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BILL AS INTRODUCED 2007-2008

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H.819

Introduced by Representatives Milkey of Brattleboro, Kitzmiller of Montpelier and Keenan of St. Albans City

Referred to Committee on

Date:

Subject:  Insurance; life settlements

Statement of purpose:  This bill proposes to modernize the regulation of life settlements:  transactions in which a policyholder sells the policy for more than the cash value of the policy, but less than the net death benefit, and in which the purchaser becomes the new beneficiary and is responsible for all subsequent premium payments.

AN ACT RELATING TO THE REGULATION OF LIFE SETTLEMENT INSURANCE TRANSACTIONS

It is hereby enacted by the General Assembly of the State of Vermont:

Sec. 1.  PURPOSE

The purpose of this act is to protect Vermonters in connection with life settlements, in which a policyholder sells the policy for more than the cash value of the policy, but less than the net death benefit, and in which the purchaser becomes the new beneficiary and is responsible for all subsequent premium payments.  It is not the intention of this act to regulate the subsequent sale and purchase of securities and investment contracts relating to life settlements, nor to alter, abrogate, limit, rescind, or otherwise affect the obligations, operation, and administration of chapter 150 of Title 9 (the Vermont Uniform Securities Act).

Sec. 2.  8 V.S.A. chapter 103, subchapter 5B is added to read:

Subchapter 5B.  Life Settlements

§ 3835.  Definitions

As used in this subchapter:

(1)  “Advertising” 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 directly before the public, in this state, for the purpose of creating an interest in or inducing a person to sell, assign, devise, bequest, or transfer the death benefit or ownership of a life insurance policy pursuant to a life settlement contract.

(2)  “Business of life settlements” means an activity involved in, but not limited to, the offering, soliciting, negotiating, procuring, effectuating, financing, monitoring, tracking, underwriting, selling, transferring, assigning, pledging, hypothecating, or in any other manner acquiring an interest in a life insurance policy by means of a life settlement contract.

(3)  “Chronically ill” means:

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

(B)  Requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment; or

(C)  Having a level of disability similar to that described in subdivision (A) of this subdivision (3) as determined by the appropriate administrator of a state or federal public disability insurance or benefit program.

(4)  “Commissioner” means the commissioner of the department of banking, insurance, securities, and health care administration.

(5) (A)  “Financing entity” means an insurance underwriter, placement agent, lender, purchaser of securities, purchaser of a policy or certificate from a life settlement 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:

(i)  Whose principal activity related to the transaction is providing funds to effect the life settlement or purchase of one or more policies subject to a life settlement contract; and

(ii)  Who has an agreement in writing with one or more licensed life settlement providers to finance the acquisition of life settlement contracts.

(B)  “Financing entity” does not include a life settlement purchaser.

(C)  “Financing entity” includes an accredited investor as defined by Rule 501 as promulgated under the Federal Securities Act of 1933, as amended.

(6)  “Fraudulent life settlement act” includes:

(A)  Acts or omissions committed by any person who knowingly or  who reasonably should know, 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:

(i)  Presenting, causing to be presented, or preparing with knowledge or belief that it will be presented to or by a life settlement provider, life settlement broker, financing entity, 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:

(I)  An application for the issuance of a life settlement contract or insurance policy;

(II)  The underwriting of a life settlement contract or insurance policy;

(III)  A claim for payment or benefit pursuant to a life settlement contract or insurance policy;

(IV)  Premiums paid on an insurance policy;

(V)  Payments and changes in ownership or beneficiary made in accordance with the terms of a life settlement contract or insurance policy;

(VI)  The reinstatement or conversion of an insurance policy;

(VII)  In the solicitation, offer, effectuation, or sale of a life settlement contract or insurance policy;

(VIII)  The issuance of written evidence of a life settlement contract, or insurance; or

(IX)  A financing transaction; and

(ii)  Employing any plan, financial structure, device, scheme, or artifice to defraud related to policies subject to a life settlement contract.

(B)  Any person in the furtherance of a fraud or to prevent the detection of a fraud committing or permitting its employees or its agents to:

(i)  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;

(ii)  Misrepresent or conceal the financial condition of a licensee, financing entity, insurer, or other person;

(iii)  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; or

(iv)  File with the commissioner or the equivalent chief insurance regulatory official of another jurisdiction a document that contains false information or that otherwise conceals information about a material fact from the commissioner;

(C)  Embezzlement, theft, misappropriation or conversion of monies, funds, premiums, credits, or other property of a life settlement provider, insurer, insured, policy owner, insurance policy owner, or any other person engaged in the business of life settlements or insurance;

(D)  Recklessly entering into, negotiating, brokering, or otherwise dealing 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 person or the persons intended to defraud the policy’s issuer, the life settlement provider, or the owner.  “Recklessly” means engaging in the conduct in conscious and clearly unjustifiable disregard of a substantial likelihood of the existence of the relevant facts or risks, such disregard involving a gross deviation from acceptable standards of conduct;

(E)  Facilitating the change of state of ownership of a policy or certificate or the state of residency of a policy owner to a state or jurisdiction that does not have a law similar to this subchapter for the express purposes of evading or avoiding the provisions of this subchapter;

(F)  Attempting to commit, assisting, aiding, or abetting in the commission of, or conspiracy to commit the acts or omissions specified in this subdivision (6); or

(G)  Entering into any practice or plan which involves

stranger-originated life insurance.

(7)  “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 pursuant to chapter 131 of this title.

(8)  “Life settlement broker” means a person who is working exclusively on behalf of a policy owner and for a fee, commission, or other valuable consideration, offers or attempts to negotiate life settlement contracts between an owner and one or more life settlement providers.  Notwithstanding the manner in which the life settlement broker is compensated, a life settlement broker is deemed to represent only the policy owner and not the insurer or the life settlement provider, and owes a fiduciary duty to the policy owner to act according to the policy owner’s instructions and in the best interest of the policy owner.  The term does not include an attorney or a certified public accountant who is retained to represent the policy owner and whose compensation is not paid directly or indirectly by the life settlement provider or purchaser.

(9)(A)  “Life settlement contract” means a written agreement between a policy owner and a life settlement provider or any affiliate of the life settlement provider establishing the terms under which compensation or anything of value is or will be paid, which compensation or value is less than the expected death benefits of the policy, in return for the policy owner’s present or future assignment, transfer, sale, devise, or bequest of the death benefit or ownership of any portion of the insurance policy or certificate of insurance.

(B)  “Life settlement contract” includes a premium finance loan made for a life insurance policy by a lender to a policy owner on, before, or after the date of issuance of the policy where:

(i)  The policy owner or the insured receives on the date of the premium finance loan a guarantee of a future life settlement value of the policy; or

(ii)  The policy owner or the insured 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.

(C)  “Life settlement contract” does not include:

(i)  A policy loan or accelerated death benefit made by the insurer pursuant to the policy’s terms;

(ii)  Loan proceeds that are used solely to pay:

(I)  Premiums for the policy;

(II)  The costs of the loan, including, without limitation, interest, arrangement fees, utilization fees and similar fees, closing costs, legal fees and expenses, trustee fees and expenses, and third party collateral provider fees and expenses, including fees payable to letter of credit issuers;

(iii)  A loan made by a bank or other licensed financial institution in which the lender takes an interest in a life insurance policy solely to secure repayment of a loan or, if there is a default on the loan and the policy is transferred, the transfer of such a policy by the lender, provided that the default itself is not pursuant to an agreement or understanding with any other person for the purpose of evading regulation under this subchapter;

(iv)  A loan made by a lender that does not violate chapter 143 of this title, provided that the premium finance loan is not described in subdivision (B) of this subdivision (9);

(v)  An agreement where all the parties are closely related to the insured by blood or law; or have a lawful substantial economic interest in the continued life, health, and bodily safety of the person insured, or are trusts established primarily for the benefit of such parties;

(vi)  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;

(vii)  A bona fide business succession planning arrangement:

(I)  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;

(II)  Between one or more partners in a partnership or between a partnership and one or more of its partners or one or more trusts established by its partners; or

(III)  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 trusts established by its members;

(viii)  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

(ix)  Any other contract, transaction, or arrangement exempted from the definition of life settlement contract by the commissioner by rule or order based on a determination that the contract, transaction, or arrangement is not of the type intended to be regulated by this subchapter.

(10)  “Life settlement investment agent” means a person who is an appointed or contracted agent of a licensed life settlement provider who solicits or arranges the funding for the purchase of a life settlement by a life settlement purchaser and who is acting on behalf of a life settlement provider.

(11)(A)  “Life settlement provider” means a person, other than a policy owner, that enters into or effectuates a life settlement contract with a policy owner resident in this state.

(B)  “Life settlement provider” does not include:

(i)  A bank, savings bank, savings and loan association, credit union, or other licensed lending institution that takes an assignment of a life insurance policy solely as collateral for a loan;

(ii)  A premium finance company making premium finance loans and exempted by the commissioner from the licensing requirement under the premium finance laws that takes an assignment of a life insurance policy solely as collateral for a loan;

(iii)  The issuer of the life insurance policy;

(iv)  An authorized or eligible insurer that provides stop loss coverage or financial guaranty insurance to a life settlement provider, purchaser, financing entity, special purpose entity, or related provider trust;

(v)  A financing entity;

(vi)  A special purpose entity;

(vii)  A related provider trust;

(viii)  A life settlement purchaser; or

(ix)  Any other person that the commissioner determines by rule or order is not the type of person intended to be covered by the definition of life settlement provider.

(12)(A)  “Life settlement purchaser” means a person who provides a sum of money as consideration for a life insurance policy or an interest in the death benefits of a life insurance policy, or a person who owns or acquires or is entitled to a beneficial interest in a trust that owns a life settlement contract or is the beneficiary of a life insurance policy that has been or will be the subject of a life settlement contract, for the purpose of deriving an economic benefit.

(B)  “Life settlement purchaser” does not include:

(i)  A licensee under this subchapter;

(ii)  An accredited investor or qualified institutional buyer as defined, respectively, in Rule 501(a) or Rule 144A promulgated under the Federal Securities Act of 1933, as amended;

(iii)  A financing entity;

(iv)  A special purpose entity; or

(v)  A related provider trust.

(13)  “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.

(14)(A)  “Policy owner” means the owner of a life insurance policy or a certificate holder under a group policy who resides in this state and enters or seeks to enter into a life settlement contract.  For the purposes of this subchapter, a policy owner shall not be limited to an owner of a life insurance policy or a certificate holder under a group policy insuring the life of an individual with a terminal or chronic illness or condition.  If there is more than one policy owner on a single policy and the policy owners are residents of different states, the transaction shall be governed by the law of the state in which the policy owner having the largest percentage ownership resides or, if the policy owners hold equal ownership, the state of residence of one policy owner agreed upon in writing by all the policy owners.

(B)  “Policy owner” does not include:

(i)  Qualified institutional buyer as defined in Rule 144A promulgated under the Federal Securities Act of 1933, as amended;

(ii)  A financing entity;

(iii)  A special purpose entity; or

(iv)  A related provider trust.

(15)  “Purchased policy” means a life insurance policy or certificate that has been acquired by a life settlement provider pursuant to a life settlement contract.

(16)  “Related provider trust” means a titling trust or other trust established by a licensed life settlement 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.  The trust shall have a written agreement with the licensed life settlement provider under which the licensed life settlement provider is responsible for ensuring compliance with all statutory and regulatory requirements and under which the trust agrees to make all records and files related to life settlement transactions available to the commissioner as if those records and files were maintained directly by the licensed life settlement provider.

(17)  “Special purpose entity” means a corporation, partnership, trust, limited liability company, or other similar entity formed solely to provide either directly or indirectly access to institutional capital markets:

(A)  For a financing entity or licensed life settlement provider; or

(B)(i)  In connection with a transaction in which the securities in the special purposes entity are acquired by the owner or by “qualified institutional buyers” as defined in Rule 144A promulgated under the Securities Act of 1933, as amended, and in which the securities are sold in compliance with chapter 150 of Title 9 (the Vermont Uniform Securities Act) and the orders and rules adopted or issued thereunder; or

(ii)  In connection with a transaction in which the securities pay a fixed rate of return commensurate with established asset-backed institutional capital markets, and in which the securities are sold in compliance with chapter 150 of Title 9 (the Vermont Uniform Securities Act) and the orders and rules adopted or issued thereunder.

(18)  “Stranger-originated life insurance,” or “STOLI,” means a practice or a plan to initiate a life insurance policy for the benefit of a third party who, at the time of policy origination, has no insurable interest in the insured.  STOLI practices include 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, herself, or itself, and where, at the time of policy inception, there is an arrangement or agreement, whether verbal or written, to directly or indirectly transfer the ownership of the policy 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 subdivision (9) of this section.

(19)  “Terminally ill” means having an illness or sickness that can reasonably be expected to result in death in 24 months or less.

§ 3836.  License and Bond Requirements

(a)  A person shall not operate as a life settlement provider or life settlement broker without first obtaining a license from the commissioner of the state of residence of the policy owner. 

(b)  The insurer that issued the policy subject to a life settlement shall not be responsible for any act or omission of a life settlement broker or life settlement provider 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 life settlement provider or life settlement broker in connection with the life settlement contract.

(c)  A person licensed as an attorney or certified public accountant who is retained to represent the policy owner, whose compensation is not paid directly or indirectly by the life settlement provider, may negotiate life settlement contracts on behalf of the policy owner without having to obtain a license as a life settlement broker.

(d)  Application for a life settlement provider, or life settlement broker license shall be made to the commissioner by the applicant on a form prescribed by the commissioner, and these applications shall be accompanied by a fee of $50.00.

(e)  Licenses may be renewed from year to year on a date prescribed by the commissioner of the odd-numbered year next following the date of issuance upon payment of a biennial renewal fee of $100.00.  Failure to pay the fees by the renewal date results in expiration of the license.

(d)  The applicant shall provide information on forms required by the commissioner.  The commissioner shall have authority, at any time, to require the applicant to disclose fully the identity of all stockholders, partners, officers, members, and employees, and the commissioner may, in the exercise of the commissioner’s discretion, refuse to issue a license in the name of a legal entity if not satisfied that any officer, employee, stockholder, partner, or member thereof who may materially influence the applicant’s conduct meets the standards of this subchapter.

(e)  Upon the filing of an application and the payment of the license fee, the commissioner shall make an investigation of each applicant and issue a license if the commissioner finds that the applicant:

(1)  If a life settlement provider, has provided a detailed and sound plan of operation;

(2)  Is competent and trustworthy and intends to act in good faith in the capacity involved by the license applied for;

(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 for;

(4) (A)  If a life settlement provider, has demonstrated evidence of financial responsibility in a format prescribed by the commissioner through either a surety bond executed and issued by an insurer authorized to issue surety bonds in this state or a deposit of cash, certificates of deposit or securities or any combination thereof in the amount of $250,000.00.

(B)  If a life settlement broker, has demonstrated evidence of financial responsibility in a format prescribed by the commissioner through either a surety bond executed and issued by an insurer authorized to issue surety bonds in this state or a deposit of cash, certificates of deposit, or securities or any combination thereof in the amount of $250,000.00.

(C)  The commissioner may ask for evidence of financial responsibility at any time the commissioner deems necessary.

(D)  Any surety bond issued pursuant to this subdivision (4) shall be in the favor of this state and shall specifically authorize recovery by the commissioner on behalf of any person in this state who sustained damages as the result of erroneous acts, failure to act, conviction of fraud, or conviction of unfair practices by the life settlement provider or life settlement broker.

(5)  Provides a certificate of good standing from the state of its domicile; and

(6)  If a life settlement provider, has provided an anti-fraud plan that meets the requirements of section 3847 of this subchapter.

(7)  If a life settlement broker, has first been licensed as a life insurance producer in accordance with chapter 131 of this title.

(f)  The commissioner shall not issue a license to a nonresident applicant, unless a written designation of an agent for service of process is filed and maintained with the commissioner or the applicant has filed with the commissioner the applicant’s written irrevocable consent that any action against the applicant may be commenced against the applicant by service of process on the commissioner.

(g)  A life settlement provider or life settlement broker shall provide to the commissioner new or revised information about officers, stockholders holding ten percent or more, partners, directors, members, or designated employees within 30 days of the change.

(h)  An individual licensed as a life settlement broker shall complete on a biennial basis an additional 15 hours of life insurance producer training related to life settlements and life settlement transactions, as required by the commissioner.  Any person failing to meet the requirements of this subsection shall be subject to the penalties imposed by the commissioner.

§ 3837.  License Revocation and Denial

(a)  The commissioner may refuse to issue, suspend, revoke, or refuse to renew the license of a life settlement provider or life settlement broker 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 key management personnel has been convicted of fraudulent or dishonest practices, or is subject to a final civil judicial adjudication under federal, foreign, or state law, or to a final administrative action issued by any jurisdiction showing the licensee or any officer, partner, member, or key management personnel to be untrustworthy or incompetent;

(3)  The life settlement provider demonstrates a pattern of unreasonable payments to policy owners;

(4)  The licensee or any officer, partner, member, or key management personnel has been found guilty of, or has pleaded guilty or nolo contendere to, any felony or to a misdemeanor involving fraud or moral turpitude, regardless of whether a judgment of conviction has been entered by the court;

(5)  The life settlement provider has entered into any life settlement contract that has not been approved pursuant to this subchapter;

(6)  The life settlement provider has failed to honor contractual obligations set out in a life settlement contract;

(7)  The licensee no longer meets the requirements for initial licensure;

(8)  The life settlement provider has assigned, transferred, or pledged a policy subject to a life settlement contract to a person other than a life settlement provider licensed in this state, an accredited investor or qualified institutional buyer as defined respectively in Rule 501(a) or Rule 144A promulgated under the Federal Securities Act of 1933, as amended, financing entity, special purpose entity, or related provider trust;

(9)  As to a life settlement broker, any one or more of the conditions set forth in subsection 4804(a) of this title exist;

(10)  The licensee or any officer, partner, member, or key management personnel has violated any provision of this subchapter or a rule adopted or order issued under this subchapter; or

(11)  The licensee or any officer, partner, member, or key management personnel has violated any provision of chapter 150 of Title 9 (the Vermont Uniform Securities Act).

(b)  The commissioner may, after notice and an opportunity to be heard suspend, revoke, or refuse to renew the license of a life settlement broker or a life insurance producer operating as a life settlement broker pursuant to this subchapter if the commissioner finds that the life settlement broker or insurance producer has violated any provisions of this subchapter, or any provision of chapter 150 of Title 9 (the Vermont Uniform Securities Act), or has otherwise engaged in of bad faith conduct with one or more policy owners.

§ 3838.  Approval of Life settlement contracts and

               Disclosure Statements

A person shall not use a life settlement contract form or provide to a policy owner a disclosure statement form in this state unless first filed with and approved by the commissioner.  The commissioner shall disapprove a life settlement contract form or disclosure statement form if, in the commissioner’s opinion, the contract or provisions contained therein fail to meet the requirements of sections 3841, 3843, and 3846, and subsection 3847(b) of this title, or are unreasonable, contrary to the interests of the public, or otherwise misleading or unfair to the policy owner.  At the commissioner’s discretion, the commissioner may require the submission of advertising material.

§ 3839.  Reporting Requirements and Privacy

(a)  Each life settlement provider shall file with the commissioner on or before March 1 of each year an annual statement containing such information as the commissioner may prescribe by rule or order.  Unless otherwise requested, such information shall be limited to only those transactions where the policy owner is a resident of this state.  Individual transaction data regarding the business of life settlements or data that could compromise the privacy of personal, financial, and health information of the policy owner or the insured shall be filed with the commissioner on a confidential basis.

(b)  A life settlement provider, life settlement broker, insurance company, insurance producer, information bureau, rating agency or company, or any other person with actual knowledge of an insured’s identity shall be subject to the department’s Regulation No. IH-2001-I “Privacy of Consumer Financial and Health Information,” as amended.

§ 3840.  INVESTIGATIONS AND ExaminationS

(a)  The commissioner may examine the business and affairs of any licensee or applicant for a license whenever he or she deems it to be prudent for the protection of policyholders or the public.  The commissioner shall have the authority to examine any person and to order the production of any records, books, files or other information reasonably necessary to ascertain whether the licensee or applicant 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 shall be paid by the licensee or applicant.

(b)  A person required to be licensed by this subchapter shall for five years retain copies of all:

(1)  Proposed, offered, or executed contracts, purchase agreements, underwriting documents, policy forms, and applications from the date of the proposal, offer, or execution of the contract or purchase agreement, whichever is later;

(2)  All checks, drafts, or other evidence and documentation related to the payment, transfer, deposit, or release of funds from the date the transaction; and

(3)  All other records and documents related to the requirements of subchapter.

(c)  Except as otherwise provided in this subchapter, 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 or investigation made under this subchapter or in the course of analysis or investigation by the commissioner of the financial condition or market conduct of a licensee shall be confidential by law and privileged, shall not be subject to disclosure as a public record under section 317 of Title 1, shall not be subject to subpoena, and shall 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.

§ 3841.  Disclosure to POLICY OWNER

(a)  With each application for a life settlement, a life settlement provider or a life settlement broker shall provide the policy owner with at least the following disclosures no later than the time the application for the life settlement contract is signed by all parties.  The disclosures shall be provided in a separate document that is signed by the policy owner and the life settlement provider or life settlement broker, and shall provide the following information:

(1)  There are possible alternatives to life settlement contracts, including any accelerated death benefits or policy loans offered under the policy owner’s life insurance policy.

(2)  That a life settlement broker represents exclusively the policy owner, and not the insurer or the life settlement provider, and owes a fiduciary duty to the policy owner, including a duty to act according to the policy owner’s instructions and in the best interest of the policy owner.

(3)  Some or all of the proceeds of the life settlement may be taxable under federal income tax and state franchise and income taxes, and assistance should be sought from a professional tax advisor.

(4)  Proceeds of the life settlement could be subject to the claims of creditors.

(5)  Receipt of the proceeds of a life settlement may adversely affect the policy owner’s eligibility for Medicaid or other government benefits or entitlements, and advice should be obtained from the appropriate government agencies.

(6)  The policy owner has the right to rescind a life settlement contract before the earlier of 60 calendar days after the date upon which the life settlement contract is executed by all parties or 30 calendar days after the life settlement proceeds have been paid to the policy owner, as provided in section 3843 of this title.  Rescission, if exercised by the policy owner, is effective only if both notice of the rescission is given and the policy owner repays all proceeds and any premiums, loans, and loan interest paid on account of the life settlement within the rescission period.  If the insured dies during the rescission period, the life settlement contract shall be deemed to have been rescinded, subject to repayment by the policy owner or the policy owner’s estate of all life settlement proceeds and any premiums, loans, and loan interest on the life settlement within 60 days of the insured’s death.

(7)  Funds will be sent to the policy owner within three business days after the life settlement provider has received the insurer or group administrator’s written acknowledgment that ownership of the policy or interest in the certificate has been transferred, and the beneficiary has been designated.

(8)  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 certificate, to be forfeited by the policy owner.  Assistance should be sought from an independent, qualified professional with experience in these matters.

(9)  Disclosure to a policy owner shall include distribution of a brochure describing the process of life settlements.  The current form for the brochure prepared by National Association of Insurance Commissioners shall be used unless another form is developed or approved by the commissioner.

(10)  The disclosure document shall contain the following language:  “All medical, financial, or personal information solicited or obtained by a life settlement provider or life settlement broker about an insured, including the insured’s identity or the identity of family members, a spouse or party to a civil union or a significant other may be disclosed as necessary to affect the life settlement between the policy owner and the life settlement 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.”

(11)  Following execution of a life settlement contract, the insured may be contacted for the purpose of determining the insured’s health status and to confirm the insured’s residential or business street address and telephone number, or as otherwise provided in this subchapter.  This contact shall be limited to once every three 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.  All such contracts shall be made only by a life settlement provider licensed in the state in which the policy owner resided at the time of the life settlement, or by the authorized representative of a duly licensed life settlement provider.

(b)(1)  A life settlement provider shall provide the policy owner 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 policy owner and provide the following information:

(A)  The affiliation, if any, between the life settlement provider and the issuer of the insurance policy to be subject to the life settlement contract;

(B)  The name, business address, and telephone number of the life settlement provider;

(C)  Any affiliations or contractual arrangements between the life settlement provider and the life settlement purchaser.

(2)  If an insurance policy to be subject to a life settlement contract has been issued as a joint policy or involves family riders or any coverage of a life other than the insured under the policy to be subject to a life settlement contract, the policy owner shall be informed of the possible loss of coverage on the other lives under the policy and shall be advised to consult with his or her insurance producer or the insurer issuing the policy for advice on the proposed life settlement.

(3)  The document shall state the dollar amount of the current death benefit payable to the life settlement provider under the policy or certificate. If known, the life settlement provider shall also disclose the availability of any additional guaranteed insurance benefits, the dollar amount of any accidental death and dismemberment benefits under the policy or certificate and the extent to which the policy owner’s interest in those benefits will be transferred as a result of the life settlement contract.

(4)  The document shall state whether the funds will be escrowed with an independent third party during the transfer process, and if so, provide the name, business address, and telephone number of the independent third party escrow agent, and the fact that the policy owner may inspect or receive copies of the relevant escrow or trust agreements or documents.

(c)  A life settlement broker shall provide the policy owner 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 policy owner and provide the following information:

(1)  The name, business address, and telephone number of the life settlement broker;

(2)  A full, complete, and accurate description of all 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 life settlement broker and any person making an offer in connection with the proposed life settlement contracts;

(4)  The amount and method of calculating the broker’s compensation, which term “compensation” includes anything of value paid or given to a life settlement broker for the placement of a policy; and

(5)  Where any portion of the life settlement broker’s compensation, as defined in subdivision (3) of this subsection, is taken from a proposed life settlement offer, a disclosure of the total amount of the life settlement offer and the percentage of the life settlement offer comprised by the life settlement broker’s compensation.

(d)  If the life settlement provider transfers ownership or changes the beneficiary of the insurance policy, the provider shall communicate in writing the change in ownership or beneficiary to the insured within 20 days after the change.

§ 3842.  Disclosure to Insurer

Prior to the initiation of a plan, transaction, or series of transactions, a life settlement broker or life settlement provider shall fully disclose to an insurer a plan, transaction, or series of transactions to which the life settlement broker or life settlement provider is a party to originate, renew, continue, or finance a life insurance policy with the insurer for the purpose of engaging in the business of life settlements at anytime prior to, or during the first five years after, issuance of the policy.

§ 3843.  General Rules

(a)(1)  A life settlement provider entering into a life settlement contract shall first obtain:

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

(B)  A document in which the insured consents to the release of his or her medical records to a licensed life settlement provider, life settlement broker, and the insurance company that issued the life insurance policy covering the life of the insured.

(2)  Within 20 days after a policy owner executes documents necessary to transfer any rights under an insurance policy or within 20 days of entering any agreement, option, promise, or any other form of understanding, expressed or implied, to subject the policy to a life settlement contract, the life settlement provider shall give written notice to the insurer that issued that insurance policy that the policy has or will become a policy subject to a life settlement contract.  The notice shall be accompanied by the documents required by subdivision (3) of this subsection.

(3)  The life settlement provider shall deliver a copy of the medical release required under subdivision (1)(B) of this subsection, a copy of the policy owner’s application for the life settlement contract, the notice required under subdivision (2) of this subsection, and a request for verification of coverage to the insurer that issued the life policy that is the subject of the life settlement transaction.  The current form for verification of coverage prepared by the National Association of Insurance Commissioners shall be used unless another form is developed and approved by the commissioner.

(4)  The insurer shall respond to a request for verification of coverage submitted on an approved form by a life settlement provider or life settlement broker within 30 calendar days of the date the request is received and shall 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 or possible insurance or life settlement fraud.  The insurer shall accept a request for verification of coverage made on the current form prepared by the National Association of Insurance Commissioners or any other form approved by the commissioner.  The insurer shall accept an original or facsimile or electronic copy of such request and any accompanying authorization signed by the policy owner.  Failure by the insurer to meet its obligations under this subsection shall be a violation of sections 3844 and 3848 of this title.

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

(6)  If a life settlement broker performs any of these activities required of the life settlement provider, the provider is deemed to have fulfilled such requirement.

(b)  All medical information solicited or obtained by any licensee shall be subject to the applicable provisions of state law relating to confidentiality of medical information and to the department’s Regulation No. IH-2001-I,  Privacy of Consumer Financial and Health Information.

(c)  All life settlement contracts entered into in this state shall provide the policy owner with an absolute right to rescind the contract before the earlier of 60 calendar days after the date upon which the life settlement contract is executed by all parties or 30 calendar days after the life settlement proceeds have been sent to the policy owner as provided in subsection (f) of this section.  Rescission by the policy owner may be conditioned upon the policy owner both giving notice and repaying to the life settlement provider within the rescission period all proceeds of the settlement and any premiums, loans, and loan interest paid by or on behalf of the life settlement provider in connection with or as a consequence of the life settlement.  If the insured dies during the rescission period, the life settlement contract shall be deemed to have been rescinded, subject to repayment to the life settlement provider or purchaser of all life settlement proceeds, and any premiums, loans, and loan interest that have been paid by the life settlement provider or purchaser, which shall be paid within 60 calendar days of the death of the insured.  In the event of any rescission, if the life settlement provider has paid commissions or other compensation to a life settlement broker in connection with the rescinded transaction, the life settlement broker shall refund all such commissions and compensation to the life settlement provider within five business days following receipt of written demand from the life settlement provider, which demand shall be accompanied by either the policy owner’s notice of rescission if rescinded at the election of the policy owner or notice of the death of the insured if rescinded by reason of the death of the insured within the applicable rescission period.

(d)  The life settlement provider shall instruct the policy owner to send the executed documents required to effect the change in ownership, assignment, or change in beneficiary directly to the independent escrow agent.  Within three business days after the date the escrow agent receives the document (or from the date the life settlement provider receives the documents, if the policy owner erroneously provides the documents directly to the provider), the provider shall pay or transfer the proceeds of the life settlement into an escrow or trust account maintained in a state- or federally chartered financial institution whose deposits are insured by the Federal Deposit Insurance Corporation.  Upon payment of the settlement proceeds into the escrow account, the escrow agent shall deliver the original change in ownership, assignment, or change in beneficiary forms to the life settlement provider or related provider trust or other designated representative of the life settlement provider. Upon the escrow agent’s receipt of the acknowledgment of the properly completed transfer of ownership, assignment, or designation of beneficiary from the insurance company, the escrow agent shall pay the settlement proceeds to the policy owner.

(e)  Failure to tender consideration to the policy owner for the life settlement contract within the time set forth in the disclosure pursuant to subdivision 3841(a)(7) of this title renders the life settlement contract voidable by the policy owner for lack of consideration until the time consideration is tendered to and accepted by the policy owner. Funds shall be deemed sent by a life settlement provider to a policy owner as of the date that the escrow agent either releases funds for wire transfer to the policy owner or places a check for delivery to the policy owner via the United States Postal Service or another nationally recognized delivery service.

(f)  Contacts with the insured for the purpose of determining the health status of the insured by the life settlement provider or life settlement broker after the life settlement has occurred shall only be made by the life settlement provider or broker licensed in this state or its authorized representatives and shall be limited to once every three months for insureds with a life expectancy of more than one year and to no more than once per month for insureds with a life expectancy of one year or less.  The provider or broker shall explain the procedure for these contacts at the time the life settlement contract is entered into.  The limitations set forth in this subsection shall not apply to any contacts with an insured for reasons other than determining the insured’s health status. Life settlement providers and life settlement brokers shall be responsible for the actions of their authorized representatives.

§ 3844.  Prohibited Practices

(a)  It is a violation of this subchapter for any person to enter into a life settlement contract at any time prior to the application or issuance of a policy which is the subject of life settlement contract or within a five-year period commencing with the date of issuance of the insurance policy or certificate unless the policy owner certifies to the life settlement provider that one or more of the following conditions have been met within the five-year period:

(1)  The policy was issued upon the policy owner’s exercise of conversion rights arising out of a group or individual policy, provided the total of the time covered under the conversion policy plus the time covered under the prior policy is at least 60 months.  The time covered under a group policy shall be calculated without regard to any change in insurance carriers, provided the coverage has been continuous and under the same group sponsorship;

(2)  The policy owner submits independent evidence to the life settlement provider that one or more of the following conditions have been met within the five-year period:

(A)  The policy owner or insured is terminally or chronically ill;

(B)  The policy owner’s spouse dies;

(C)  The policy owner divorces his or her spouse;

(D)  The policy owner retires from full-time employment;

(E)  The policy owner becomes physically or mentally disabled and a physician determines that the disability prevents the policy owner from maintaining full-time employment; or

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

(3)  The policy owner enters into a life settlement contract more than two years after the date of issuance of a policy and, with respect to the policy, at all times prior to the date that is two years after policy issuance, the following conditions are met:

(A)  Policy premiums have been funded exclusively with unencumbered assets, including an interest in the life insurance policy being financed only to the extent of its net cash surrender value, provided by or with full recourse liability incurred by the insured or a person described in subdivision 3835(9)(C)(v) of this title;

(B)  There is no agreement or understanding with any other person to guarantee any such liability or to purchase or stand ready to purchase the policy, including through an assumption or forgiveness of the loan; and

(C)  Neither the insured nor the policy has been evaluated for settlement.

(b)  Copies of the independent evidence described in subdivision (a)(2) of this section and documents required by subsection 3842(a) of this title shall be submitted to the insurer when the life settlement provider or other party entering into a life settlement contract with a policy owner submits a request to the insurer for verification of coverage.  The copies shall be accompanied by a letter of attestation from the life settlement provider that the copies are true and correct copies of the documents received by the life settlement provider.

(c)  If the life settlement provider submits to the insurer a copy of the owner or insured’s certification described in and the independent evidence required by subdivision (a)(2) of this section when the provider submits a request to the insurer to effect the transfer of the policy or certificate to the life settlement provider, the copy shall be deemed to conclusively establish that the life settlement contract satisfies the requirements of this section and the insurer shall timely respond to the request.

(d)  No insurer may, as a condition of responding to a request for verification of coverage or effecting the transfer of a policy pursuant to a life settlement contract, require that the policy owner, insured, life settlement provider, or life settlement broker sign any forms, disclosures, of consent or waiver form that has not been expressly approved by the commissioner for use in connection with life settlement contracts in this state.

(e)  Upon receipt of a properly completed request for change of ownership or beneficiary of a policy, the insurer shall respond in writing within 30 calendar days with written acknowledgement confirming that the change has been effected or specifying the reasons why the requested change cannot be processed.  The insurer shall not unreasonably delay effecting change of ownership or beneficiary and shall not otherwise seek to interfere with any life settlement contract lawfully entered into in this state.

§ 3845.  Prohibited Practices and Conflicts of Interest

(a)  With respect to any life settlement contract or insurance policy, no life settlement broker knowingly shall solicit an offer from, effectuate a life settlement with, or make a sale to any life settlement provider, financing entity, or related provider trust that is controlling, controlled by, or under common control with such life settlement broker.

(b)  With respect to any life settlement contract or insurance policy, no life settlement provider knowingly may enter into a life settlement contract with a policy owner if, in connection with such life settlement contract, anything of value will be paid to a life settlement broker that is controlling, controlled by, or under common control with such life settlement provider, the life settlement purchaser, life settlement investment agent, financing entity, or related provider trust that is involved in such life settlement contract.

(c)  A violation of subsection (a) or (b) of this section shall be deemed a fraudulent life settlement act.

(d)  No life settlement provider shall 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.  In no event shall any marketing materials expressly reference that the insurance is “free” for any period of time.  The inclusion of any reference in the marketing materials that would cause a policy owner to reasonably believe that the insurance is free for any period of time shall be considered a violation of this subchapter.

(e)  No life insurance producer, insurance company, life settlement broker, or life settlement provider shall 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.

§ 3846.  Advertising for LIFE Settlements

(a)  The purpose of this section is to provide prospective policy owners with clear and unambiguous statements in the advertisement of life settlements and to assure the clear, truthful, and adequate disclosure of the benefits, risks, limitations, and exclusions of any life settlement contract.  This purpose is intended to be accomplished by the establishment of guidelines and standards of permissible and impermissible conduct in the advertising of life settlements to assure that product descriptions are presented in a manner that prevents unfair, deceptive, or misleading advertising and that is conducive to accurate presentation and description of life settlements through the advertising media and material used by life settlement licensees.

(b)  This section shall apply to any advertising of life settlement contracts or related products or services intended for dissemination in this state, including Internet advertising viewed by persons located in this state. Where disclosure requirements are established pursuant to federal regulation, this section shall be interpreted so as to minimize or eliminate conflict with federal regulation wherever possible.

(c)  Every life settlement licensee shall establish and at all times maintain a system of control over the content, form, and method of dissemination of all advertisements of its contracts, products, and services. All advertisements, regardless of who wrote, created, designed, or presented them, shall be the responsibility of the life settlement licensees as well as the individual who created or presented the advertisement.  A system of control shall include regular routine notification, at least once a year, to agents and others authorized by the life settlement licensee who disseminate advertisements of the requirements and procedures for approval prior to the use of any advertisements not furnished by the life settlement licensee.

(d)  Advertisements shall be truthful and not misleading in fact or by implication. The form and content of an advertisement of a life settlement contract shall be sufficiently complete and clear so as to avoid deception. It shall not have the capacity or tendency to mislead or deceive.  Whether an advertisement has the capacity or tendency to mislead or deceive shall be determined by the commissioner from the overall impression that the advertisement may be reasonably expected to create upon a person of average education or intelligence within the segment of the public to which it is directed.

(e)  The information required to be disclosed under this section shall not be minimized, rendered obscure, or presented in an ambiguous fashion or intermingled with the text of the advertisement so as to be confusing or misleading.

(1)  An advertisement shall not omit material information or use words, phrases, statements, references, or illustrations if the omission or use has the capacity, tendency, or effect of misleading or deceiving policy owners as to the nature or extent of any benefit, loss covered, premium payable, or state or federal tax consequence.  The fact that the life settlement contract offered is made available for inspection prior to consummation of the sale or that an offer is made to refund the payment if the policy owner is not satisfied or that the life settlement contract includes a “free look” period that satisfies or exceeds legal requirements does not remedy misleading statements.

(2)  An advertisement shall not use the name or title of a life insurance company or a life insurance policy unless the advertisement has been approved by the insurer.

(3)  An advertisement shall not represent that premium payments will not be required to be paid on the life insurance policy that is the subject of a life settlement contract in order to maintain that policy unless that is the fact.

(4)  An advertisement shall not state or imply that interest charged on an accelerated death benefit or a policy loan is unfair, inequitable, or in any manner an incorrect or improper practice.

(5)  The words “free,” “no cost,” “without cost,” “no additional cost,” at no extra cost,” or words of similar import shall not be used with respect to any benefit or service unless true.  An advertisement may specify the charge for a benefit or a service or may state that a charge is included in the payment or use other appropriate language.

(6)  Testimonials, appraisals, and analysis used in advertisements must be genuine; represent the current opinion of the author; be applicable to the life settlement contract, product, or service advertised, if any; and be accurately reproduced with sufficient completeness to avoid misleading or deceiving prospective policy owners as to the nature or scope of the testimonials, appraisal, analysis, or endorsement.  In using testimonials, appraisals, or analysis, a licensee under this subchapter makes as its own all the statements contained therein, and the statements are subject to all the provisions of this section.

(A)  If the individual making a testimonial, appraisal, analysis, or endorsement has a financial interest in the party making use of the testimonial, appraisal, analysis, or endorsement, either directly or through a related entity as a stockholder, director, officer, employee, or otherwise or receives any benefit directly or indirectly other than required union scale wages, that fact shall be prominently disclosed in the advertisement.

(B)  An advertisement shall not state or imply that a life settlement contract, benefit, or service has been approved or endorsed by a group of individuals, society, association, or other organization unless that is the fact and unless any relationship between an organization and the life settlement licensee is disclosed.  If the entity making the endorsement or testimonial is owned, controlled, or managed by the life settlement licensee or receives any payment or other consideration from the life settlement licensee for making an endorsement or testimonial, that fact shall be disclosed in the advertisement.

(C)  When an endorsement refers to benefits received under a life settlement contract, all pertinent information shall be retained by the licensee for a period of five years after its use.

(f)  An advertisement shall not contain statistical information unless it accurately reflects recent and relevant facts.  The source of all statistics used in an advertisement shall be identified.

(g)  An advertisement shall not disparage insurers, life settlement providers, life settlement brokers, life settlement investment agents, insurance producers, policies, services, or methods of marketing.

(h)  The name of the life settlement licensee shall be clearly identified in all advertisements about the licensee or its life settlement contract, products, or services, and if any specific life settlement contract is advertised, the life settlement contract shall be identified either by form number or some other appropriate description.  If an application is part of the advertisement, the name of the life settlement provider shall be shown on the application.

(i)  An advertisement shall not use a trade name, group designation, name of the parent company of a life settlement licensee, name of a particular division of the life settlement licensee, service mark, slogan, symbol, or other device or reference without disclosing the name of the life settlement licensee, if the advertisement would have the capacity or tendency to mislead or deceive as to the true identity of the life settlement licensee, or to create the impression that a company other than the life settlement licensee would have any responsibility for the financial obligation under a life settlement contract.

(j)  An advertisement shall not use any combination of words, symbols, or physical materials that by their content, phraseology, shape, color, or other characteristics are so similar to a combination of words, symbols, or physical materials used by a government program or agency or otherwise appear to be of such a nature that they tend to mislead prospective policy owners into believing that the solicitation is in some manner connected with a government program or agency.

(k)  An advertisement may state that a life settlement licensee is licensed in the state where the advertisement appears, provided it does not exaggerate that fact or suggest or imply that a competing life settlement licensee may not be so licensed.  The advertisement may ask the audience to consult the licensee’s web site or contact the department of banking, insurance, securities, and health care administration to find out what the state’s licensing and registration requirements are and to confirm that the life settlement provider, life settlement investment advisor, and life settlement broker are properly licensed.

(l)  An advertisement shall not create the impression that the life settlement provider, its financial condition or status, the payment of its claims or the merits, desirability, or advisability of its life settlement contracts are recommended or endorsed by any government entity.

(m)  The name of the actual licensee shall be stated in all of its advertisements.  An advertisement shall not use a trade name, any group designation, the name of any affiliate or controlling entity of the licensee, service mark, a slogan, a symbol, or another device in a manner that would have the capacity or tendency to mislead or deceive as to the true identity of the actual licensee or create the false impression that an affiliate or controlling entity would have any responsibility for the financial obligation of the licensee.

(n)  An advertisement shall not directly or indirectly create the impression that any division or agency of the state or of the U.S. government endorses, approves, or favors:

(1)  Any life settlement licensee or its business practices or methods of operation;

(2)  The merits, desirability, or advisability of any life settlement contract;

(3)  Any life settlement contract; or

(4)  Any life insurance policy or life insurance company.

(o)  If the advertiser emphasizes the speed with which the life settlement transaction will occur, the advertising must disclose the average time frame from completed application to the date of offer and from acceptance of the offer to receipt of the funds by the policy owner.

(p)  If the advertising emphasizes the dollar amounts available to policy owners, the advertising shall disclose the average purchase price as a percent of face value obtained by policy owners contracting with the licensee during the past six months.

§ 3847.  Fraud Prevention and Control

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

(2)  A person shall not knowingly or with reason to know interfere with the enforcement of the provisions of this subchapter or investigations of suspected or actual violations of this subchapter.

(3)  It shall be a violation of this subchapter for a person in the business of life settlements  who with knowledge or who reasonably should know to permit any person convicted of a felony involving dishonesty or breach of trust to participate in the business of life settlements.

(b)(1)  Life settlement contracts and applications for life settlements, regardless of the form of transmission, shall 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.”

(2)  The lack of a statement as required in subdivision (1) of this subsection does not constitute a defense in any prosecution for a fraudulent life settlement act.

(c)(1)  Any person engaged in the business of life settlements having knowledge or a reasonable suspicion that a fraudulent life settlement act is being, will be, or has been committed shall provide to the commissioner such information as required by and in a manner prescribed by the commissioner by rule or order.

(2)  Any other person having knowledge or a reasonable belief that a fraudulent life settlement act is being, will be, or has been committed may provide to the commissioner the information required by and in a manner prescribed by the commissioner by order or rule.

(d)(1)  No civil liability shall be imposed on and no cause of action shall arise from a person’s furnishing information concerning suspected, anticipated, or completed fraudulent life settlement acts or suspected or completed fraudulent insurance acts, if the information is provided to or received from:

(A)  The commissioner or the commissioner’s employees, agents, or representatives;

(B)  Federal, state, or local law enforcement or regulatory officials or their employees, agents, or representatives;

(C)  A person involved in the prevention and detection of fraudulent viatical settlement acts or that person’s agents, employees, or representatives;

(D)  The National Association of Insurance Commissioners, the Financial Industry Regulatory Authority (FINRA), the North American Securities Administrators Association (NASAA), or their employees, agents, or representatives, or another regulatory body overseeing life insurance, life settlements, or securities or investment fraud; or

(E)  The life insurer that issued the life insurance policy covering the life of the insured.

(2)  Subdivision (1) of this subsection shall not apply to statements made with actual malice.  In an action brought against a person for filing a report or furnishing other information concerning a fraudulent life settlement act, the party bringing the action shall plead specifically any allegation that subdivision (1) of this subsection does not apply because the person filing the report or furnishing the information did so with actual malice.

(3)  A person furnishing information as identified in subdivision (1) of this subsection shall 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 subchapter and if the party bringing the action was not substantially justified in doing so.  For the 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.  However, such an award does not apply to any person furnishing information concerning his or her own fraudulent life settlement acts.

(4)  This section does not abrogate or modify common law or statutory privileges or immunities enjoyed by a person described in subdivision (1) of this subsection.

(5)  Confidentiality.

(A)  The documents and evidence provided pursuant to subsection (d) of this section or obtained by the commissioner in an investigation of suspected or actual fraudulent life settlement acts shall be privileged and confidential and shall not be a public record and shall not be subject to discovery or subpoena in a civil or criminal action.

(B)  Subdivision (A) of this subdivision does not prohibit release by the commissioner of documents and evidence obtained in an investigation of suspected or actual fraudulent life settlement acts:

(i)  In administrative or judicial proceedings to enforce laws administered by the commissioner;

(ii)  To federal, state, or local law enforcement or regulatory agencies, to an organization established for the purpose of detecting and preventing fraudulent viatical settlement acts, or to the National Association of Insurance Commissioners; or

(iii)  At the discretion of the commissioner, to a person in the business of life settlements that is aggrieved by a fraudulent life settlement act.

(C)  Release of documents and evidence under subdivision (B) of this subdivision does not abrogate or modify the privilege granted in subdivision (A) of this subdivision .

(6)  This subchapter shall not:

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

(B)  Prevent or prohibit a person from disclosing voluntarily or otherwise information concerning life settlement fraud to a law enforcement or regulatory agency other than the department of banking, insurance, securities, and health care administration or

(C)  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.

(7)(A)  Life settlement providers shall have in place antifraud initiatives reasonably calculated to detect, prosecute, and prevent fraudulent life settlement acts.  At the discretion of the commissioner, the commissioner may order or a licensee may request and the commissioner may grant such modifications of the required initiatives listed in subdivision (B) of this subdivision (7) 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 purpose of this section.

(B)  Antifraud initiatives shall include:

(i)  The use of fraud investigators, who may be life settlement provider employees or independent contractors; and

(ii)  An antifraud plan, which shall be submitted to the commissioner.  The antifraud plan shall include:

(I)  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;

(II)  A description of the procedures for reporting possible fraudulent life settlement acts to the commissioner;

(III)  A description of the plan for antifraud education and training of underwriters and other personnel; and

(IV)  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.

(iii)  Antifraud plans submitted to the commissioner shall be privileged and confidential and shall not be a public record and shall not be subject to discovery or subpoena in a civil or criminal action.

§ 3848.  CIVIL REMEDIES, PENALTIES, AND ENFORCEMENT;
               CRIMINAL PENALTIES

(a)  In addition to any other civil and administrative remedies, penalties, and enforcement authority provided for by law:

(1)  A violation of this subchapter, including the commission of a fraudulent life settlement act, shall constitute an unfair trade practice under chapter 129 of this title (Insurance Trade Practices) and shall be subject to the remedies, penalties, and enforcement authority provided for in chapter 129 of this title.

(2)  The commissioner may issue a cease and desist order upon a person that violates any provision of this subchapter, any rule or order adopted or issued by the commissioner, or any written agreement with a licensee entered into with the commissioner.

(3)  When the commissioner finds that an activity in violation of this subchapter presents an immediate danger to the public that requires an immediate final order, the commissioner 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 commissioner begins nonemergency cease and desist proceedings, the emergency cease and desist order remains effective absent a petition by the respondent and an order by a superior court of Washington County vacating the commissioner’s emergency order.

(4)  A commissioner’s order under this subsection may require a person found to be in violation of this subchapter to make restitution to persons aggrieved by violations of this subchapter or to take further actions necessary to remedy violations of this subchapter.

(b)  A person that violates a provision of this subchapter, a rule, or order of the commissioner adopted or issued pursuant to this subchapter shall be:

(1)  fined not more than $100,000.00 or imprisoned not more than 20 years, or both if the value of the life settlement contract is more than $35,000.00;

(2)  fined not more than $20,000.00 or imprisoned not more than ten years or both if the value of the life settlement contract is more than $2,500.00 but not more than $35,000.00;

(3)  fined not more than $10,000.00 or imprisoned not more than five years or both if the value of life settlement contract is more than $500.00 but not more than $2,500.00; or

(4)  fined not more than $3,000.00 or imprisoned not more than one year, or both if the value of life settlement contract is $500.00 or less.

(c)  In any prosecution under subsection (b) of this section, the value of the life settlement contracts within any six-month period may be aggregated and the defendant charged accordingly in applying the provisions of this section.  The applicable statute of limitations provision under section 4501 of Title 13 shall not begin to run until the insurance company or law enforcement agency is aware of the fraud, but in no event may the prosecution be commenced later than seven years after the act has occurred.

(d)  A person convicted of a violation of this subchapter may be sentenced in accordance with subdivisions (b)(1), (2), (3), or (4) based on the greater of:

(1)  the value of property, services, or other benefit wrongfully obtained or attempted to obtain; or

(2)  the aggregate economic loss suffered by any person as a result of the violation.

(e)  Except for a fraudulent life settlement act committed by a policy owner, the enforcement provisions and penalties of this section shall not apply to a policy owner. 

§ 3849.  ADOPTION OF RULES

The commissioner may:

(1)  Adopt rules necessary to carry out the purposes of this subchapter;

(2)  Establish standards for evaluating reasonableness of payments under life settlement contracts for persons who are terminally or chronically ill.  This authority includes the regulation of discount rates used to determine the amount paid in exchange for assignment, transfer, sale, devise, or bequest of a benefit under a life insurance policy insuring the life of a person who is chronically or terminally ill; and

 (3)  Adopt rules governing the relationships and responsibilities of insurers, life settlement providers, and life settlement brokers during life settlement transaction.

Sec. 2.  SAVINGS CLAUSE; RULES UNDER THE VERMONT UNIFORM
              SECURITIES ACT
(a)  Nothing in this act is intended to alter, abrogate, limit, rescind, or otherwise affect the obligations, operation, and administration of chapter 150 of Title 9 (the Vermont Uniform Securities Act; hereinafter “the Act”), and the orders issued and any rules adopted thereunder, including:
(1)  the operation and administration of the antifraud provisions of the Act;
(2)  the regulation of life settlement contracts to the extent that such contracts constitute “securities” under the Act;
(3)  the registration and regulation of investment advisors, investment advisor representatives, broker-dealers, and sales representatives under the Act, and, to the extent their activities subject them to the Act, life settlement providers, life settlement purchasers, life settlement investment agents, financing entities, related trust providers, and special purpose entities;
(4)  the retention of records and production requirements under the Act;
(5)  the conduct of investigations, the issuance of subpoenas, the conduct of audits or inspections, or the production of books and records under the Act;
(6)  the regulation of advertising and testimonials under the Act;
(7)  required disclosures to life settlement purchasers and investors under the Act; and
(8)  the regulation of conflicts of interest and other prohibited practices under the Act.
(b)  The commissioner may adopt by rule under section 5605 of Title 9 standards and procedures relating to transactions involving life settlement purchase agreements or viatical settlement purchase agreements or similar investment contracts, including the following:

(1)  standards of conduct for investment advisors, investment advisor representatives, and broker-dealers;

(2)  record retention requirements;

(3)  required disclosures to life settlement purchasers or investors prior to the date the life settlement purchase agreement is signed;

(4)  required disclosures to life settlement purchasers or investors at the time of the assignment, transfer, or sale of all or a portion of an insurance policy;

(5)  a suitable rescission period for life settlement purchasers or investors;

(6)  standards prohibiting unfair, deceptive, or misleading advertising;

(7)  fraud prevention and control;

(8)  any other requirement necessary or desirable to carry out the purposes of this act or the purposes of chapter 150 of Title 9 (the Vermont Uniform Securities Act).

(c)  The commissioner’s rules adopted under subsection (b) of this section shall endeavor to be consistent with the requirements of the Viatical Settlements Model Act adopted by the National Association of Insurance Commissioners relating to viatical settlement investment agents and viatical settlement purchase agreements to the extent feasible and desirable.


Sec. 3.  REPEAL
Subchapter 5A of chapter 103 of Title 8 (viatical settlements) is repealed on January 1, 2009.
Sec. 4.  Effective Date

This act shall take effect on January 1, 2009.  A life settlement provider or life settlement broker transacting business in this state may continue to do so pending approval or disapproval of the provider’s or broker’s application for a license as long as the application is filed with the commissioner on or before January 1, 2009.



Published by:

The Vermont General Assembly
115 State Street
Montpelier, Vermont


www.leg.state.vt.us