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A BILL TO BE ENTITLED
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AN ACT
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relating to the regulation of certain life settlement contracts; |
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providing penalties. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. The heading to Chapter 1111, Insurance Code, is |
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amended to read as follows: |
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CHAPTER 1111. LIFE SETTLEMENT CONTRACTS, [AND] VIATICAL |
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SETTLEMENTS, AND CERTAIN RELATED PRACTICES; ACCELERATED TERM LIFE |
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INSURANCE BENEFITS |
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SECTION 2. The heading to Subchapter A, Chapter 1111, |
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Insurance Code, is amended to read as follows: |
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SUBCHAPTER A. LIFE SETTLEMENT CONTRACTS AND VIATICAL SETTLEMENTS |
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SECTION 3. Section 1111.001, Insurance Code, is amended by |
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adding Subsections (2-a), (2-b), (2-c), (2-d), and (2-e) to read as |
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follows: |
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(2-a) "Premium finance loan" means a loan, made |
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primarily for the purpose of making premium payments on a life |
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insurance policy, that is secured by an interest in the life |
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insurance policy. |
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(2-b) "Provider" means a person, other than an owner, |
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who enters into or effectuates a life settlement contract with an |
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owner. The term does not include: |
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(A) a bank, savings bank, savings and loan |
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association, or credit union; |
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(B) a licensed lending institution, creditor, or |
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secured party under a premium finance loan agreement that takes an |
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assignment of a policy or certificate as collateral for a loan; |
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(C) the insurer of a policy or rider to the extent |
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of providing accelerated death benefits, riders, or cash surrender |
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value; |
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(D) any individual who enters into or effectuates |
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not more than one agreement in a calendar year for the transfer of |
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an insurance policy or certificate for compensation or anything of |
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value less than the expected death benefit payable under the |
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policy; |
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(E) a purchaser; |
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(F) an authorized or eligible insurer that |
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provides stop loss coverage to a provider, purchaser, financing |
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entity, special purpose entity, or related provider trust; |
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(G) a financing entity; |
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(H) a special purpose entity; |
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(I) a related provider trust; |
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(J) a broker; or |
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(K) an accredited investor or qualified |
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institutional buyer, as defined respectively by Securities and |
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Exchange Commission Regulation D (17 C.F.R. Section 230.501 et |
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seq.) and Securities and Exchange Commission Rule 144A (17 C.F.R. |
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Section 230.144A), who purchases a life settlement contract from a |
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provider. |
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(2-c) "Purchaser" means a person who pays compensation |
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or anything of value as consideration for a beneficial interest in a |
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trust that is vested with, or for the assignment, transfer, or sale |
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of, an ownership or other interest in an insurance policy or a |
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certificate that has been the subject of a life settlement |
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contract. |
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(2-d) "Related provider trust" means a titling trust |
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or other trust established by a registered provider or a financing |
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entity for the sole purpose of holding the ownership or beneficial |
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interest in purchased policies in connection with a financing |
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transaction, that includes a written agreement with the registered |
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provider under which: |
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(A) the registered provider is responsible for |
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ensuring compliance with all statutory and regulatory |
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requirements; and |
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(B) the trust agrees to make all records and |
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files relating to life settlement transactions available to the |
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department as if those records and files were maintained directly |
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by the provider. |
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(2-e) "Special purpose entity" means a corporation, |
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partnership, trust, limited liability company, or other legal |
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entity formed solely to provide, either directly or indirectly, |
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access to institutional capital markets for a financing entity or |
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provider in connection with a transaction in which the securities |
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in the special purpose entity: |
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(A) are acquired by the owner or by a "qualified |
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institutional buyer," as defined by Securities and Exchange |
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Commission Rule 144A (17 C.F.R. Section 230.144A); or |
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(B) pay a fixed rate of return commensurate with |
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established asset-backed institutional capital markets. |
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SECTION 4. Subchapter A, Chapter 1111, Insurance Code, is |
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amended by adding Sections 1111.0011, 1111.0012, and 1111.0013 to |
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read as follows: |
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Sec. 1111.0011. LIFE SETTLEMENT CONTRACT. (a) For |
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purposes of this subchapter, a "life settlement contract" means a |
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written agreement, entered into between a provider and an owner, |
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that establishes the terms under which: |
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(1) compensation or any thing of value that is less |
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than the expected death benefit of an insurance policy or |
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certificate of insurance will be paid in return for the owner's |
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assignment, transfer, sale, devise, or bequest, for compensation, |
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of the death benefit or any portion of the insurance policy or |
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certificate of insurance for compensation; and |
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(2) the minimum contract value is greater than any |
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cash surrender value or accelerated death benefit available on the |
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date of the application for the contract. |
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(b) The term includes: |
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(1) the transfer for compensation or value of |
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ownership or a beneficial interest in a trust or other entity that |
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owns the policy if the trust or other entity was formed or availed |
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of for the principal purpose of acquiring one or more life insurance |
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contracts owned by a person residing in this state; and |
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(2) a premium finance loan made for a policy on or |
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before the date of issuance of the policy if: |
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(A) the loan proceeds are not used solely to pay: |
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(i) policy premiums; and |
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(ii) any costs or expenses incurred by the |
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lender or the borrower in connection with the financing; |
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(B) the owner receives on the date of the premium |
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finance loan a guarantee of the future life settlement value of the |
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policy; or |
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(C) the owner agrees on the date of the premium |
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finance loan to sell the policy or any portion of the death benefit |
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of the policy on any date following the issuance of the policy. |
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(c) The term does not include: |
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(1) a policy loan made by a life insurer under the |
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terms of a life insurance policy or accelerated death provisions |
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contained in the life insurance policy, whether issued with the |
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original policy or as a rider; |
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(2) a premium finance loan, or any loan made by a bank |
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or other licensed financial institution, if default on the loan or |
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the transfer of the policy in connection with such a default is not |
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in accordance with an agreement or understanding with any other |
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person entered into for the purpose of evading regulation under |
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this subchapter; |
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(3) a collateral assignment of a life insurance policy |
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made by an owner; |
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(4) a loan made by a lender that does not violate |
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Chapter 651, if the loan does not qualify as a life settlement |
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contract under Subsection (a) or (b); |
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(5) an agreement: |
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(A) in which each of the parties: |
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(i) is closely related to the insured by |
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consanguinity or affinity; or |
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(ii) otherwise has a lawful substantial |
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economic interest in the continued life, health, and bodily safety |
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of the insured; or |
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(B) that is a trust established primarily for the |
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benefit of a party described by Paragraph (A); |
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(6) any designation, consent, or agreement by an |
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insured who is an employee of an employer in connection with the |
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purchase by the employer, or a trust established by the employer, of |
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life insurance on the life of the employee; |
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(7) a bona fide business succession planning |
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arrangement: |
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(A) between one or more shareholders in a |
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corporation or between a corporation and one or more of its |
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shareholders or one or more trusts established by its shareholders; |
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(B) between one or more partners in a partnership |
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or between a partnership and one or more of its partners or one or |
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more trusts established by its partners; or |
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(C) between one or more members in a limited |
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liability company or between a limited liability company and one or |
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more of its members or one or more trusts established by its |
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members; |
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(8) an agreement entered into by a service recipient, |
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or a trust established by the service recipient, and a service |
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provider, or a trust established by the service provider, who |
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performs significant services for the service recipient's trade or |
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business; or |
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(9) any other contract, transaction, or arrangement |
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that the commissioner determines is not of the type intended to be |
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regulated by this subchapter. |
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Sec. 1111.0012. OWNER. (a) In this subchapter, "owner" |
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means the owner of a life insurance policy or a certificate holder |
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under a group policy who is a resident of this state who enters or |
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seeks to enter into a life settlement contract. The term includes a |
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viator. Except as otherwise provided by this subchapter, the term |
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is not limited to an owner of a life insurance policy or a |
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certificate holder under a group policy that insures the life of an |
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individual with a terminal or chronic illness or condition. |
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(b) The term does not include: |
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(1) a registered provider or any other person licensed |
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under this code while operating under this subchapter; |
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(2) a qualified institutional buyer, as defined by |
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Securities and Exchange Commission Rule 144A (17 C.F.R. Section |
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230.144A) under the Securities Act of 1933 (15 U.S.C. Section 77a et |
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seq.); |
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(3) a financing entity; |
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(4) a special purpose entity; or |
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(5) a related provider trust. |
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Sec. 1111.0013. STRANGER-ORIGINATED LIFE INSURANCE. (a) A |
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person may not procure a new insurance policy covering the life of |
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an insured if the person: |
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(1) lacks an insurable interest in the insured; and |
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(2) at the inception of the policy, owns or controls |
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the policy or the majority of the policy's death benefits. |
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(b) This section does not apply to the lawful assignment of |
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a life insurance policy, including a life settlement contract or a |
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viatical settlement, or a practice described by Section |
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1111.0011(c). |
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(c) For purposes of Chapter 701, an act that violates this |
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section constitutes a fraudulent insurance act. |
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SECTION 5. Section 1111.002, Insurance Code, is amended to |
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read as follows: |
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Sec. 1111.002. PURPOSE. The purpose of this subchapter is |
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to: |
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(1) provide for registration of persons engaged in the |
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business of life settlement contracts or viatical settlements; and |
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(2) provide consumer protection for a person who may |
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sell or otherwise transfer the person's life insurance policy. |
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SECTION 6. Section 1111.003, Insurance Code, is amended to |
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read as follows: |
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Sec. 1111.003. RULES; REGISTRATION AND REGULATION. (a) To |
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implement this subchapter, the commissioner shall adopt reasonable |
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rules relating to life settlement contracts [settlements] and |
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relating to viatical settlements. |
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(b) The rules adopted by the commissioner under this section |
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must include rules governing: |
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(1) registration of providers [a person engaged in the
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business of life settlements]; |
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(2) registration of persons [a person] engaged in the |
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business of viatical settlements; |
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(3) approval of contract forms; |
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(4) disclosure requirements; |
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(5) prohibited practices relating to: |
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(A) unfair discrimination regarding [in the
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provision of] life settlement contracts or in the provision of |
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viatical settlements; and |
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(B) referral fees paid by providers and persons |
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engaged in the business of [life or] viatical settlements; |
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(6) assignment or resale of life insurance policies; |
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(7) maintenance of appropriate confidentiality of |
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personal and medical information; and |
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(8) the responsibility of a registrant to ensure |
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compliance with this subchapter and rules relating to life |
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settlement contracts or viatical settlements after the |
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registration is revoked, suspended, or otherwise lapses. |
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(c) The commissioner may not adopt a rule establishing a |
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price or fee for the sale or purchase of a life settlement under a |
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life settlement contract. This subsection does not prohibit the |
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commissioner from adopting a rule relating to an unjust price or fee |
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for the sale or purchase of a life settlement. |
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(d) The commissioner may not adopt a rule that regulates the |
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actions of an investor providing money to a provider [life] or a |
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viatical settlement company. |
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SECTION 7. Section 1111.005(a), Insurance Code, is amended |
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to read as follows: |
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(a) The commissioner may suspend or revoke a registration or |
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deny an application for registration if the commissioner determines |
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that the registrant or applicant, individually or through any |
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officer, director, or shareholder of the registrant or applicant: |
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(1) wilfully violated: |
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(A) this subchapter; |
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(B) an applicable provision of this code or |
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another insurance law of this state; or |
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(C) a rule adopted under a law described by |
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Paragraph (A) or (B); |
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(2) intentionally made a material misstatement in the |
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application for registration; |
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(3) obtained or attempted to obtain registration by |
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fraud or misrepresentation; |
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(4) misappropriated, converted to the registrant's or |
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applicant's own use, or illegally withheld money belonging to a |
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party to a life settlement contract or viatical settlement; |
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(5) was guilty of fraudulent or dishonest practices; |
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(6) materially misrepresented the terms of business |
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conducted under this subchapter or any other provision of this code |
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or another insurance law of this state; |
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(7) made or issued, or caused to be made or issued, a |
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statement materially misrepresenting or making incomplete |
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comparisons regarding the material terms of any business conducted |
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under this subchapter; or |
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(8) was convicted of a felony or was convicted of a |
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misdemeanor involving moral turpitude or fraud. |
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SECTION 8. Section 1111.006, Insurance Code, as effective |
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April 1, 2009, is amended to read as follows: |
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Sec. 1111.006. APPLICABILITY OF OTHER INSURANCE LAWS. The |
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following laws apply to a provider or a person engaged in the |
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business of [life or] viatical settlements: |
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(1) Chapters 82, 83, 84, 481, 541, and 701; |
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(2) Sections 31.002, 32.021, 32.023, 32.041, 38.001, |
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81.004, 86.001, 86.051, 86.052, 201.004, 401.051, 401.054, |
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401.151(a), 521.003, 521.004, 543.001(c), 801.056, and 862.052; |
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(3) Subchapter A, Chapter 32; |
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(4) Subchapter C, Chapter 36; |
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(5) Subchapter B, Chapter 404; and |
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(6) Subchapter B, Chapter 491. |
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SECTION 9. Subchapter A, Chapter 1111, Insurance Code, is |
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amended by adding Sections 1111.007, 1111.008, and 1111.009 to read |
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as follows: |
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Sec. 1111.007. DISCLOSURE TO INSURER. (a) In addition to |
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other questions an insurer may lawfully pose to an applicant for |
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life insurance, an insurer may inquire in the application for |
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insurance whether the proposed owner intends to pay premiums with |
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the assistance of financing from a lender who will use the policy as |
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collateral for a premium finance loan used to support the |
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financing. |
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(b) If the premium finance loan provides funds that can be |
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used for a purpose other than paying for the premiums, costs, and |
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expenses associated with obtaining and maintaining the life |
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insurance policy and loan, the application may be rejected as a |
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prohibited practice. |
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(c) If the financing does not violate Subsection (b) or the |
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insurer's lawful underwriting guidelines, the insurer may not |
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reject the application solely because the premiums will be |
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financed. The insurer may make disclosures to the applicant, on |
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either the application or an amendment to the application, to be |
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completed not later than the date the policy is delivered, that |
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include the following: |
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"If you have entered into a loan arrangement under which the |
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policy is used as collateral, and the policy changes ownership at |
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some point in the future in satisfaction of the loan, the following |
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may be true: |
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(A) a change of ownership could lead to a stranger |
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owning an interest in the insured's life; and |
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(B) a change of ownership could in the future limit |
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your ability to purchase insurance on the insured's life because |
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there is a limit to how much coverage insurers will issue on one |
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life. |
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You should consult a professional adviser, since a change in |
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ownership in satisfaction of the loan may result in tax |
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consequences to the owner, depending on the structure of the loan." |
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(d) The insurer may also require certifications from the |
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applicant for insurance coverage or the insured, such as the |
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following: |
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"(A) I have not entered into any agreement or |
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arrangement under which I have agreed to make a future sale of this |
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life insurance policy."; |
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"(B) My loan arrangement for this policy provides |
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funds sufficient to pay for some or all of the premiums, costs, and |
|
expenses associated with obtaining and maintaining my life |
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insurance policy, but I have not entered into any agreement under |
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which I am to receive consideration in exchange for procuring this |
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policy."; and |
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"(C) The borrower has an insurable interest in the |
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insured." |
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Sec. 1111.008. GENERAL REQUIREMENTS REGARDING LIFE |
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SETTLEMENT CONTRACTS. (a) Effective September 1, 2009, a person |
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may not enter into a life settlement contract during any period |
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before or on the date of the application for or the issuance of an |
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insurance policy, or during a period before the second anniversary |
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of issuance of the policy, regardless of the date: |
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(1) the compensation is to be provided; or |
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(2) the assignment, transfer, sale, devise, bequest, |
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or surrender of the policy is to occur. |
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(b) The prohibition under Subsection (a) does not apply if |
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the owner certifies to the provider that: |
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(1) the policy was issued on the owner's exercise of |
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conversion rights arising out of a group or individual policy, if |
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the total time covered under the conversion policy plus the time |
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covered under the prior policy is at least 24 months, and the time |
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covered under a group policy is computed without regard to a change |
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in insurers if the coverage has been continuous and under the same |
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group sponsorship; or |
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(2) the owner submits independent evidence to the |
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provider that one or more of the following conditions have been met |
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within the 24-month period: |
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(A) the owner or insured is terminally or |
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chronically ill; |
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(B) the owner or insured disposes of the |
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ownership interests in a closely held corporation under the terms |
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of a buyout or other similar agreement in effect at the time the |
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insurance policy was initially issued; |
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(C) the owner's spouse dies; |
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(D) the owner divorces his or her spouse; |
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(E) the owner retires from full-time employment; |
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(F) the owner becomes physically or mentally |
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disabled and a physician determines that the disability prevents |
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the owner from maintaining full-time employment; or |
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(G) on the application of a creditor of the |
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owner, a final order, judgment, or decree is entered by a court of |
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competent jurisdiction: |
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(i) adjudicating the owner bankrupt or |
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insolvent; |
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(ii) approving a petition seeking |
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reorganization of the owner; or |
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(iii) appointing a receiver, trustee, or |
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liquidator to all or a substantial part of the owner's assets. |
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(c) Copies of the independent evidence required by |
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Subsection (b)(2) must be submitted to the insurer when the |
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provider submits a request to the insurer for verification of |
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coverage. The copies must be accompanied by a letter from the |
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provider attesting that the copies are true and correct copies of |
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the documents received by the provider. Nothing in this subsection |
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affects the right of an insurer to contest the validity of any |
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insurance policy. |
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(d) If the provider submits to the insurer a copy of |
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independent evidence under Subsection (b)(2) on submission of a |
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request to the insurer to effect the transfer of the policy to the |
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provider, the copy is deemed to establish that the life settlement |
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contract satisfies the requirements of this section. |
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Sec. 1111.009. REPORTING REQUIREMENTS AND PRIVACY. (a) |
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Each registered provider shall file with the commissioner on or |
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before March 1 of each year an annual statement containing the |
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information the commissioner prescribes by rule. |
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(b) In addition to any other information required by |
|
commissioner rule, the annual statement required under Subsection |
|
(a) must specify: |
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(1) the total number, aggregate face amount, and life |
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settlement proceeds of insurance policies settled during the |
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immediately preceding calendar year; and |
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(2) a breakdown of the information described by |
|
Subdivision (1) by policy issue year. |
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(c) The information required under Subsection (b) is |
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limited to transactions in which the owner is a resident of this |
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state and does not include: |
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(1) individual transaction information regarding the |
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business of life settlements; or |
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(2) information that reasonably could be used to |
|
identify the owner or the insured. |
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(d) Each provider who wilfully fails to file the annual |
|
statement required by this section, or who wilfully fails to reply |
|
not later than the 30th day after the date of a written inquiry by |
|
the department in connection with the annual statement, is subject, |
|
after notice and an opportunity for a hearing, to an administrative |
|
penalty of up to $250 per day of delay, not to exceed $25,000 in the |
|
aggregate, for each failure. A penalty imposed under this |
|
subsection is in addition to other penalties provided by this |
|
chapter. |
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(e) Except as otherwise allowed or required by law, a |
|
provider, broker, insurer, agent, information bureau, or rating |
|
agency or company, or any other person with actual knowledge of an |
|
insured's identity, may not disclose the identity of an insured, or |
|
information that reasonably could be used to identify the insured |
|
or the insured's financial or medical information, to any other |
|
person unless the disclosure: |
|
(1) is necessary to effect a life settlement contract |
|
between the owner and a provider and the owner and insured have |
|
provided prior written consent to the disclosure; |
|
(2) is necessary to effect the sale of life settlement |
|
contracts, or interests in those contracts, as investments, if: |
|
(A) the sale is conducted in accordance with |
|
applicable state and federal securities laws; and |
|
(B) the owner and the insured have both provided |
|
prior written consent to the disclosure; |
|
(3) is provided: |
|
(A) in response to an investigation or |
|
examination by the commissioner or any other governmental officer |
|
or agency; or |
|
(B) under the investigation of fraud |
|
requirements of Subtitle F, Title 5; |
|
(4) is a term or condition to the transfer of a policy |
|
by one provider to another provider, in which case the receiving |
|
provider is required to comply with the confidentiality |
|
requirements of this section; |
|
(5) is necessary to allow the provider or broker or |
|
their authorized representatives to make contacts for the purpose |
|
of determining health status; or |
|
(6) is required to purchase stop loss coverage. |
|
(f) For the purposes of Subsection (e)(5), the term |
|
"authorized representative" does not include a person who has or |
|
may have any financial interest in the life settlement contract |
|
other than a provider, licensed broker, financing entity, related |
|
provider trust, or special purpose entity. A provider or broker |
|
must require its authorized representative to agree in writing to |
|
adhere to the privacy provisions of this subchapter. |
|
(g) Nonpublic personal information solicited or obtained in |
|
connection with a proposed or actual life settlement contract is |
|
subject to the provisions applicable to financial institutions |
|
under 15 U.S.C. Section 6801 et seq. and all other state and federal |
|
laws relating to confidentiality of nonpublic personal |
|
information. |
|
SECTION 10. Section 1111.001(1), Insurance Code, is |
|
repealed. |
|
SECTION 11. The commissioner of insurance shall adopt all |
|
rules necessary to implement Chapter 1111, Insurance Code, as |
|
amended by this Act, not later than March 1, 2010. |
|
SECTION 12. This Act applies only to a life settlement |
|
contract entered into or renewed on or after January 1, 2010. A |
|
life settlement contract entered into or renewed before January 1, |
|
2010, is governed by the law as it existed immediately before the |
|
effective date of this Act, and that law is continued in effect for |
|
that purpose. |
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SECTION 13. This Act takes effect September 1, 2009. |