurance producer who has been duly licensed as a resident insurance producer with a life line of authority in this state or his or her home state for at least one year and is licensed as a nonresident producer in this state will have met the licensing requirements and be permitted to operate as a broker.

No later than thirty days from the first day of operating as a broker, the life insurance producer must notify the Commissioner on the prescribed form that he or she is acting as a broker and pay any required applicable fee. Included will be an acknowledgement that he or she will operate as a broker in accordance with this Act.

The insurance company that issued the policy that is the subject of a life settlement contract is not responsible for any act or omission of a broker, provider or purchaser arising out of or in connection with the life settlement transaction, unless the insurer receives compensation for the placement of a life settlement contract from the provider, purchaser, or broker in connection with the contract.

An attorney, certified public accountant, or financial planner accredited by a nationally recognized accreditation agency may represent the owner and is not required to obtain a viatical license if his or her compensation is not paid directly or indirectly by the provider or purchaser.

Licenses may be renewed as required by the state on the anniversary date upon payment of the periodic renewal fee. The provider renewal fee must be reasonable. Failure to pay the fee within the terms prescribed will result in the automatic revocation of the license.

The term of a provider license will be the same as a domestic stock life insurance company; the term of a broker license will be the same as an insurance producer license. Licenses requiring periodic renewal may be renewed on their anniversary date with payment of the periodic renewal fee. Failure to pay the fees on or before the renewal date will result in lapse of the license.

The applicant must provide whatever information the Commissioner requires on forms prepared by the Commissioner. The Commissioner has the authority, at any time, to require an applicant to fully disclose the identity of its stockholders (except stockholders owning fewer than ten percent of the shares of an applicant whose shares are publicly traded), partners, officers and employees. The Commissioner may, in his or her sole discretion, refuse to issue a viatical license to any person if not satisfied that any officer, employee, stockholder or partner, who might materially influence the applicant's conduct, does not meet the standards of this Act.

A license issued to a partnership, corporation or other entity authorizes all members, officers and designated employees to act as a licensee under the license, if those persons are named in the application or any supplements to the application.

Upon filing an application and paying the license fee, the Commissioner will begin an investigation of each applicant and may issue a license if he or she finds that the applicant:

1. If a Provider, has provided a detailed plan of operation;

2. Is competent and trustworthy and intends to transact its business in good faith;

3. Has a good business reputation and has had experience, training or education so as to be qualified in the business for which the license is applied;

4. If the applicant is a legal entity, is formed or organized pursuant to the laws of this state or is a foreign legal entity authorized to transact business in this state, or provides a certificate of good standing from the state of its domicile; and

5. Has provided the Commissioner with their an anti-fraud plan that meets the requirements and includes:

1. A description of the procedures for detecting and investigating possible fraudulent acts and procedures for resolving material inconsistencies between medical records and insurance applications;

2. A description of the procedures for reporting fraudulent insurance acts to the Commissioner;

3. A description of the plan for anti-fraud education and training of its underwriters and other personnel; and

4. A written description or chart outlining the arrangement of the anti-fraud personnel who are responsible for the investigation and reporting of possible fraudulent insurance acts and investigating unresolved material inconsistencies between medical records and insurance applications.

The Commissioner will not issue any license to any nonresident applicant, unless a written designation of an agent for service of process is filed and maintained with the Commissioner, or unless the applicant has filed his or her written irrevocable consent with the Commissioner that any action against him or her may be commenced by service of process on the Commissioner.

Each licensee must file an annual statement with the Commissioner on or before the first day of March of each year containing whatever information the Commissioner requires.

A provider may not use any person to perform the functions of a broker as defined in this Act unless the person holds a current, valid license as a broker and meets all requirements.

A broker may not use any person to perform the functions of a provider as defined in this Act unless such person holds a current, valid license as a provider and meets all requirements.

A provider or broker must provide to the Commissioner new or revised information about officers, ten percent or more stockholders, partners, directors, members or designated employees within thirty days of any change.

An individual licensed as a broker must complete fifteen (15) hours of training on a biennial basis related to life settlements and life settlement transactions, as required by the Commissioner. A life insurance producer who is operating as a broker pursuant to this Section will not be subject to the requirements of this subsection. Any person failing to meet the requirements of this subsection will be subject to the penalties imposed by the Commissioner.

License Suspension, Revocation or Refusal to Renew

The Commissioner may suspend, revoke or refuse to renew the license of any licensee if the Commissioner finds that:

1. There was any material misrepresentation in the application for the license;

2. The licensee or any officer, partner, member or director has been guilty of fraudulent or dishonest practices, is subject to a final administrative action or is otherwise shown to be untrustworthy or incompetent to act as a licensee;

3. The provider demonstrates a pattern of unreasonably withholding payments to policy owners;

4. The licensee no longer meets the requirements for initial licensure;

5. The licensee or any officer, partner, member or director has been convicted of a felony, or of any misdemeanor of which criminal fraud is an element; or the licensee has pleaded guilty to nolo contendere with respect to any felony or any misdemeanor of which criminal fraud or moral turpitude is an element, regardless whether a judgment of conviction has been entered by the court;

6. The provider has entered into any life settlement contract that has not been approved pursuant to the Act;

7. The provider has failed to honor contractual obligations set out in a life settlement contract;

8. The provider has assigned, transferred or pledged a settled policy to a person other than a provider licensed in this state, a purchaser, an accredited investor or qualified institutional buyer as defined respectively in Regulation D, Rule 501 or Rule 144A of the Federal Securities Act of 1933, as amended, financing entity, special purpose entity, or related provider trust; or

9. The licensee or any officer, partner, member or key management personnel has violated any of the provisions of this Act.

Before the Commissioner denies a license application or suspends, revokes or refuses to renew the license of any licensee under this Act, the Commissioner will conduct a hearing in accordance with this state's laws governing administrative hearings.

Contract Requirements

No person may use any form of life settlement contract in this state unless it has been filed with and approved, if required, by the Commissioner in a manner that conforms with the filing procedures and any time restrictions or deeming provisions, if any, for life insurance forms, policies and contracts.

No insurer may, as a condition of responding to a request for verification of coverage or in connection with the transfer of a policy pursuant to a life settlement contract, require that the owner, insured, provider or broker sign any form, disclosure, consent, waiver or acknowledgment that has not been expressly approved by the Commissioner for use in connection with life settlement contracts.

An individual may not use a life settlement contract form or provide an owner with a disclosure statement form unless first filed with and approved by the state’s Commissioner. The Commissioner will disapprove a life settlement contract form or disclosure statement form if, in his or her opinion, the contract or the contract’s provisions fail to meet the requirements of this Act or are unreasonable, contrary to the interests of the public, or otherwise misleading or unfair to the owner. At the Commissioner’s discretion, he or she may require the submission of advertising material.

Reporting Requirements and Privacy

For any policy settled within five years of policy issuance, each provider must file an annual statement on or before March 1 of each year with the Commissioner containing whatever information the Commissioner requires by regulation. In addition to any other requirements, the annual statement must specify the total number, aggregate face amount and life settlement proceeds of policies settled during the immediately preceding calendar year, together with a breakdown of the information by policy issue year. The annual statement will also include the names of the insurance companies whose policies have been settled and the brokers that have settled them.

1. Such information will be limited to only those transactions where the insured is a resident of this state. It will not include individual transaction data regarding the business of life settlements or information that could be used to identify the owner or the insured.

2. Every provider that willfully fails to file an annual statement as required, or willfully fails to reply within thirty days to a written inquiry by the Commissioner in connection with it will, in addition to other penalties provided by this chapter, be subject, upon due notice and opportunity to be heard, to a penalty of up to $250 per day of delay, not to exceed $25,000 in the aggregate, for each such failure.

Except as otherwise allowed or required by law, a provider, broker, insurance company, insurance producer, information bureau, rating agency or company, or any other person with actual knowledge of an insured's identity, may not disclose the identity of an insured or information that there is a reasonable basis to believe could be used to identify the insured or the insured's financial or medical information to any other person unless the disclosure:

1. Is necessary to effect a life settlement contract between the owner and a provider and the owner and insured have provided prior written consent to the disclosure;

2. Is necessary to effectuate the sale of life settlement contracts, or interests therein, as investments, provided the sale is conducted in accordance with applicable state and federal securities law and provided further that the owner and the insured have both provided prior written consent to the disclosure;

3. Is provided in response to an investigation or examination by the Commissioner or any other governmental officer or agency or pursuant to NCOIL requirements;

4. Is a term or condition to the transfer of a policy by one provider to another provider, in which case the receiving provider will be required to comply with the confidentiality requirements;

5. Is necessary to allow the provider or broker or their authorized representatives to make contacts for the purpose of determining health status. For the purposes of this section, the term "authorized representative" will not include any person who has or may have any financial interest in the settlement contract other than a provider, licensed broker, financing entity, related provider trust or special purpose entity. Additionally, a provider or broker must require its authorized representative to agree in writing to adhere to the privacy provisions of this Act; or

6. Is required to purchase stop loss coverage.

Non-public personal information solicited or obtained in connection with a proposed or actual life settlement contract will be subject to the provisions applicable to financial institutions under the federal Gramm Leach Bliley Act, P.L. 106-102 (1999), and all other state and federal laws relating to confidentiality of non-public personal information.

Examination

[Drafting Note: NCOIL has established a Model Act for the examination of insurers. This Model should be applied to settlement companies. Where practicable, examination should be detailed in a rule adopted by the Commissioner under the authority of this law.]

The Commissioner may, when deemed reasonably necessary to protect the interests of the public, examine the business and affairs of any licensee or applicant for a license. The Commissioner may order any licensee or applicant to produce any records, books, files or other information reasonably necessary to ascertain whether he or she is acting or has acted in violation of the law or otherwise contrary to the interests of the public. The expenses incurred in conducting any examination will be paid by the licensee or applicant.

In lieu of an examination under this Act of any foreign or alien licensee licensed in this state, the Commissioner may, at his or her discretion, accept an examination report on the licensee as prepared by the Commissioner for the licensee’s state of domicile or port-of-entry state.

Names and individual identification data for all owners and insured individuals will be considered private and confidential information and may not be disclosed by the Commissioner unless required by law.

Records of all consummated transactions and life settlement contracts must be maintained by the provider for three years after the death of the insured and must be available to the Commissioner for inspection during reasonable business hours.

Conduct of Examinations

Upon determining that an examination should be conducted, the Commissioner will issue an examination warrant appointing one or more examiners to perform the examination and instructing them as to the scope of the examination. The examiner will use methods common to the examination of any life settlement licensee and use those guidelines and procedures set forth in an examiners’ handbook adopted by a national organization.

Every licensee or person from whom information is sought, its officers, directors and agents must provide the examiners with timely, convenient and free access at all reasonable hours at its offices to all books, records, accounts, papers, documents, assets and computer or other recordings relating to the property, assets, business and affairs of the licensee being examined. The officers, directors, employees and agents of the licensee or person must facilitate the examination and aid in the examination so far as it is in their power to do so. Refusal by a licensee, its officers, directors, employees or agents, to submit to examination or to comply with any reasonable written request of the Commissioner will be grounds for license suspension, refusal to renew, or non-renewal of any license or authority held by the licensee to engage in the life settlement business or other business subject to the Commissioner's jurisdiction. Any proceedings for suspension, revocation or refusal of any license or authority will be conducted pursuant to state provisions.

The Commissioner has the power to issue subpoenas, administer oaths and examine under oath any person regarding any matter pertinent to the examination. Upon the failure or refusal of a person to obey a subpoena, the Commissioner may petition a court of competent jurisdiction, and upon proper showing, the court may enter an order compelling the witness to appear and testify or produce documentary evidence.

When making an examination under this Act, the Commissioner may retain attorneys, appraisers, independent actuaries, independent certified public accountants or other professionals and specialists as examiners, the reasonable cost of which will be borne by the licensee that is the subject of the examination.

Nothing contained in this Act will be construed to limit the Commissioner's authority to terminate or suspend an examination in order to pursue other legal or regulatory action pursuant to the insurance laws of this state. Findings of fact and conclusions made pursuant to any examination will be prima facie evidence in any legal or regulatory action.

Nothing contained in this Act will be construed to limit the Commissioner's authority to use and, if appropriate, make public any final or preliminary examination report, any examiner or licensee work papers or other documents, or any other information discovered or developed during the course of any examination in the furtherance of any legal or regulatory action which the Commissioner may, in his or her sole discretion, deem appropriate.

[Drafting Note: In many states examination work papers remain confidential. The previous paragraph should be adjusted to conform to state statute and practice.]

Examination Reports

Examination reports will be comprised of only facts appearing upon the books, from the testimony of its officers or agents or other persons examined concerning its affairs, and such conclusions and recommendations as the examiners find reasonably warranted from the facts.

No later than sixty days following completion of the examination, the examiner in charge will file a verified written report of examination under oath with the Commissioner. Upon receipt of the verified report, the Commissioner will transmit the report to the licensee examined, together with a notice that will allow the examined licensee a reasonable opportunity of not more than thirty (30) days to make a written submission or rebuttal with respect to any matters contained in the examination report (which will become part of the report) or to request a hearing on any matter in dispute.

In the event the Commissioner determines that regulatory action is appropriate as a result of an examination, the Commissioner may initiate any proceedings or actions provided by law.

Confidentiality of Examination Information

Names and individual identification data for all owners, purchasers, and insured individuals will be considered private and confidential information and will not be disclosed by the Commissioner, unless the disclosure is to another regulator or is required by law.

Except as otherwise provided in this Act, all examination reports, working papers, recorded information, documents and copies thereof produced by, obtained by or disclosed to the Commissioner or any other person in the course of an examination made under this Act, or in the course of analysis or investigation by the Commissioner of the financial condition or market conduct of a licensee will be confidential by law and privileged. It will not be subject to open records, Freedom of Information, or subject to subpoena, and will not be subject to discovery or admissible in evidence in any private civil action. The Commissioner is authorized to use the documents, materials or other information in the furtherance of any regulatory or legal action brought as part of the Commissioner's official duties. The licensee being examined may have access to all documents used to make the report.

Conflict of Interest

An examiner may not be appointed by the Commissioner if the examiner, either directly or indirectly, has a conflict of interest or is affiliated with the management of or owns a pecuniary interest in any person subject to examination under this Act. This section may not be construed to automatically preclude an examiner from being an owner, an insured in a life settlement contract or insurance policy, or a beneficiary in an insurance policy that is proposed for a life settlement contract.

The Commissioner may retain from time to time, on an individual basis, qualified actuaries, certified public accountants, or other similar individuals who are independently practicing their professions, even though these persons may from time to time be similarly employed or retained by persons subject to examination under this Act.

Immunity from Liability

No cause of action may arise nor will any liability be imposed against the Commissioner, his or her authorized representatives, or any examiner appointed by the Commissioner for any statements made or conduct performed in good faith while carrying out the provisions of this Act.

No cause of action will arise, nor will any liability be imposed against any person for the act of communicating or delivering information or data to the Commissioner or his or her authorized representative or examiner pursuant to an examination made under this Act, if the act of communication or delivery was performed in good faith and without fraudulent intent or the intent to deceive.

Individuals will be entitled to an award of attorney's fees and costs if he or she is the prevailing party in a civil cause of action for libel, slander or any other relevant tort arising out of activities in carrying out the provisions of this Act and the party bringing the action was not substantially justified in doing so. For purposes of this section a proceeding is "substantially justified" if it had a reasonable basis in law or fact at the time it was initiated.

Investigative Authority of the Commissioner

The Commissioner may investigate suspected fraudulent life settlement acts and persons engaged in the business of life settlement contracts.

Cost of Examinations

If the adopting state has specific provisions enacted that relate to the cost of conducting examinations, they would be so stated.

Advertising

A broker or provider licensed under this act may conduct or participate in advertisements within their state. Advertisements must comply with all advertising and marketing laws, rules, and regulations that are applicable to life insurers, brokers, and providers licensed pursuant to this Act. Advertisements must be accurate and truthful and not misleading in fact or by implication.

No person or trust may directly or indirectly, market, advertise, solicit or otherwise promote the purchase of a policy for the sole purpose of or with an emphasis on settling the policy. They may not use “free,” “no cost,” or similar words in the marketing, advertising, soliciting or otherwise promoting the purchase of a policy.

Disclosures to Owners

The provider must provide the owner in writing, in a separate document that is signed by the owner and provider, the following information no later than the date the life settlement contract is signed by all parties:

1. The fact that possible alternatives to life settlement contracts exist, including, but not limited to, accelerated benefits offered by the issuer of the life insurance policy;

2. The fact that some or all of the proceeds of a life settlement contract may be taxable, and that assistance should be sought from a professional tax advisor;

3. The fact that the proceeds from a life settlement contract could be subject to the claims of creditors;

4. The fact that receipt of proceeds from a life settlement contract may adversely affect the recipients' eligibility for public assistance or other government benefits or entitlements and that advice should be obtained from the appropriate agencies;

5. The fact that the owner has a right to terminate a life settlement contract within fifteen (15) days of the date it is executed by all parties and the owner has received the disclosures contained herein. Rescission, if exercised by the owner, is effective only if both notice of the rescission is given, and the owner repays all proceeds and any premiums, loans, and loan interest paid on account of the provider within the rescission period. If the insured dies during the rescission period, the contract will be deemed to have been rescinded subject to repayment by the owner or the owner’s estate of all proceeds and any premiums, loans, and loan interest to the provider;

6. The fact that proceeds will be sent to the owner within three (3) business days after the provider has received the insurer or group administrator’s acknowledgement that ownership of the policy or interest in the certificate has been transferred and the beneficiary has been designated in accordance with the terms of the life settlement contract;

7. The fact that entering into a life settlement contract may cause other rights or benefits, including conversion rights and waiver of premium benefits that may exist under the policy or group certificate to be forfeited by the owner; assistance should be sought from a professional financial advisor;

8. The amount and method of calculating the compensation paid or to be paid to the broker, or any other person acting for the owner in connection with the transaction. The term compensation includes anything of value paid or given;

9. The date by which the funds will be available to the owner and the transmitter of the funds;

10. The fact that the Commissioner will require delivery of a Buyer’s Guide or a similar consumer advisory package in the form prescribed by the state Commissioner to owners during the solicitation process;

11. The disclosure document must contain the following language: “all medical, financial or personal information solicited or obtained by a provider or broker about an insured, including the insured’s identity or the identity of family members, a spouse or a significant other may be disclosed as necessary to effect the Life Settlement Contract between the owner and provider. If you are asked to provide this information, you will be asked to consent to the disclosure. The information may be provided to someone who buys the policy or provides funds for the purchase. You may be asked to renew your permission to share information every two years”;

12. The fact that the Commissioner shall require providers and brokers to print separate signed fraud warnings on their applications and on their life settlement contracts is as follows: “Any person who knowingly presents false information in an application for insurance or Life Settlement Contract is guilty of a crime and may be subject to fines and confinement in prison.”

13. The fact that the insured may be contacted by either the provider or broker or its authorized representative for the purpose of determining the insured’s health status or to verify the insured's address. This contact is limited to once every three (3) months if the insured has a life expectancy of more than one year, and no more than once per month if the insured has a life expectancy of one year or less;

14. The affiliation, if any, between the provider and the issuer of the insurance policy to be settled;

15. That a broker represents exclusively the owner, and not the insurer or the provider or any other person, and owes a fiduciary duty to the owner, including a duty to act according to the owner’s instructions and in the best interest of the owner;

16. The document must include the name, address and telephone number of the provider;

17. The name, business address, and telephone number of the independent third party escrow agent, and the fact that the owner may inspect or receive copies of the relevant escrow or trust agreements or documents;

18. The fact that a change of ownership could in the future limit the insured’s ability to purchase future insurance on the insured’s life because there is a limit to how much coverage insurers will issue on one life;

The written disclosures must be conspicuously displayed in any life settlement contract furnished to the owner by a provider including any affiliations or contractual arrangements between the provider and broker.

A broker shall provide the owner and the provider with at least the following disclosures no later than the date the life settlement contract is signed by all parties. The disclosures shall be conspicuously displayed in the Life Settlement Contract or in a separate document signed by the Owner and provide the following information:

1. The name, business address and telephone number of the broker;

2. A full, complete and accurate description of all the offers, counter-offers, acceptances and rejections relating to the proposed life settlement contract;

3. A written disclosure of any affiliations or contractual arrangements between the broker and any person making an offer in connection with the proposed life settlement contracts;

4. The name of each broker who receives compensation and the amount of compensation received by that broker; compensation includes anything of value paid or given to the broker in connection with the life settlement contract;

5. A complete reconciliation of the gross offer or bid by the provider to the net amount of proceeds or value to be received by the owner. For the purpose of this section, gross offer or bid means the total amount or value offered by the provider for the purchase of one or more life insurance policies, inclusive of commissions and fees; and

6. The failure to provide the disclosures or rights described in this section will be deemed an Unfair Trade Practice.

Disclosure to Insurers

[Drafting Note: The provisions in this Section pertaining to premium finance arrangements and disclosures may be inserted into a state’s premium finance law. If so, it is recommended that the disclosures be made to the borrower and/or insured by a lender which takes the policy as collateral for a premium finance loan.]

An insurance company may inquire in their insurance application whether the proposed owner intends to pay premiums with the assistance of financing from a lender that will use the policy as collateral to support the financing. There is no intention to limit the ability of an insurer to assess the insurability of an applicant and determine whether or not to issue the life insurance policy.

If the loan provides funds that can be used for a purpose other than paying for the premiums, costs, and expenses associated with obtaining and maintaining the life insurance policy and loan, the application must be rejected as a violation of the Prohibited Practices in Section 13 of this Act.

If the financing does not violate Section 13, the insurance carrier may make disclosures, to the applicant and the insured, either on the application or an amendment to the application to be completed no later than the delivery of the policy. The disclosures may include but are not limited to the following:

“If you have entered into a loan arrangement where the policy is used as collateral, and the policy does change ownership at some point in the future in satisfaction of the loan, the following may be true:

1. A change of ownership could lead to a stranger owning an interest in the insured’s life;

2. A change of ownership could limit in the future your ability to purchase future insurance on the insured’s life because there is a limit to how much coverage insurers will issue on one life;

3. Should there be a change of ownership and you wish to obtain more insurance coverage on the insured’s life in the future, the insured’s higher issue age, a change in health status, and/or other factors may reduce the ability to obtain coverage and/or may result in significantly higher premiums;

4. You should consult a professional advisor, since a change in ownership in satisfaction of the loan may result in tax consequences to the owner, depending on the structure of the loan.”

The insurance carrier may require certifications, such as the following, from the applicant and/or the insured:

• “I have not entered into any agreement or arrangement providing for the future sale of this life insurance policy”;

• “My loan arrangement for this policy provides funds sufficient to pay for some or all of the premiums, costs, and expenses associated with obtaining and maintaining my life insurance policy, but I have not entered into any agreement by which I am to receive consideration in exchange for procuring this policy”; and

• “The borrower has an insurable interest in the insured.”

General Rules

A provider entering into a life settlement contract with any owner of a policy, wherein the insured is terminally or chronically ill, must first obtain:

1. If the owner is the insured, a written statement from a licensed attending physician that the owner is of sound mind and under no constraint or undue influence to enter into a settlement contract; and

2. A document in which the insured consents to the release of his or her medical records to a provider, settlement broker, or insurance producer and, if the policy was issued less than two years from the date of application for a settlement contract, to the insurance company that issued the policy.

The insurer must respond to a request for verification of coverage submitted by a provider, settlement broker, or life insurance producer not later than thirty calendar days of the date the request is received. The request for verification of coverage must be made on a form approved by the Commissioner. The insurer will complete and issue the verification of coverage or indicate in which respects it is unable to respond. In its response, the insurer must indicate whether, based on the medical evidence and documents provided, the insurer intends to pursue an investigation at this time regarding the validity of the insurance contract.

Before or at the time of execution of the settlement contract, the provider must obtain a witnessed document in which the owner consents to the settlement contract, represents that he or she has a full and complete understanding of the settlement contract, has a full and complete understanding of the benefits of the policy, acknowledges that he or she is entering into the settlement contract freely and voluntarily, and, for persons with a terminal or chronic illness or condition, acknowledges that situation and that the terminal or chronic illness was diagnosed after the policy was issued.

The insurer may not unreasonably delay effecting change of ownership or beneficiary with any life settlement contract lawfully entered into in this state or with a resident of this state.

If a settlement broker or life insurance producer performs any of these activities required of the provider, the provider is deemed to have fulfilled the requirements. If a broker performs verification of coverage activities required of the provider, the provider is deemed to have fulfilled the requirements.

Within twenty days after an owner executes the life settlement contract, the provider will give written notice to the insurer that issued that insurance policy that the policy has become subject to a life settlement contract. The notice will be accompanied by any required documents.

All medical information solicited or obtained by any licensee will be subject to the applicable provision of state law relating to confidentiality of medical information, if not otherwise provided in this Act.

All life settlement contracts allow the owner to rescind the contract on or before fifteen days after the date it was executed by all parties. Rescission, if exercised by the owner, is effective only if both notice of the rescission is given, and all proceeds are repaid by the owner, including any premiums, loans, and loan interest paid by the provider within the rescission period. If the insured dies during the rescission period, the contract will be deemed to have been rescinded subject to repayment of all proceeds, including premiums, loans, and loan interest to the provider.

Within three business days after receipt of the owner’s documents to allow the transfer of the insurance policy, the provider will pay the proceeds of the settlement to an escrow or trust account managed by a trustee or escrow agent in a state or federally chartered financial institution pending acknowledgement of the transfer by the issuer of the policy. The trustee or escrow agent will be required to transfer the proceeds due to the owner within three business days of acknowledgement of the transfer from the insurer.

Failure to tender the life settlement contract proceeds to the owner by the date disclosed renders the contract voidable by the owner for lack of consideration until the time the proceeds are tendered to and accepted by the owner. Failure to give the owner written notice of their right of rescission extends that right until thirty days after the written notice has been given.

Any fee paid by a provider, party, individual, or an owner to a broker in exchange for services provided to the owner pertaining to a life settlement contract will be computed as a percentage of the offer obtained, not the face value of the policy. A broker may reduce his or her fees below this percentage if the broker so chooses.

The broker must disclose to the owner anything of value paid or given to him or her that relates to the life settlement contract.

Individuals may not enter into a life settlement contract for the first two years of a life insurance policy (commencing from the date of policy issuance). This prohibition will not apply if the owner certifies to the provider that:

1. The policy was issued upon the owner’s exercise of conversion rights from a group or individual policy, provided the total time covered under the conversion policy plus the time covered under the prior policy is at least twenty-four months. The time covered under a group policy must be calculated without regard to a change in insurance carriers, provided the coverage has been continuous and under the same group sponsorship; or

2. The owner submits independent evidence to the provider that one or more of the following conditions were met within the two-year period:

1. The owner or insured is terminally or chronically ill;

2. The owner or insured disposes of his ownership interests in a closely held corporation, pursuant to the terms of a buyout or other similar agreement in effect at the time the insurance policy was initially issued;

3. The owner’s spouse dies;

4. The owner divorces his or her spouse;

5. The owner retires from full-time employment;

6. The owner becomes physically or mentally disabled and a physician determines that the disability prevents the owner from maintaining full-time employment; or

7. A final order, judgment or decree is entered by a court of competent jurisdiction, on the application of a creditor of the owner, adjudicating the owner bankrupt or insolvent, or approving a petition seeking reorganization of the owner or appointing a receiver, trustee or liquidator to all or a substantial part of the owner’s assets;

3. Copies of the independent evidence will be submitted to the insurer when the provider submits a request for verification of coverage. The copies will be accompanied by a letter of attestation from the provider that the copies are true and correct copies of the documents received by the provider. Nothing in this Section prohibits the insurer from exercising their right to contest the validity of any policy;

4. If the provider submits a copy of independent evidence to the insurer when the provider requests the transfer of the policy to the provider, the copy is deemed to establish that the settlement contract satisfies the requirements of this section.

Authority to Promulgate Regulations; Conflict of Laws

The Commissioner may promulgate regulations implementing this Act and regulating the activities and relationships of providers, brokers, insurers and their agents, subject to statutory limitations on administrative rule making.

Conflict of Laws

If there is more than one owner on a single policy and they are residents of different states, the life settlement contract will be governed by the laws of the state in which the owner having the largest percentage of ownership resides. If the owners hold equal ownership, the state of residence of one owner agreed upon in writing by all of the owners will be used. The laws of the state of the insured will govern in the event that equal owners fail to agree in writing upon a state of residence for jurisdictional purposes.

A provider from this state who enters into a life settlement contract with an owner, who is a resident of another state that has enacted statutes or adopted regulations governing life settlement contracts, will be governed in the effectuation of that life settlement contract by the statutes and regulations of the owner’s state of residence. If the state in which the owner is a resident has not enacted statutes or regulations governing life settlement contracts, the provider must give the owner notice that neither state regulates the transaction upon which he or she is entering. For transactions in those states, however, the provider is to maintain all records required if the transactions were executed in the state of residence. The forms used in those states need not be approved by the Insurance Department.

If there is a conflict in the laws that apply to an owner and a purchaser in any individual transaction, the laws of the state that apply to the owner will take precedence and the provider will comply with those laws.

Prohibited Practices

It is unlawful for any person to:

1. Enter into a life settlement contract if such person knows or reasonably should have known that the life insurance policy was obtained by means of a false, deceptive or misleading application for such policy;

2. Engage in any transaction, practice or course of business if such person knows or reasonably should have known that the intent was to avoid the notice requirements of this Section;

3. Engage in any fraudulent act or practice in connection with any transaction relating to any settlement involving an owner who is a resident of this state;

4. Issue, solicit, market or otherwise promote the purchase of an insurance policy for the purpose of or with an emphasis on settling the policy;

5. Enter into a premium finance agreement with any person or agency, or any person affiliated with such person or agency, pursuant to which such person shall receive any proceeds, fees or other consideration, directly or indirectly, from the policy or owner of the policy or any other person with respect to the premium finance agreement or any settlement contract or other transaction related to such policy that are in addition to the amounts required to pay the principal, interest and service charges related to policy premiums pursuant to the premium finance agreement or subsequent sale of such agreement; provided, further, that any payments, charges, fees or other amounts in addition to the amounts required to pay the principal, interest and service charges related to policy premiums paid under the premium finance agreement shall be remitted to the original owner of the policy or to his or her estate if he or she is not living at the time of the determination of the overpayment;

6. With respect to any settlement contract or insurance policy and a broker, knowingly solicit an offer from, effectuate a life settlement contract with or make a sale to any provider, financing entity or related provider trust that is controlling, controlled by, or under common control with such broker;

7. With respect to any life settlement contract or insurance policy and a provider, knowingly enter into a life settlement contract with an owner, if, in connection with such life settlement contract, anything of value will be paid to a broker that is controlling, controlled by, or under common control with such provider or the financing entity or related provider trust that is involved in such settlement contract;

8. With respect to a provider, enter into a life settlement contract unless the life settlement promotional, advertising and marketing materials, as may be prescribed by regulation, have been filed with the Commissioner. Marketing materials may not expressly reference insurance as “free” for any period of time. The inclusion of any reference in the marketing materials that would cause an owner to reasonably believe that the insurance is free for any period of time will be considered a violation of this Act; or

9. With respect to any life insurance producer, insurance company, broker, or provider to make any statement or representation to the applicant or policyholder in connection with the sale or financing of a life insurance policy to the effect that the insurance is free or without cost to the policyholder for any period of time unless provided in the policy.

A violation will be deemed a Fraudulent Life Settlement Act.

Fraud Prevention and Control

Fraudulent life settlement acts, interference and participation of convicted felons are prohibited.

1. A person shall not commit a fraudulent life settlement act.

2. A person shall not knowingly and intentionally interfere with the enforcement of the provisions of this Act or investigations of suspected or actual violations of this Act.

3. A person in the business of life settlements shall not knowingly or intentionally permit any person convicted of a felony involving dishonesty or breach of trust to participate in the business of life settlements.

Fraud Warning Required

Life settlement applications and contracts, regardless of the form of transmission, will contain the following statement or a substantially similar statement:

“Any person who knowingly presents false information in an application for insurance or Life Settlement Contract is guilty of a crime and may be subject to fines and confinement in prison.”

The lack of the required statement does not constitute a defense in any prosecution for a Fraudulent Life Settlement Act.

Mandatory Reporting of Fraudulent Life Settlement Acts

Any person engaged in the business of life settlements having knowledge or a reasonable belief that a fraudulent life settlement act was or will be committed must provide the Commissioner with all information regarding it in a manner prescribed by the Commissioner.

Any other person having knowledge or a reasonable belief that a fraudulent life settlement act has or will be committed must also provide the Commissioner with the required information in a manner prescribed by the Commissioner.

Immunity from Liability

No civil liability may be imposed on and no cause of action may arise from a person’s furnishing information concerning suspected, anticipated or completed fraudulent life settlement or insurance acts, if the information is provided to or received from:

• The Commissioner or his or her employees, agents or representatives;

• Federal, state or local law enforcement or regulatory officials or their employees, agents or representatives;

• A person involved in the prevention and detection of fraudulent life settlement acts or that person’s agents, employees or representatives;

• Any regulatory body or their employees, agents or representatives, overseeing life insurance, life settlements, securities or investment fraud;

• The life insurer that issued the life insurance policy covering the life of the insured; or

• The licensee and any agents, employees or representatives.

There would not be protection from civil liability if statements were made with actual malice. If a civil suit is brought against an individual that provided information, who did not act with malice, he or she is entitled to an award of attorney’s fees and costs if he or she is the prevailing party in the action for libel, slander or any other relevant tort. For purposes of this section a proceeding is “substantially justified” if it had a reasonable basis in law or fact at the time that it was initiated.

Confidentiality

The documents and evidence provided pursuant to fraudulent acts, whether suspected or proven, or information obtained by the Commissioner in an investigation of suspected or actual fraudulent life settlement acts will be privileged and confidential. They may not be made a public record and will not be subject to discovery or subpoena in a civil or criminal action. This does not prohibit release of documents and evidence obtained in an investigation by the Commissioner of suspected or actual fraudulent life settlement acts:

• In administrative or judicial proceedings to enforce laws administered by the Commissioner;

• To federal, state or local law enforcement or regulatory agencies, to an organization established for the purpose of detecting and preventing Fraudulent Life Settlement Acts or to the NAIC; or

• At the discretion of the Commissioner, to a person in the business of life settlements that is aggrieved by a fraudulent life settlement act.

Release of documents and evidence does not abrogate or modify the privilege in other circumstances.

Other Law Enforcement or Regulatory Authority

This Act will not:

1. Preempt the authority or relieve the duty of other law enforcement or regulatory agencies to investigate, examine and prosecute suspected violations of law;

2. Preempt, supersede, or limit any provision of any state securities law or any rule, order, or notice issued thereunder;

3. Prevent or prohibit a person from voluntarily disclosing information concerning life settlement fraud to a law enforcement or regulatory agency other than the insurance department; or

4. Limit the powers granted elsewhere by the laws of this state to the Commissioner or an insurance fraud unit to investigate and examine possible violations of law and to take appropriate action against wrongdoers.

Life Settlement Antifraud Initiatives

Providers and brokers must have antifraud initiatives reasonably calculated to detect, prosecute and prevent fraudulent life settlement acts in place. At the discretion of the Commissioner, he or she may order, or grant a licensee’s request, to modify the following required initiatives as necessary to ensure an effective antifraud program. The modifications may be more or less restrictive than the required initiatives so long as the modifications may reasonably be expected to accomplish the intended purpose.

Antifraud initiatives must include fraud investigators, who may be provider or broker employees or independent contractors; and an antifraud plan, which must be submitted to the Commissioner. The antifraud plan must include, but not necessarily limited to:

• A description of the procedures for detecting and investigating possible fraudulent life settlement acts and procedures for resolving material inconsistencies between medical records and insurance applications;

• A description of the procedures for reporting possible fraudulent life settlement acts to the Commissioner;

• A description of the plan for antifraud education and training of underwriters and other personnel; and

• A description or chart outlining the organizational arrangement of the antifraud personnel who are responsible for the investigation and reporting of possible fraudulent life settlement acts and investigating unresolved material inconsistencies between medical records and insurance applications.

Antifraud plans submitted to the Commissioner are privileged and confidential and are not public record. Plans are not be subject to discovery or subpoena in a civil or criminal action.

Injunctions; Civil Remedies; Cease-and-Desist

In addition to the penalties and other enforcement provisions of this Act, if any person violates this Act or any rule implementing this Act, the Commissioner may seek an injunction in a court of competent jurisdiction in the county where the person resides or has a principal place of business and may apply for temporary and permanent orders necessary to prevent additional violations.

Any person damaged by the acts of another in violation of this Act or any rule or regulation implementing this Act, may bring a civil action for damages in a court of competent jurisdiction against the person committing the violation.

The Commissioner may issue a cease-and-desist order upon a person who violates any provision of this part, any rule or order adopted by the Commissioner, or any written agreement entered into with the Commissioner, in accordance with this state’s governing administrative procedures.

When the Commissioner finds an action presents an immediate danger to the public and requires an immediate final order, he or she may issue an emergency cease-and-desist order reciting with particularity the facts underlying the findings. The emergency cease-and-desist order is effective immediately upon service of a copy of the order on the respondent and remains effective for 90 days. If the department begins non-emergency cease and desist proceedings, the emergency cease and desist order remains effective, absent an order by an appellate court of competent jurisdiction. In the event of a willful violation of this Act, the trial court may award statutory damages in addition to actual damages in an additional amount up to three times the actual damage award. The provisions of this Act may not be waived by agreement. No choice of law provision may be utilized to prevent the application of this Act to any settlement in which a party to the settlement is a resident of this state.

Penalties

It is a violation of this Act for any person, provider, broker, or any other party related to the business of life settlements, to commit a fraudulent life settlement act.

For criminal liability purposes, a person that commits a fraudulent life settlement act is guilty of committing insurance fraud and shall be subject to additional penalties under the applicable state’s jurisdiction.

The Commissioner will be empowered to levy a civil penalty not exceeding the appropriate state’s fine and the amount of the claim for each violation upon any person, including those persons and their employees licensed pursuant to this Act, who is found to have committed a fraudulent life settlement act or violated any other provision of this Act.

The license of a person licensed under this Act that commits a fraudulent life settlement act will be revoked for the period of time determined by the applicable state.

Unfair Trade Practices

A violation of this Act will be considered an unfair trade practice pursuant to state law and subject to the penalties provided by state law.

Effective Date

A provider lawfully transacting business in the adoptive state prior to the effective date of this Act may continue to do so pending approval or disapproval of that person’s application for a license as long as the application is filed with the Commissioner not later than 30 days after publication by the Commissioner of an application form and instructions for licensure of providers. If publication of the application form and instructions is prior to the effective date of this chapter, then the filing of the application will not be later than 30 days after the effective date of this Act. During the time that such an application is pending with the Commissioner, the applicant may use any form of life settlement contracts that have been filed with the Commissioner pending approval thereof, provided that such form is otherwise in compliance with the provisions of this Act. Any person transacting business in this state under this provision shall be obligated to comply with all other requirements of this Act.

A person who has lawfully negotiated life settlement contracts between any owner residing in this state and one or more providers for at least one year immediately prior to the effective date of this Act may continue to do so pending approval or disapproval of that person’s application for a license as long as the application is filed with the Commissioner not later than 30 days after publication by the Commissioner of an application form and instructions for licensure of brokers. If the publication of the application form and instructions is prior to the effective date of this chapter, then the filing of the application shall not be later than 30 days after the effective date of this Act. Any person transacting business in this state under this provision shall be obligated to comply with all other requirements of this Act.

© National Conference of Insurance Legislators (NCOIL)
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End of Chapter 5

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