By Maxey H.B. No. 872
74R4345 DLF-D
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the regulation of the assignment and accelerated
1-3 payment of death benefits and the business of purchasing the right
1-4 to death benefits from a policy owner with a catastrophic or
1-5 life-threatening illness.
1-6 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-7 SECTION 1. Article 3.50-6A, Insurance Code, is amended to
1-8 read as follows:
1-9 Art. 3.50-6A. VIATICAL SETTLEMENTS
1-10 Sec. 1. DEFINITIONS. In this article:
1-11 (1) "Person" means an individual, corporation, trust,
1-12 partnership, association, or any other legal entity.
1-13 (2) "Viatical <, "viatical> settlement" means an
1-14 agreement under which a person pays compensation or anything of
1-15 value, that is less than the expected death benefit of the policy,
1-16 in return for the policy owner's assignment, transfer, sale,
1-17 devise, or bequest of the death benefit or ownership of an
1-18 insurance policy insuring the life of an individual who has a
1-19 life-threatening illness or condition <a contract, entered into by
1-20 an insured with a terminal illness who owns a life insurance policy
1-21 insuring the life of the insured, under which the insured assigns
1-22 or transfers the insurance policy to another person or entity for
1-23 valuable consideration>.
1-24 (3) "Viatical settlement broker" means a person who
2-1 for another and for compensation offers or advertises the
2-2 availability of viatical settlements, introduces a viator to a
2-3 viatical settlement company, or offers or attempts to negotiate a
2-4 viatical settlement between a viator and a viatical settlement
2-5 company. The term does not include an attorney, accountant, or
2-6 person acting under a power of attorney from the viator who is
2-7 retained to represent the viator and whose compensation is paid
2-8 entirely by the viator without regard to whether a viatical
2-9 settlement is effected.
2-10 (4) "Viatical settlement company" means a person that
2-11 enters into a viatical settlement with a viator. The term does not
2-12 include:
2-13 (A) a bank, savings bank, savings and loan
2-14 association, credit union, or other licensed lending institution
2-15 that takes an assignment of a life insurance policy as collateral
2-16 for a loan;
2-17 (B) the issuer of a life insurance policy that
2-18 makes a loan, permits surrender of the policy, or pays other policy
2-19 benefits, including accelerated benefits under Article 3.50-6 of
2-20 this code, under the policy; or
2-21 (C) a friend or family member of the policy
2-22 owner or of the insured who enters into not more than three
2-23 agreements for the transfer of life insurance policies for
2-24 compensation that is less than the expected death benefit.
2-25 (5) "Viator" means:
2-26 (A) an individual who is the owner of a life
2-27 insurance policy insuring the life of an individual who has a
3-1 life-threatening illness or condition and who enters into a
3-2 viatical settlement with a viatical settlement company; or
3-3 (B) an individual insured under a group life
3-4 insurance policy who is not prohibited from assigning the rights or
3-5 benefits of the policy and who assigns those rights or benefits by
3-6 a viatical settlement.
3-7 Sec. 2. RULES <REGULATION BY BOARD>. (a) The commissioner
3-8 may adopt reasonable rules to implement this article, including
3-9 rules defining specific conduct of a viatical settlement company to
3-10 be an unfair or deceptive practice under Article 21.21 of this code
3-11 <board has exclusive jurisdiction in this state to regulate
3-12 viatical settlements, regardless of form, other than transactions
3-13 governed by The Securities Act (Article 581-1 et seq., Vernon's
3-14 Texas Civil Statutes)>.
3-15 (b) The commissioner shall adopt rules to prohibit
3-16 price-fixing agreements and other anticompetitive behavior by
3-17 viatical settlement companies.
3-18 Sec. 3. LICENSE REQUIREMENTS. (a) A person may not act as
3-19 a viatical settlement company or broker unless the person holds a
3-20 license issued by the commissioner under procedures established by
3-21 rule.
3-22 (b) To obtain a viatical settlement company or broker
3-23 license, a person must apply to the commissioner on a form
3-24 prescribed by the commissioner. The application must be
3-25 accompanied by a license fee of $3,000.
3-26 (c) Licenses may be renewed annually on payment of an annual
3-27 renewal fee of $800.
4-1 (d) The applicant shall provide information as required by
4-2 the commissioner on forms prescribed by the commissioner. The
4-3 commissioner shall require the applicant to disclose the name and
4-4 address of:
4-5 (1) all stockholders of the viatical settlement
4-6 company other than stockholders owning less than five percent of
4-7 the shares of a viatical settlement company whose shares are
4-8 publicly traded; and
4-9 (2) partners, officers, employees, agents, and brokers
4-10 of the viatical settlement company.
4-11 (e) A license issued to a partnership, corporation, or other
4-12 entity authorizes all members, officers, and designated employees
4-13 of the viatical settlement company or broker to act on behalf of
4-14 the entity under the license. Each of those persons must be named
4-15 in the application or a supplement to the application.
4-16 (f) On the filing of an application and fee, the
4-17 commissioner shall investigate each applicant and shall examine the
4-18 business records of the applicant. The commissioner shall issue a
4-19 license if the commissioner finds the applicant:
4-20 (1) is competent and trustworthy and intends to act in
4-21 good faith in the capacity authorized by the license;
4-22 (2) maintains an office in this state with at least
4-23 one employee;
4-24 (3) if a corporation, is a corporation incorporated
4-25 under the laws of this state or a foreign corporation authorized to
4-26 transact business in this state; and
4-27 (4) complies with all requirements of this article and
5-1 rules adopted by the commissioner under this article.
5-2 (g) The applicant shall pay the cost of the investigation
5-3 required by Subsection (f) of this section. The department shall
5-4 assess the cost of the investigation against the applicant before a
5-5 license is issued under this article and may not issue the license
5-6 until the assessment is paid.
5-7 (h) The commissioner may not issue a license to an applicant
5-8 who is not a resident of this state unless:
5-9 (1) a written designation of a resident agent for
5-10 service of process is filed and maintained with the department; or
5-11 (2) the applicant has filed with the department the
5-12 applicant's written irrevocable consent that any action against the
5-13 applicant may be commenced against the applicant by service of
5-14 process with the commissioner.
5-15 Sec. 4. DISCIPLINE OF LICENSE HOLDER. (a) The commissioner
5-16 may discipline a license holder and shall deny an application for a
5-17 license as a viatical settlement company or broker under Section 5,
5-18 Article 21.01-2, of this code if the commissioner finds that:
5-19 (1) there was misrepresentation in the application for
5-20 the license;
5-21 (2) the license holder has been convicted of fraud in
5-22 any jurisdiction;
5-23 (3) the license holder has been convicted of a felony
5-24 in any jurisdiction;
5-25 (4) the license holder has violated this article, a
5-26 rule adopted under this article, or another insurance law of this
5-27 state; or
6-1 (5) the license holder has demonstrated a pattern of
6-2 paying unfair or unreasonable settlements to viators.
6-3 (b) A license holder is subject to an administrative penalty
6-4 under Article 1.10E of this code for a violation of this article or
6-5 a rule adopted under this article.
6-6 Sec. 5. APPROVAL OF CONTRACT. (a) A viatical settlement
6-7 company may not enter into a viatical settlement in this state
6-8 unless the form of settlement is in writing and has been filed with
6-9 and approved by the commissioner. The commissioner may not approve
6-10 a viatical settlement form if the commissioner finds that the
6-11 settlement form is misleading, unfair, or oppressive to the viator.
6-12 (b) The commissioner may not approve a viatical settlement
6-13 form unless it contains provisions stating that:
6-14 (1) the viator may rescind the viatical settlement not
6-15 later than the 15th day after the date the viator receives the
6-16 viatical settlement proceeds; and
6-17 (2) the proceeds of the settlement shall be paid in
6-18 the manner provided by Subsection (c) of this section.
6-19 (c) Immediately on receipt from the viator of documents to
6-20 effect the transfer of ownership or death benefit of the life
6-21 insurance policy, the viatical settlement company shall pay the
6-22 proceeds of the settlement to an escrow or trust account managed by
6-23 a trustee or escrow agent in a national or state bank that is a
6-24 member of the Federal Deposit Insurance Corporation, pending
6-25 acknowledgment of the transfer by the insurer. The trustee or
6-26 escrow agent shall transfer the proceeds due to the viator
6-27 immediately on receipt of acknowledgment of the transfer by the
7-1 insurer.
7-2 Sec. 6. REPORTING REQUIREMENTS. A person who holds a
7-3 license under this article shall annually report to the department.
7-4 The commissioner shall adopt rules prescribing the information that
7-5 must be reported under this article.
7-6 Sec. 7. EXAMINATION. The commissioner shall examine the
7-7 business records of a license holder annually.
7-8 Sec. 8. DISCLOSURE. (a) The application for a viatical
7-9 settlement must contain the following notice, displayed
7-10 conspicuously on the front page of the application:
7-11 "Receipt of payment under a viatical settlement may
7-12 affect eligibility for public assistance programs such
7-13 as medical assistance (Medicaid), aid to families with
7-14 dependent children, supplementary social security
7-15 income, and AIDS drug assistance programs, and that
7-16 payment may be taxable. Before applying for a viatical
7-17 settlement, policy owners should consult with a
7-18 qualified tax advisor and with appropriate social
7-19 service agencies concerning how receipt of such a
7-20 payment will affect the eligibility for participation
7-21 in those programs of the recipient and the recipient's
7-22 spouse or dependents."
7-23 (b) On receipt of an application for a viatical settlement,
7-24 the viatical settlement company shall deliver to the applicant an
7-25 information booklet describing:
7-26 (1) how viatical settlements operate;
7-27 (2) possible alternatives to viatical settlements for
8-1 persons with life-threatening illnesses, including accelerated
8-2 benefits offered by the issuer of the life insurance policy and
8-3 loans secured by the life insurance policy;
8-4 (3) the tax consequences that may result from entering
8-5 into a viatical settlement;
8-6 (4) the consequences of interruption of services
8-7 provided by medical or public assistance programs;
8-8 (5) the viator's right to rescind a viatical
8-9 settlement not later than the 15th day after the date the viator
8-10 receives the viatical settlement proceeds; and
8-11 (6) the identity of any person who will receive
8-12 compensation from the viatical settlement company or broker with
8-13 respect to the viatical settlement and the amount and terms of the
8-14 compensation.
8-15 (c) The booklet described by Subsection (b) of this section
8-16 must conform to minimum standards adopted by the commissioner.
8-17 Sec. 9. MINIMUM SETTLEMENT. A viatical settlement company
8-18 may not enter into a settlement unless that settlement pays to the
8-19 viator or the viator's designee an amount equal to at least 60
8-20 percent of the face value of the policy. If the viatical
8-21 settlement company makes settlement payments in installments, the
8-22 present value of the agreement to pay installments on the date of
8-23 the settlement must be equal to at least 60 percent of the face
8-24 value of the policy.
8-25 Sec. 10. PROVISIONS APPLICABLE TO VIATICAL SETTLEMENTS. (a)
8-26 A viatical settlement company entering into a viatical settlement
8-27 with a viator shall first obtain:
9-1 (1) a written statement from a physician licensed to
9-2 practice medicine under the Medical Practice Act (Article 4495b,
9-3 Vernon's Texas Civil Statutes) stating that the physician is an
9-4 attending physician of the viator and that the physician believes
9-5 that the viator is of sound mind and is not executing the viatical
9-6 settlement under any constraint or undue influence; and
9-7 (2) a witnessed and authorized application in which
9-8 the viator consents to the viatical settlement, acknowledges the
9-9 life-threatening illness, represents that the viator has a full and
9-10 complete understanding of the benefits of the life insurance
9-11 policy, releases the viator's medical records, and acknowledges
9-12 that the viator has entered into the viatical settlement freely and
9-13 voluntarily.
9-14 (b) All medical or personal information solicited or
9-15 obtained by a license holder about a viator or potential viator,
9-16 including the identity of the viator or potential viator, is
9-17 confidential and may not be released or disclosed in any form to
9-18 any other person or entity without the written consent of the
9-19 viator. A viatical settlement company or broker may disclose the
9-20 identity of a viator or potential viator without the consent of the
9-21 viator or potential viator only to the extent necessary to make
9-22 financial arrangements necessary to the settlement or to assign the
9-23 policy to a third party after the settlement has been made. A
9-24 third party who accepts assignment of a policy from a viatical
9-25 settlement company may not disclose information made confidential
9-26 by this subsection. A viatical settlement company or broker shall
9-27 disclose information made confidential by this subsection to the
10-1 department as required by rules adopted by the commissioner.
10-2 Information obtained by the department under this subsection is
10-3 confidential and for the use of the department only and is not a
10-4 public record subject to disclosure under Subchapter C, Chapter
10-5 552, Government Code.
10-6 (c) A viatical settlement company or broker may not solicit
10-7 or obtain information from any person that collects and
10-8 disseminates medical or credit or other financial information about
10-9 individuals, including the Medical Insurance Bureau or a similar
10-10 entity, in connection with an application or viatical settlement.
10-11 (d) A viatical settlement company or broker may not:
10-12 (1) discriminate in the availability of viatical
10-13 settlements on the basis of race, age, gender, national origin,
10-14 creed, religion, occupation, marital or family status, or sexual
10-15 orientation;
10-16 (2) discriminate between viators with dependents and
10-17 those without dependents;
10-18 (3) pay or offer to pay any finder's fee, commission,
10-19 or other compensation to:
10-20 (A) a viator's physician, attorney, accountant,
10-21 or other person providing medical, legal, or financial planning
10-22 services to the viator; or
10-23 (B) another person acting as an agent of the
10-24 viator with respect to the viatical settlement unless the person is
10-25 licensed under this article and is not a person listed by Paragraph
10-26 (A) of this subdivision;
10-27 (4) enter into a viatical settlement in which payments
11-1 of proceeds are made in installments, unless the viatical
11-2 settlement company has been licensed in this state to act as an
11-3 insurance company or bank or unless the settlement is effected
11-4 through the purchase of an annuity or similar financial instrument
11-5 issued by an insurance company or bank licensed to do business in
11-6 this state;
11-7 (5) condition the consideration of an application on
11-8 exclusive dealing between the viator and the viatical settlement
11-9 company or broker; or
11-10 (6) commit another act determined by the commissioner
11-11 by rule to be an unfair or deceptive act or practice.
11-12 (e) A viatical settlement broker may not, without the
11-13 written agreement of the viator obtained before performing any
11-14 services in connection with a viatical settlement, seek or obtain
11-15 any compensation from a viator. In the absence of a written
11-16 agreement making the broker the viator's agent, a viatical
11-17 settlement broker is presumed to be the agent of the viatical
11-18 settlement company. A broker who is the viator's agent may receive
11-19 compensation from the viatical settlement company unless prohibited
11-20 from doing so under Subsection (d) of this section.
11-21 (f) A viatical settlement company may not enter into an
11-22 agreement or communicate with another viatical settlement company
11-23 with respect to the terms to be offered to a viator except that a
11-24 viatical settlement company may assign a settlement or insurance
11-25 policy to another viatical settlement company.
11-26 (g) A violation of this section is an unfair or deceptive
11-27 practice in the business of insurance subject to Article 21.21 of
12-1 this code.
12-2 Sec. 11. CERTAIN CHARITABLE PROGRAMS AUTHORIZED. (a) This
12-3 article does not prohibit a viatical settlement company or broker
12-4 from adopting a program under which a fixed percentage of the
12-5 proceeds of a viator's life insurance policy is donated to a bona
12-6 fide charity that:
12-7 (1) provides or funds services to persons with
12-8 life-threatening illnesses or conditions; or
12-9 (2) conducts or funds research relating to a
12-10 life-threatening illness or condition.
12-11 (b) A charity that accepts a donation under this section may
12-12 not:
12-13 (1) solicit settlements on behalf of the viatical
12-14 settlement company or broker from which the donation was received;
12-15 or
12-16 (2) refer an individual to that company or broker.
12-17 Sec. 12. USE OF PORTION OF RENEWAL FEES. Five percent of
12-18 each annual renewal fee collected under Section 3(c) of this
12-19 article shall be deposited in the state treasury to the credit of a
12-20 special account that may be used only by the Texas Department of
12-21 Health to fund programs, including programs operated by the Texas
12-22 Department of Health and other public or private entities, that
12-23 provide services to individuals with acquired immune deficiency
12-24 syndrome or infected with human immunodeficiency virus. Sections
12-25 403.094 and 403.095, Government Code, do not apply to the account.
12-26 Sec. 13. PROHIBITED INSURANCE PRACTICES. A policy of group
12-27 life insurance issued or delivered in this state that permits
13-1 assignment of a covered person's rights may not restrict the
13-2 covered person from making an assignment other than an assignment
13-3 by gift.
13-4 SECTION 2. Article 3.50-6, Insurance Code, is amended by
13-5 amending Subsection (b) and adding Subsections (c) and (d) to read
13-6 as follows:
13-7 (b) An insurance company may pay an accelerated benefit
13-8 under a group term life insurance policy or certificate if:
13-9 (1) the company has received a written medical
13-10 opinion, satisfactory to the company, that the insured is not
13-11 expected to continue living for more than 24 <12> months because of
13-12 terminal illness or injury; and
13-13 (2) <the amount of the accelerated benefit does not
13-14 exceed the greater of $25,000 or 50 percent of the amount of the
13-15 death benefit payable under the policy or certificate; and>
13-16 <(3)> the amount of the accelerated benefit is
13-17 deducted from the amount of the death benefit payable under the
13-18 policy or certificate and from any amount the insured would
13-19 otherwise be entitled to convert to an individual contract.
13-20 (c) An insurance company may not solicit or obtain any
13-21 information from any person that collects and disseminates medical
13-22 or credit or other financial information about individuals,
13-23 including the Medical Insurance Bureau or a similar entity, in
13-24 connection with payment of an accelerated benefit under this
13-25 article.
13-26 (d) An insurance company shall maintain as confidential
13-27 personal or medical information obtained by the company for
14-1 purposes of this article. Information that is confidential under
14-2 this subsection may not be made available to another person or
14-3 entity without the written consent of the insured.
14-4 SECTION 3. Section 1, Article 21.22, Insurance Code, is
14-5 amended to read as follows:
14-6 Sec. 1. (a) For purposes of this article, "benefits" means
14-7 <Notwithstanding any provision of this code other than this
14-8 article,> all money or benefits of any kind<, including policy
14-9 proceeds and cash values,> to be paid or rendered to the insured or
14-10 any beneficiary under any policy of insurance or annuity contract
14-11 issued by a life, health or accident insurance company, including
14-12 mutual and fraternal insurance, or under any plan or program of
14-13 annuities and benefits in use by any employer or individual,
14-14 including:
14-15 (1) policy proceeds;
14-16 (2) cash values; and
14-17 (3) the value of an insured's right to accelerate a
14-18 death benefit under a life insurance policy in accordance with
14-19 Article 3.50-6 of this code or to enter into a viatical settlement
14-20 in accordance with Article 3.50-6A of this code.
14-21 (b) Notwithstanding any other provision of this code,
14-22 benefits: <shall:>
14-23 (1) inure exclusively to the benefit of the person for
14-24 whose use and benefit the insurance or annuity is designated in the
14-25 policy or contract;
14-26 (2) are <be> fully exempt from execution, attachment,
14-27 garnishment or other process;
15-1 (3) are <be> fully exempt from being seized, taken or
15-2 appropriated or applied by any legal or equitable process or
15-3 operation of law to pay any debt or liability of the insured or of
15-4 any beneficiary, either before or after said money or benefits is
15-5 or are paid or rendered; and
15-6 (4) are <be> fully exempt from all demands in any
15-7 bankruptcy proceeding of the insured or beneficiary.
15-8 SECTION 4. Section 42.001(b), Property Code, is amended to
15-9 read as follows:
15-10 (b) The following personal property is exempt from seizure
15-11 and is not included in the aggregate limitations prescribed by
15-12 Subsection (a):
15-13 (1) current wages for personal services, except for
15-14 the enforcement of court-ordered child support payments;
15-15 (2) professionally prescribed health aids of a debtor
15-16 or a dependent of a debtor; and
15-17 (3) the value of the right of a person to accelerate a
15-18 death benefit or enter into a viatical settlement, to the extent
15-19 provided by Section 1, Article 21.22, Insurance Code.
15-20 SECTION 5. This Act takes effect September 1, 1995.
15-21 SECTION 6. The change in law made by Section 1 of this Act
15-22 applies only to a viatical settlement entered into on or after
15-23 January 1, 1996. A viatical settlement that is entered into before
15-24 January 1, 1996, is governed by the law applicable to the
15-25 settlement immediately before the effective date of this Act, and
15-26 that law is continued in effect for that purpose.
15-27 SECTION 7. The change in law made by Section 2 of this Act
16-1 applies only to an insurance policy that is delivered, issued for
16-2 delivery, or renewed on or after January 1, 1996. A policy that is
16-3 delivered, issued for delivery, or renewed before January 1, 1996,
16-4 is governed by the law as it existed immediately before the
16-5 effective date of this Act, and that law is continued in effect for
16-6 that purpose.
16-7 SECTION 8. (a) The changes in law made by this Act to
16-8 Section 42.001(b), Property Code, and Section 1, Article 21.22,
16-9 Insurance Code, apply only to legal process brought to collect the
16-10 value of the right of a person to accelerate a death benefit or
16-11 enter into a viatical settlement that is commenced on or after the
16-12 effective date of this Act. Legal process commenced before the
16-13 effective date of this Act is governed by the law in effect at the
16-14 time the process is commenced, and that law is continued in effect
16-15 for that purpose.
16-16 (b) In this section, "legal process" means any action or
16-17 activity described by Section 1(b)(2), (3), or (4), Article 21.22,
16-18 Insurance Code, as amended by this Act.
16-19 SECTION 9. The importance of this legislation and the
16-20 crowded condition of the calendars in both houses create an
16-21 emergency and an imperative public necessity that the
16-22 constitutional rule requiring bills to be read on three several
16-23 days in each house be suspended, and this rule is hereby suspended.