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By: Armbrister S.B. No. 1323
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 filmstrips,
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 person 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 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) knowingly or intentionally engaging in any
act or omission involving the presentation of false information or
the concealment of material information, in order to induce any
life insurance company, viatical settlement broker, or viatical
settlement provider to issue, present, broker, purchase, or
transfer a policy in a viatical settlement; 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
general life, accident, and health license under Section 4054.051.
(7) "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) "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.
(10) "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.
(11) "Terminally ill" means having an illness or
sickness as certified by a physician that reasonably is expected to
result in death in 24 months or less.
(12) "Viatical settlement broker" means a person who,
on behalf of a viator and for a fee, commission, or other valuable
consideration, offers or attempts to negotiate viatical settlement
contracts between a viator and one or more viatical settlement
providers. A viatical settlement broker is deemed to represent
only the viator, and not the insurer or the viatical settlement
provider, and owes a duty to the viator to act according to the
viator's instructions. The insurer that issued the policy being
viaticated is not responsible for any act or omission of the
viatical settlement broker or viatical settlement provider arising
out of or in connection with a viatical settlement transaction,
unless the insurer receives compensation from the viatical
settlement provider or viatical settlement broker for the viatical
settlement contract.
(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. Section 1111.002, Insurance Code, is amended to
read as follows:
Sec. 1111.002. PURPOSE. The purpose of this subchapter is
to:
(1) provide for registration of persons engaged in the
business of life or viatical settlements; [and]
(2) provide consumer protection for a person who may
sell or otherwise transfer the person's life insurance policy; and
(3) provide that the department has exclusive
jurisdiction in this state to regulate viatical settlements, other
than transactions governed by The Securities Act (Article 581-1 et
seq., Vernon's Texas Civil Statutes).
SECTION 3. 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 4. Section 1111.003, Insurance Code, is amended to
read as follows:
Sec. 1111.003. RULES; REGISTRATION AND REGULATION.
(a) The [To implement this subchapter, the] commissioner may
[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
may [must] include [rules governing]:
(1) 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,
viatical settlement broker, 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) [The commissioner 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.
[(d)] The commissioner may not adopt a rule that regulates
the actions of an investor providing money to a [life or] viatical
settlement company.
SECTION 5. Section 1111.004, Insurance Code, is amended to
read as follows:
Sec. 1111.004. 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
viatical settlement broker.
(b) A life insurance agent is deemed to meet the
registration requirements of this section and is permitted to
operate as a viatical settlement broker if the agent:
(1) is licensed as a general life, accident, and
health insurance agent for at least one year;
(2) has not been convicted of a felony involving
dishonesty or breach of trust; and
(3) not later than the 30th day after the first day the
agent operates as a viatical settlement broker:
(A) 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
(B) 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 6. Subchapter A, Chapter 1111, Insurance Code, is
amended by adding Section 1111.0041 to read as follows:
Sec. 1111.0041. EXEMPTIONS. (a) A person who is retained
to represent the viator and whose compensation is not paid directly
or indirectly by the viatical settlement is exempt from Section
1111.004 if the person is:
(1) registered or licensed as an attorney; or
(2) a certified public accountant or financial planner
accredited by a nationally recognized accreditation agency.
(b) Section 4001.052 does not apply to a life insurance
agent representing a viator.
SECTION 7. 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 viatical settlement broker if the
commissioner finds that the viatical settlement broker has violated
this subchapter.
SECTION 8. Section 1111.006, Insurance Code, is amended to
read as follows:
Sec. 1111.006. APPLICABILITY OF OTHER INSURANCE LAWS. 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.
SECTION 9. Subchapter A, Chapter 1111, Insurance Code, is
amended by adding Sections 1111.007 through 1111.012 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 viator
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 viator 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 or in which the viatical settlement provider is located in
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. (a) With each application for
a viatical settlement, a viatical settlement provider or viatical
settlement broker shall provide the viator with at least the
following disclosures not later than the time the application for
the viatical settlement contract is signed by all parties. The
disclosures shall be provided in a separate document that is signed
by the viator and the viatical settlement provider or viatical
settlement broker and must:
(1) state that:
(A) there are possible alternatives to viatical
settlement contracts, including any accelerated death benefits or
policy loans offered under the viator's life insurance policy;
(B) some or all of the proceeds of the viatical
settlement may be taxable under federal income tax law or state
franchise or income tax law and assistance should be sought from a
professional tax advisor;
(C) proceeds of the viatical settlement could be
subject to the claims of creditors;
(D) receipt of the proceeds of a viatical
settlement may adversely affect the viator's eligibility for
Medicaid or other government benefits or entitlements and advice
should be obtained from the appropriate government agencies;
(E) the viator has the right to rescind a
viatical settlement contract for 15 calendar days after the receipt
of the viatical settlement proceeds by the viator, and if the
insured dies during the rescission period, the settlement contract
is deemed to have been rescinded, subject to repayment of all
viatical settlement proceeds and any premiums, loans, and loan
interest to the viatical settlement provider or purchaser;
(F) funds will be sent to the viator on or before
the third business day after the date the viatical settlement
provider receives the insurer's or group administrator's
acknowledgment that ownership of the policy or interest in the
certificate has been transferred and the beneficiary has been
designated; and
(G) entering into a viatical 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 viator and assistance should be
sought from a financial advisor;
(2) include a brochure describing the process of
viatical settlements based on:
(A) a form developed by the commissioner; or
(B) if the commissioner does not develop a form,
the National Association of Insurance Commissioner's form;
(3) contain the following language: "All medical,
financial, or personal information solicited or obtained by a
viatical settlement provider or viatical settlement broker about an
insured, including the insured's identity or the identity of family
members, a spouse, or significant other may be disclosed as
necessary to effect the viatical settlement between the viator and
the viatical 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."; and
(4) state that:
(A) the insured may be contacted by either the
viatical settlement provider or broker or the provider's or
broker's authorized representative for the purpose of determining
the insured's health status; and
(B) this contact is limited to once every three
months if the insured has a life expectancy of more than one year,
and not more than once per month if the insured has a life
expectancy of one year or less.
(b) A viatical settlement provider shall provide the viator
with at least the following disclosures not later than the date the
viatical settlement contract is signed by all parties. The
disclosures shall be conspicuously displayed in the viatical
settlement contract or in a separate document signed by the viator
and the viatical settlement provider or viatical settlement broker
and state:
(1) the affiliation, if any, between the viatical
settlement provider and the issuer of the insurance policy to be
viaticated;
(2) the name, address, and telephone number of the
viatical settlement provider;
(3) that if an insurance policy to be viaticated 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
viaticated, the viator shall be informed of the possible loss of
coverage on the other lives under the policy and shall be advised to
consult with the viator's insurance producer or the insurer issuing
the policy for advice on the proposed viatical settlement;
(4) the dollar amount of the current death benefit
payable to the viatical settlement provider under the policy or
certificate, and if known, 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 viatical settlement provider's interest in those benefits;
and
(5) the name, business address, and telephone number
of the independent third-party escrow agent and that the viator or
owner may inspect or receive copies of the relevant escrow or trust
agreements or documents.
(c) If the provider transfers ownership or changes the
beneficiary of the insurance policy, the provider shall communicate
the change in ownership or beneficiary to the insured on or before
the 20th day after the date of the change.
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) It is a violation of this subchapter for any person to
enter into a viatical settlement contract within a two-year period
commencing with the date of issuance of the insurance policy or
certificate unless the viator certifies to the viatical settlement
provider that one or more of the following conditions have been met
within the two-year period:
(1) the policy was issued upon the viator'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 24 months;
or
(2) 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 and the viator submits independent evidence to the
viatical settlement provider that one or more of the following
conditions have been met within the two-year period:
(A) the insured is terminally or chronically ill;
or
(B) the viator or insured disposes of the
viator's or insured's ownership interests in a closely held
corporation pursuant to terms of a buyout or other similar
agreement in effect at the time the insurance policy was originally
issued.
(e) Copies of the certifications and independent evidence
required by Subsection (d) must be submitted to the insurer at the
time the viatical settlement provider submits a request to the
insurer for verification of coverage. The copies must be
accompanied by a letter of attestation from the viatical settlement
provider that the copies are true and correct copies of the
documents received by the viatical settlement provider.
Sec. 1111.011. TRADE PRACTICES. (a) A viatical settlement
provider must pay an amount greater than:
(1) the cash surrender value; or
(2) the accelerated death benefit if the policyholder
qualifies for an accelerated death benefit.
(b) Regardless of the source of compensation, a viatical
settlement broker 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 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.
Sec. 1111.012. TEXAS DEPARTMENT OF INSURANCE INVESTIGATION
OF VIATICAL SETTLEMENT FRAUD. (a) Any information or material
acquired by the department that is relevant to suspected viatical
settlement fraud shall be treated in the same manner as information
or material acquired by the department that is relevant to an
inquiry by the insurance fraud unit under Chapter 701 and the
confidentiality, privilege, and public records provisions of that
chapter shall apply to this information or material.
(b) The immunity provisions of Chapter 701 apply to a person
filing reports or furnishing, orally or in writing, other
information concerning suspected, anticipated, or completed
viatical settlement fraud.
SECTION 10. The heading of Chapter 1111, Insurance Code, is
amended to read as follows:
CHAPTER 1111. [LIFE AND] VIATICAL SETTLEMENTS AND
ACCELERATED TERM LIFE INSURANCE BENEFITS
SECTION 11. The heading of Subchapter A, Chapter 1111,
Insurance Code, is amended to read as follows:
SUBCHAPTER A. [LIFE AND] VIATICAL SETTLEMENTS
SECTION 12. 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 13. This Act takes effect September 1, 2005.