79R6026 AJA-F
By: Ritter H.B. No. 1936
A BILL TO BE ENTITLED
AN ACT
relating to the regulation of viatical settlement agreements and
life settlement agreements; providing penalties.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 1111.001, Insurance Code, is amended to
read as follows:
Sec. 1111.001. DEFINITIONS. 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, that is 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 policy pursuant to a viatical settlement contract ["Life
settlement" means an agreement that is solicited, negotiated,
offered, entered into, delivered, or issued for delivery in this
state under which a person pays anything of value that is:
[(A) less than the expected death benefit of a
policy insuring the life of an individual who does not have a
catastrophic or life-threatening illness or condition; and
[(B) paid in return for the policy owner's or
certificate holder's assignment, transfer, bequest, devise, or
sale of the death benefit under or ownership of the policy].
(2) "Business of viatical settlements" means an
activity involved in, but not limited to, the offering,
solicitation, negotiation, procurement, effectuation, purchasing,
investing, financing, monitoring, tracking, underwriting, selling,
transferring, assigning, pledging, or hypothecating of viatical
settlement contracts.
(3) "Chronically ill" means:
(A) being unable to perform at least two
activities of daily living including 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 Paragraph (A) as determined by the secretary of the
United States Department of Health and Human Services.
(4) "Financing entity" means an underwriter,
placement agent, lender, purchaser of securities, purchaser of a
policy or certificate from a viatical settlement provider, credit
enhancer, or an entity that has a direct ownership in a policy that
is the subject of a viatical settlement contract, but whose
principal activity related to the transaction is providing funds to
effect the viatical or life settlement or purchase of one or more
viaticated policies and who has an agreement in writing with one or
more registered viatical settlement providers to finance the
acquisition of viatical settlement contracts or to provide
stop-loss insurance. The term does not include a nonaccredited
investor.
(5) "Fraudulent viatical settlement act" means:
(A) an act or omission that is:
(i) a violation of a penal law and that is
committed or attempted to be committed while engaging in the
business of viatical settlements or as part of or in support of a
viatical settlement; or
(ii) part of an attempt to defraud a
viatical settlement provider, financing entity, agent, viator, or
other person in the business of viatical settlements;
(B) recklessly entering into, negotiating, or
otherwise dealing in a viatical settlement contract, the subject of
which is a policy that was obtained by presenting false information
concerning a fact that is material to the policy, or by concealing,
for the purpose of misleading another, information concerning a
fact that is material to the policy, where the viator or the
viator's agent intended to defraud the insurance company that
issued the policy; or
(C) an attempt to commit or to assist, aid, or
abet the commission of, or the conspiracy to commit the acts or
omissions described by this subdivision.
(6) "Life insurance agent" means a person who holds a
license under Section 4054.051.
(7) [(2)] "Person" means an individual, corporation,
trust, partnership, association, or any other legal entity.
(8) "Policy" means an individual or group life
insurance policy or a group certificate, contract, or arrangement
of life insurance affecting the rights of a resident of this state
or bearing a reasonable relation to this state, regardless of
whether delivered or issued for delivery in this state.
(9) "Recklessly" means engaging in conduct in
conscious and clearly unjustifiable disregard of a substantial
likelihood of the existence of the relevant facts or risks
involving a gross deviation from acceptable standards of conduct.
(10) "Related provider trust" means a titling trust or
other trust established by a registered viatical settlement
provider or a financing entity for the sole purpose of holding the
ownership or beneficial interest in viaticated policies in
connection with a financing transaction and that complies with
Section 1111.0023.
(11) "Special purpose entity" means a corporation,
partnership, trust, limited liability company, or other similar
entity formed only to directly or indirectly provide access to
institutional capital markets for a financing entity or registered
viatical settlement provider.
(12) "Terminally ill" means having an illness or
sickness that reasonably is expected to result in death in 24 months
or less.
(13) "Viatical settlement provider" means a person,
other than a viator, who enters into or effectuates a viatical
settlement contract. The term does not include:
(A) a bank, savings bank, savings and loan
association, credit union, or other licensed lending institution
that takes an assignment of a policy as collateral for a loan;
(B) the issuer of a policy providing accelerated
benefits pursuant to the policy;
(C) an authorized or eligible insurer that
provides stop-loss coverage to a viatical settlement provider,
financing entity, special purpose entity, or related provider
trust;
(D) an individual who enters into or effectuates
not more than one agreement in a calendar year for the transfer of
policies for any value less than the expected death benefit;
(E) a financing entity;
(F) a special purpose entity;
(G) a related provider trust; or
(H) an accredited investor or qualified
institutional buyer as defined by Regulation D, Rule 501, or Rule
144A adopted under the Federal Securities Act of 1933 who purchases
a viaticated policy from a viatical settlement provider.
(14) "Viaticated policy" means a policy that has been
acquired by a viatical settlement provider under a viatical
settlement contract.
(15) "Viator" means an owner of a policy who is a
resident of this state and who enters or seeks to enter into a
viatical settlement contract. Except as otherwise provided by this
subchapter, a viator is not limited to an owner of a policy insuring
the life of an individual with a terminal or chronic illness or
condition. The term does not include:
(A) a registrant under this subchapter,
including a life insurance agent;
(B) an accredited investor or qualified
institutional buyer as defined by Regulation D, Rule 501, or Rule
144A adopted under the Federal Securities Act of 1933;
(C) a financing entity;
(D) a special purpose entity; or
(E) a related provider trust
[(3) "Viatical settlement" means an agreement that is
solicited, negotiated, offered, entered into, delivered, or issued
for delivery in this state under which a person pays anything of
value that is:
[(A) less than the expected death benefit of a
policy insuring the life of an individual who has a catastrophic or
life-threatening illness or condition; and
[(B) paid in return for the policy owner's or
certificate holder's assignment, transfer, bequest, devise, or
sale of the death benefit under or ownership of the policy].
SECTION 2. Subchapter A, Chapter 1111, Insurance Code, is
amended by adding Sections 1111.0021, 1111.0022, and 1111.0023 to
read as follows:
Sec. 1111.0021. VIATICAL SETTLEMENT CONTRACT DEFINED. (a)
"Viatical settlement contract" means a written agreement
establishing the terms under which compensation or anything of
value is paid that is less than the expected death benefit of the
policy in return for the viator's assignment, transfer, sale,
devise, or bequest of the death benefit or ownership of any portion
of the policy.
(b) The term includes:
(1) a contract for a loan or other financing
transaction with a viator secured primarily by:
(A) an individual or group life insurance policy,
other than a loan by a life insurance company under the terms of the
policy; or
(B) a loan secured by the cash value of a policy;
and
(2) an agreement with a viator to transfer ownership
or change the beneficiary designation at a later date, regardless
of the date that compensation is paid to the viator.
(c) The term does not include a written agreement entered
into between a viator and a person having an insurable interest in
the insured's life.
Sec. 1111.0022. FRAUDULENT INSURANCE ACT. A fraudulent
viatical settlement act is a fraudulent insurance act for the
purposes of Chapter 701.
Sec. 1111.0023. RELATED PROVIDER TRUST AGREEMENT. A
related provider trust must have a written agreement with the
registered viatical settlement provider under which the registered
viatical 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
viatical settlement transactions available to the commissioner as
if those records and files were maintained directly by the
registered viatical settlement provider.
SECTION 3. Section 1111.003, Insurance Code, is amended by
amending Subsections (a), (b), and (c) to read as follows:
(a) The [To implement this subchapter, the] commissioner
shall adopt [reasonable] rules to implement this subchapter
[relating to life settlements and relating to viatical
settlements].
(b) The rules adopted by the commissioner under this section
must include [rules governing]:
(1) appropriate registration procedures, fees, and
standards for [of] a person engaged in the business of viatical
[life] settlements;
(2) fees for a life insurance agent [registration of a
person] engaged in the business of viatical settlements;
(3) requirements for a bond or another mechanism for
financial accountability for a viatical settlement provider
[approval of contract forms];
(4) standards for evaluating the reasonableness of
payments under a viatical settlement contract for a person who is
terminally or chronically ill [disclosure requirements]; and
(5) standards for the relationship and
responsibilities of an insurer and a viatical settlement provider,
life insurance agent, and others in the business of viatical
settlements during the period of consideration of effectuation of a
viatical settlement contract [prohibited practices relating to:
[(A) unfair discrimination in the provision of
life or viatical settlements; and
[(B) referral fees paid by persons engaged in the
business of life or viatical settlements;
[(6) assignment or resale of life insurance policies;
[(7) maintenance of appropriate confidentiality of
personal and medical information; and
[(8) the responsibility of a registrant to ensure
compliance with this subchapter and rules relating to life or
viatical settlements after the registration is revoked, suspended,
or otherwise lapses].
(c) Standards adopted by the [The] commissioner under
Subsection (b)(4) may include 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 policy [may not adopt
a rule establishing a price or fee for the sale or purchase of a life
settlement. This subsection does not prohibit the commissioner
from adopting a rule relating to an unjust price or fee for the sale
or purchase of a life settlement].
SECTION 4. Section 1111.004, Insurance Code, is amended to
read as follows:
Sec. 1111.004. LICENSING AND REGISTRATION REQUIREMENTS.
(a) A person may not negotiate a viatical settlement contract
between a viator and one or more viatical settlement providers
unless the person is a life insurance agent.
(b) A life insurance agent is considered to meet the
licensing requirements of a viatical settlement broker and may
operate as a viatical settlement broker under this subchapter if:
(1) the agent has been registered or licensed as a
resident life insurance agent or agent with the authority to sell
life insurance in the agent's home state for at least one year;
(2) the agent completes a form adopted by the
department that includes an acknowledgment by the agent that the
agent will operate as a viatical settlement broker in accordance
with this subchapter; and
(3) the agent pays a fee set by the commissioner.
[ANNUAL FEE FOR REGISTRATION. The commissioner may adopt rules
requiring payment of an annual fee in connection with registration.
The fee may not exceed $250.]
SECTION 5. Subchapter A, Chapter 1111, Insurance Code, is
amended by adding Section 1111.0041 to read as follows:
Sec. 1111.0041. EXEMPTIONS. (a) The following persons are
exempt from Section 1111.004:
(1) a person registered or licensed as an attorney;
and
(2) a certified public accountant or financial planner
accredited by a nationally recognized accreditation agency:
(A) who is retained to represent the viator; and
(B) whose compensation is not paid directly or
indirectly by the viatical settlement.
(b) Section 4001.052 does not apply to a life insurance
agent representing a viator.
SECTION 6. Section 1111.005, Insurance Code, is amended by
amending Subsection (a) and adding Subsection (d) to read as
follows:
(a) The commissioner may suspend or revoke a registration or
deny an application for registration if the commissioner determines
that:
(1) the registrant or applicant, individually or
through any officer, director, or shareholder of the registrant or
applicant:
(A) [(1)] wilfully violated:
(i) [(A)] this subchapter;
(ii) [(B)] an applicable provision of this
code or another insurance law of this state; or
(iii) [(C)] a rule adopted under a law
described by Subparagraph (i) [Paragraph (A)] or (ii) [(B)];
(B) [(2)] intentionally made a material
misstatement in the application for registration;
(C) [(3)] obtained or attempted to obtain
registration by fraud or misrepresentation;
(D) [(4)] misappropriated, converted to the
registrant's or applicant's own use, or illegally withheld money
belonging to a party to a life or viatical settlement;
(E) [(5)] was guilty of fraudulent or dishonest
practices;
(F) [(6)] materially misrepresented the terms of
business conducted under this subchapter or any other provision of
this code or another insurance law of this state; or
(G) [(7)] made or issued, or caused to be made or
issued, a statement materially misrepresenting or making
incomplete comparisons regarding the material terms of any business
conducted under this subchapter; or
(2) the registrant or applicant or any officer,
partner, member, or member of key management personnel has been
found guilty of, or has pleaded guilty or nolo contendere to, any
[(8) was convicted of a] felony or [was convicted of a] misdemeanor
involving moral turpitude or fraud, regardless of whether a
judgment or conviction was entered by the court.
(d) The commissioner may suspend, revoke, or refuse to
renew the registration of a life insurance agent if the
commissioner finds that the life insurance agent has violated this
subchapter.
SECTION 7. Section 1111.006, Insurance Code, is amended to
read as follows:
Sec. 1111.006. APPLICABILITY OF OTHER INSURANCE LAWS.
(a) The following laws apply to a person engaged in the business of
life or viatical settlements:
(1) Articles 1.10 and[, 1.10D,] 1.19[, and 21.21];
(2) Chapters 82, 83, [and] 84, 541, and 701;
(3) Sections 31.002, 32.001, 32.002, 32.003, 32.021,
32.023, 32.041, 38.001, 81.004, 543.001, 801.056, and 862.052; and
(4) Subchapter C, Chapter 36.
(b) If there is more than one owner of a single policy and
the owners are residents of different states, the viatical
settlement transaction shall be governed by the law of the state in
which the owner having the largest percentage ownership resides or,
if the owners hold equal ownership, the state of residence of one
owner agreed upon in writing by all owners.
SECTION 8. Subchapter A, Chapter 1111, Insurance Code, is
amended by adding Sections 1111.007, 1111.008, 1111.009, 1111.010,
and 1111.011 to read as follows:
Sec. 1111.007. FORMS. (a) A person may not use a viatical
settlement contract or provide to a viator a disclosure statement
form in this state unless filed with and approved by the
commissioner.
(b) Any viatical settlement contract form or disclosure
form filed with the commissioner is considered approved if the form
or disclosure is not disapproved by the commissioner on or before
the 60th day after the date of the filing.
(c) The commissioner shall disapprove a viatical settlement
contract form or disclosure statement form if, in the
commissioner's opinion, the contract or provisions contained in the
contract are unreasonable, contrary to the interests of the public,
or otherwise misleading or unfair to the viator.
(d) A viatical settlement contract and an application for a
viatical settlement contract, regardless of the form of
transmission, must contain the following statement or a
substantially similar statement:
"Any person who knowingly presents false information in an
application for insurance or a viatical settlement contract is
guilty of a crime and, on conviction, may be subject to fines or
confinement in prison, or both."
(e) The lack of a statement required by Subsection (d) does
not constitute a defense in any prosecution for a fraudulent
viatical settlement act.
Sec. 1111.008. REPORTS. (a) Each viatical settlement
provider shall file with the commissioner by March 1 of each year an
annual statement containing information required by the
commissioner by rule.
(b) Information is required by this section only with
respect to transactions in which the viator is a resident of this
state. The commissioner may not require:
(1) individual transaction data regarding the
business of viatical settlements; or
(2) data that compromises the privacy of personal,
financial, and health information of the viator or insured.
Sec. 1111.009. DISCLOSURES. An insurance company shall
send written notice as required by this section to the owner of each
policy issued by the company under which the insured is 60 years of
age or older or is known to be terminally ill or chronically ill
that a viatical settlement contract is an available alternative
transaction to the owner. The notice must be sent:
(1) at the time the insurance company:
(A) receives from the owner a request to
surrender, wholly or partly, the policy;
(B) receives from the owner a request to receive
an accelerated death benefit under the policy;
(C) receives from the owner a request
collaterally to assign a policy as security for a loan; or
(D) sends to the owner a notice that the policy
has lapsed; or
(2) any other time the commissioner requires by rule.
Sec. 1111.010. PROHIBITED ACTS. (a) A person may not
commit a fraudulent viatical settlement act.
(b) A person may not knowingly or intentionally interfere
with the enforcement of this subchapter or investigations of
suspected or actual violations of this subchapter.
(c) A person in the business of viatical settlements may not
knowingly or intentionally permit a person convicted of a felony
involving dishonesty or breach of trust to participate in the
business of viatical settlements.
(d) Reporting of suspected fraudulent viatical settlement
acts to the department shall be treated in the same manner as
reporting of fraudulent insurance acts under Chapter 701 and both
the confidentiality and immunity provisions of that chapter shall
apply to that reporting.
Sec. 1111.011. TRADE PRACTICES. (a) A viatical settlement
provider, in a transaction in which the insured is not terminally or
chronically ill, must pay an amount greater than the cash surrender
value or accelerated death benefit then available.
(b) Regardless of the source of compensation, a life
insurance agent is considered to represent only the viator and owes
a fiduciary duty to the viator to act according to the viator's
instructions and in the viator's best interests.
(c) A person registered under this subchapter or a person
licensed or authorized to engage in business under this code may
not:
(1) prohibit, restrict, limit, or impair a registered
life insurance agent from aiding and assisting the owner of a policy
with a settlement or otherwise participating in a settlement
transaction under this subchapter; or
(2) engage in any transaction, act, practice, or
course of business or dealing that restricts, limits, or impairs in
any way the lawful transfer of ownership, change of beneficiary, or
assignment of a policy to effectuate a viatical settlement
contract.
(d) A violation of this subchapter is considered an unfair
method of competition or an unfair or deceptive act or practice in
the business of insurance under Chapter 541.
SECTION 9. Section 1111.003(d), Insurance Code, is
repealed.
SECTION 10. (a) A person who, immediately before February
1, 2005, is a life settlement or viatical broker registered with
the Texas Department of Insurance is not required to obtain the
appropriate license as required by Chapter 1111, Insurance Code,
before September 1, 2006, to continue to comply with Chapter 1111,
Insurance Code.
(b) A person covered by Subsection (a) of this section may
count the time the person was registered by the Texas Department of
Insurance as a life settlement or viatical broker towards the
one-year licensure period required by Section 1111.004(b)(1),
Insurance Code, as amended by this Act.
SECTION 11. The commissioner of insurance shall adopt all
rules necessary to implement Chapter 1111, Insurance Code, as
amended by this Act, to take effect not later than March 1, 2006.
SECTION 12. This Act takes effect September 1, 2005.