84R6810 PMO-D

By: Workman H.B. No. 3723

A BILL TO BE ENTITLED

AN ACT

relating to the regulation of secondary market transactions related to the business of life settlements; providing penalties; authorizing fees.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 1111A.002, Insurance Code, is amended by amending Subdivisions (1), (2), (3), (7), (8), (9), (13), (18), and (20) and adding Subdivisions (1-A), (8-A), (25), (26), and (27) to read as follows:

(1) "Accredited investor" has the meaning assigned by 17 C.F.R. Section 230.501.

(1-A) "Advertisement" means a written, electronic, or printed communication or a communication by means of a recorded telephone message or transmitted on radio, television, the Internet, or similar communications media, including film strips, motion pictures, and videos, published, disseminated, circulated, or placed directly before the public for the purpose of creating an interest in or inducing a person to:

(A) purchase or sell, assign, devise, bequest, or transfer the death benefit or ownership of a life insurance policy or an interest in a life insurance policy under a life settlement contract; or

(B) enter into a secondary market transaction.

(2) "Broker" means a person who, on behalf of an owner and for a fee, commission, or other valuable consideration, offers or attempts to negotiate a life settlement contract between an owner and a provider or estimates life expectancies on behalf of an owner for a life settlement contract. A broker who offers or attempts to negotiate a life settlement contract represents only the owner and owes a fiduciary duty to the owner to act according to the owner's instructions, and in the best interest of the owner, notwithstanding the manner in which the broker is compensated. A broker does not include an attorney, certified public accountant, or financial planner retained in the type of practice customarily performed in a professional capacity to represent the owner whose compensation is not paid directly or indirectly by the provider or any other person, except the owner.

(3) "Business of life settlements" means an activity involved in, but not limited to, offering to enter into, soliciting, negotiating, procuring, effectuating, monitoring, or tracking, of:

(A) life settlement contracts; or

(B) secondary market transactions.

(7) "Fraudulent life settlement act" includes:

(A) an act or omission committed by a person who, knowingly and with intent to defraud, for the purpose of depriving another of property or for pecuniary gain, commits, or permits an employee or an agent to engage in, acts including:

(i) presenting, causing to be presented, or preparing with knowledge and belief that it will be presented to or by a provider, premium finance lender, broker, insurer, insurance agent, secondary provider, investor, or any other person, false material information, or concealing material information, as part of, in support of, or concerning a fact material to one or more of the following:

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

(b) the underwriting of a life settlement contract or an insurance policy;

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

(d) premium paid on an insurance policy;

(e) payment for and changes in ownership or beneficiary made in accordance with the terms of a life settlement contract or an insurance policy;

(f) the reinstatement or conversion of an insurance policy;

(g) in the solicitation, offer to enter into, or effectuation of a life settlement contract, [or] an insurance policy, or a secondary market transaction;

(h) the issuance of written evidence of an insurance policy, a life settlement contract, [contracts] or a secondary market transaction [insurance]; or

(i) an application for or the existence of or any payment related to a loan secured directly or indirectly by an interest in a life insurance policy;

(ii) failing to disclose to the insurer, if the insurer has requested the disclosure, that the prospective insured has undergone a life expectancy evaluation by any person or entity other than the insurer or its authorized representatives in connection with the issuance of the policy; or

(iii) employing a device, scheme, or artifice to defraud in the business of life settlements; and

(B) acts or omissions in the furtherance of a fraud or to prevent the detection of a fraud, or acts or omissions that permit an employee or an agent to:

(i) remove, conceal, alter, destroy, or sequester from the commissioner the assets or records of a license holder or another person engaged in the business of life settlements;

(ii) misrepresent or conceal the financial condition of a license holder, financing entity, insurer, investor, or other person;

(iii) transact the business of life settlements in violation of laws requiring a license, certificate of authority, or other legal authority for the transaction of the business of life settlements;

(iv) file with the commissioner or the chief insurance regulatory official of another jurisdiction a document containing false information or concealing information about a material fact;

(v) engage in embezzlement, theft, misappropriation, or conversion of monies, funds, premiums, credits, or other property of a provider, insurer, insured, owner, insurance policy owner, secondary provider, investor, or any other person engaged in the business of life settlements or insurance;

(vi) knowingly and with intent to defraud, enter into, broker, or otherwise deal in a life settlement contract, the subject of which is a life insurance policy, or in a secondary market transaction related to a life insurance policy, if the policy [that] was obtained by presenting false information concerning any fact material to the policy or by concealing that fact, for the purpose of misleading another, or providing information concerning any fact material to the policy, if the owner or the owner's agent intended to defraud the policy's issuer;

(vii) attempt to commit, assist, aid or abet in the commission of, or engage in conspiracy to commit the acts or omissions specified in this paragraph; or

(viii) misrepresent the state of residence of an owner, secondary provider, or investor to be a state or jurisdiction that does not have a law substantially similar to this chapter with respect to the interest of the owner, secondary provider, or investor, as applicable, for the purpose of evading or avoiding the provisions of this chapter.

(8) "Insured" means a person covered under the policy being considered for sale in a life settlement contract or related to a secondary market transaction.

(8-A) "Investor" means, except to the extent otherwise clear from context, a person who is offered or obtains an interest in a life settlement contract from a secondary provider in a secondary market transaction.

(9) "Life expectancy" means the arithmetic mean of the number of months the insured under the life insurance policy to be settled or related to a secondary market transaction can be expected to live [as determined by a life expectancy company or provider] considering medical records and appropriate experiential data.

(13) "Owner" means the owner of a life insurance policy or a certificate holder under a group policy, with or without a terminal illness, who enters or seeks to enter into a life settlement contract. In this chapter, the term "owner" is not limited to an owner of a life insurance policy or a certificate holder under a group policy that insures the life of an individual with a terminal or chronic illness or condition except as specifically provided. The term does not include:

(A) a provider or other license holder under this chapter;

(B) a qualified institutional buyer as defined by 17 C.F.R. Section 230.144A, as amended;

(C) a financing entity;

(D) a special purpose entity; [or]

(E) a related provider trust; or

(F) any person who holds an interest in a life settlement contract as a result of a secondary market transaction.

(18) "Provider" means a person, other than an owner, who enters into or effectuates a life settlement contract with an owner. The term does not include:

(A) a bank, savings bank, savings and loan association, or credit union;

(B) a licensed lending institution or creditor or secured party pursuant to a premium finance loan agreement that takes an assignment of a life insurance policy or certificate issued pursuant to a group life insurance policy as collateral for a loan;

(C) the insurer of a life insurance policy or rider to the extent of providing accelerated death benefits or riders under Subchapter B, Chapter 1111, or cash surrender value;

(D) an individual who enters into or effectuates not more than one agreement in a calendar year for the transfer of a life insurance policy or certificate issued pursuant to a group life insurance policy, for compensation or anything of value less than the expected death benefit payable under the policy;

(E) a purchaser;

(F) any authorized or eligible insurer that provides stop loss coverage to a provider, purchaser, financing entity, special purpose entity, or related provider trust;

(G) a financing entity;

(H) a special purpose entity;

(I) a related provider trust;

(J) a broker; [or]

(K) an accredited investor or qualified institutional buyer as those terms are defined by 17 C.F.R. Sections 230.501 and 230.144A, respectively, as amended, who purchases a life insurance [settlement] policy or a certificate issued pursuant to a life insurance policy from a provider or a secondary provider; or

(L) a secondary provider.

(20) "Purchaser" means a person who, in a transaction other than a secondary market transaction, pays compensation or anything of value as consideration for a beneficial interest in a trust that is vested with, or for the assignment, transfer, or sale of, an ownership or other interest in a life insurance policy or a certificate issued pursuant to a group life insurance policy that has been the subject of a life settlement contract.

(25) "Prospectus" means a written, electronic, or printed communication or a communication by other means published, disseminated, circulated, or placed before an investor for the purpose of creating an interest in or inducing an investor to purchase, sell, or assign an ownership interest in a life settlement contract.

(26) "Secondary market transaction" means to offer to sell an interest in a life settlement contract or to solicit, negotiate, procure, effectuate, monitor, track the sale of, or sell an interest in a life settlement contract.

(27) "Secondary provider" means a person, other than an investor, offering to enter into a secondary market transaction whether for a fee, commission, or other valuable consideration or otherwise.

SECTION 2. Section 1111A.003, Insurance Code, is amended by adding Subsections (a-1), (a-2), (a-3), (a-4), and (e-1) and amending Subsections (b), (c), (g), (j), (m), (n), and (o) to read as follows:

(a-1) A person, wherever located, may not act as a secondary provider in a transaction involving an investor who is a resident of this state unless the person holds a license from the department under this chapter.

(a-2) A person may not act as a secondary provider in this state unless the person holds a license from the department under this chapter.

(a-3) Except as provided by Subsection (a-4), a person may not provide a life expectancy estimate in connection with a life settlement or secondary market transaction in which a party is a resident of this state unless the person holds a license as a life expectancy estimator from the department under this chapter.

(a-4) Subsection (a-3) does not require additional licensing of a licensed broker acting as a life expectancy estimator only on behalf of an owner.

(b) An application for a provider, [or] broker, secondary provider, or life expectancy estimator license must be made to the department by the applicant on a form prescribed by the commissioner. The application must be accompanied by a fee in an amount established by the commissioner by rule. The license and renewal fees for a provider, secondary provider, or life expectancy estimator license must be reasonable and the license and renewal fees for a broker license may not exceed those established for an insurance agent, as otherwise provided by this chapter.

(c) A person who has been licensed as a life insurance agent in this state or the person's home state for at least one year and is licensed as a nonresident agent in this state meets the licensing requirements of this section and may operate as a broker, but may not act as a provider or secondary provider without holding a license under this chapter.

(e-1) An insurer that issued a policy related to a secondary market transaction is not responsible for any act or omission of a secondary provider arising out of or in connection with the transaction, unless the insurer receives compensation from the secondary provider in connection with the transaction.

(g) A license expires on the second anniversary of the date of issuance. A license holder may renew the license on payment of a renewal fee. As specified by Subsection (b), the renewal fee for a provider, secondary provider, or life expectancy estimator license may not exceed a reasonable fee.

(j) After the filing of an application and the payment of the license fee, the commissioner shall investigate each applicant and may issue a license if the commissioner finds that the applicant:

(1) if a provider or secondary provider, has provided a detailed plan of operation;

(2) is competent and trustworthy and intends to transact business in good faith;

(3) has a good business reputation and has had experience, training, or education to qualify in the business for which the license is applied;

(4) if the applicant is a legal entity, is formed or organized under the laws of this state or is a foreign legal entity authorized to transact business in this state, or provides a certificate of good standing from the state of its domicile; and

(5) if a broker, provider, or secondary provider, has provided to the commissioner an antifraud plan that meets the requirements of Section 1111A.022 and includes:

(A) a description of the procedures for detecting and investigating possible fraudulent acts and procedures for resolving material inconsistencies between medical records and insurance applications or information provided by a provider, secondary provider, life expectancy estimator, or other person in connection with a secondary market transaction;

(B) a description of the procedures for reporting fraudulent insurance or life settlement acts to the commissioner;

(C) a description of the plan for antifraud education and training of its underwriters and other personnel; and

(D) a written description or chart outlining the arrangement of the antifraud personnel who are responsible for the investigation and reporting of possible fraudulent insurance or life settlement acts and the investigation of unresolved material inconsistencies between medical records and insurance applications or information provided by a provider, secondary provider, life expectancy estimator, or other person in connection with a secondary market transaction.

(m) A provider or secondary provider may not allow any other person to perform the functions of a broker, secondary provider, or life expectancy estimator unless the person holds a current, valid license as a broker, secondary provider, or life expectancy estimator, as applicable, and as provided in this section.

(n) A broker may not allow any person to perform the functions of a provider, secondary provider, or life expectancy estimator unless the person holds a current, valid license as a provider, secondary provider, or life expectancy estimator, as applicable, and as provided in this section.

(o) A provider, [or] broker, secondary provider, or life expectancy estimator shall provide to the commissioner new or revised information about officers, stockholders described by Subsection (h), partners, directors, members, or designated employees within 30 days of the change.

SECTION 3. Section 1111A.004(a), Insurance Code, is amended to read as follows:

(a) The commissioner may suspend, revoke, or refuse to renew the license of a license holder if the commissioner finds that:

(1) there was a material misrepresentation in the application for the license;

(2) the license holder or an officer, partner, member, or director of the license holder has been guilty of fraudulent or dishonest practices, is subject to a final administrative action, or is otherwise shown to be untrustworthy or incompetent to act as a license holder;

(3) the license holder is a provider or secondary provider and demonstrates a pattern of unreasonably withholding payments to policy owners or investors, as applicable;

(4) the license holder no longer meets the requirements for initial licensure;

(5) the license holder or any officer, partner, member, or director of the license holder has been convicted of a felony, or of any misdemeanor with respect to which criminal fraud is an element, or has pleaded guilty or nolo contendere with respect to a felony or a misdemeanor with respect to which criminal fraud or moral turpitude is an element, regardless of whether a judgment of conviction has been entered by the court;

(6) the license holder is a provider and has entered into a life settlement contract using a form that has not been approved under this chapter;

(7) the license holder is a secondary provider and has entered into a secondary market transaction using a form or prospectus that has not been approved under this chapter;

(8) the license holder is a provider and has failed to honor contractual obligations in a life settlement contract;

(9) [(8)] the license holder is a provider and has assigned, transferred, or pledged a settled policy to a person other than a provider or secondary provider licensed in this state, a purchaser, an accredited investor or qualified institutional buyer as defined respectively in 17 C.F.R. Sections 230.501 and [Section] 230.144A, as amended, a financing entity, a special purpose entity, or a related provider trust; [or]

(10) [(9)] the license holder or any officer, partner, member, or key management personnel of the license holder has violated this chapter; or

(11) the license holder is a secondary provider and has entered into a secondary market transaction with a person who is not an accredited investor.

SECTION 4. The heading to Section 1111A.005, Insurance Code, is amended to read as follows:

Sec. 1111A.005. REQUIREMENTS FOR CONTRACT FORMS, DISCLOSURE AND PROSPECTUS FORMS, AND ADVERTISEMENTS.

SECTION 5. Section 1111A.005, Insurance Code, is amended by amending Subsection (b) and adding Subsection (e) to read as follows:

(b) An insurer may not, as a condition of responding to a request for verification of coverage or in connection with the transfer of a policy pursuant to a life settlement contract or secondary market transaction, require that the owner, insured, provider, [or] broker, secondary provider, or investor sign any form, disclosure, consent, waiver, or acknowledgment that has not been expressly approved by the commissioner for use in connection with life settlement contracts or secondary market transactions, as applicable.

(e) A person may not use a prospectus or any other form in connection with a secondary market transaction before the 31st day after the date the form is filed with the commissioner. The commissioner shall disapprove a form filed under this subsection if, in the commissioner's opinion, the form fails to meet the applicable requirements of Sections 1111A.011, 1111A.012, 1111A.014, and 1111A.023(d) or is unreasonable, contrary to the interests of the public, or otherwise misleading or unfair. A form filed under this subsection that is not affirmatively approved or disapproved in a written order of the commissioner on or before the 30th day the form is filed is considered approved.

SECTION 6. Section 1111A.006, Insurance Code, is amended by adding Subsections (a-1), (a-2), and (b-1) and amending Subsections (c), (d), and (e) to read as follows:

(a-1) Each secondary provider shall file with the commissioner not later than March 1 of each year an annual statement containing the information that the commissioner prescribes by rule. In addition to any other requirements, the annual statement must specify for life settlement contracts involved in secondary market transactions occurring during the preceding calendar year:

(1) the total number of related purchased policies;

(2) the aggregate face amount of the policies;

(3) the aggregate premium amount of the policies;

(4) the premium payment periods for the policies; and

(5) the aggregate life proceeds paid to the secondary provider.

(a-2) An annual statement under Subsection (a-1) must also include the names of each life expectancy estimator and escrow agent, if any, employed by the secondary provider with respect to a secondary market transaction.

(b-1) The information required under Subsections (a-1) and (a-2) is limited to only those secondary market transactions in which the secondary provider or the investor is a resident of this state and may not include individual transaction data regarding the business of life settlements or information if there is a reasonable basis to find that the information could be used to identify the owner or the insured.

(c) A provider or secondary provider that wilfully fails to file an annual statement as required in this section, or wilfully fails to reply not later than the 30th day after the date the provider or secondary provider receives a written inquiry from the department about the filing of the annual statement, shall, in addition to other penalties provided by this chapter, after notice and opportunity for hearing be subject to a penalty of up to $250 for each day of delay, not to exceed $25,000 in the aggregate, for the failure to file or respond.

(d) Except as otherwise allowed or required by law, a provider, broker, insurance company, insurance agent, information bureau, rating agency or company, secondary provider, investor, or any other person with actual knowledge of an insured's identity, may not disclose the identity of an insured or information that there is a reasonable basis to believe could be used to identify the insured or the insured's financial or medical information to any other person unless the disclosure is:

(1) necessary to effect a life settlement contract between the owner and a provider or a secondary market transaction and the owner and insured have provided prior written consent to the disclosure;

(2) necessary to effectuate the sale of a life settlement contract, or interests in the contract, including a secondary market transaction, as an investment, provided the sale is conducted in accordance with this chapter and applicable state and federal securities law and provided further that the owner and the insured have both provided prior written consent to the disclosure;

(3) provided in response to an investigation or examination by the commissioner or another governmental officer or agency or under Section 1111A.018;

(4) a term or condition of the transfer of a policy by one provider to another licensed provider, in which case the receiving provider shall comply with the confidentiality requirements of this subsection;

(5) necessary to allow the provider, [or] broker, or secondary provider or the provider's, [or] broker's, or secondary provider's authorized representative to make contact for the purpose of determining health status provided that in this subdivision, authorized representative does not include a person who has or may have a financial interest in the settlement contract or secondary market transaction other than a provider, secondary provider, licensed broker, financing entity, related provider trust, or special purpose entity and that the provider, [or] broker, or secondary provider requires the authorized representative to agree in writing to adhere to the privacy provisions of this chapter; or

(6) required to purchase stop loss coverage.

(e) Nonpublic personal information solicited or obtained in connection with a proposed or actual life settlement contract or secondary market transaction is subject to the provisions applicable to financial institutions under the federal Gramm-Leach-Bliley Act (Pub. L. No. 106-102), and any other state and federal laws relating to confidentiality of nonpublic personal information.

SECTION 7. The heading to Section 1111A.011, Insurance Code, is amended to read as follows:

Sec. 1111A.011. ADVERTISING AND PROSPECTUSES.

SECTION 8. Section 1111A.011, Insurance Code, is amended by adding Subsection (a-1) and amending Subsection (b) to read as follows:

(a-1) A secondary provider licensed under this chapter may conduct or participate in an advertisement or deliver a prospectus in this state. The advertisement or prospectus must comply with all advertising and marketing laws under Chapter 541 and rules adopted by the commissioner that are applicable to life insurers or to license holders under this chapter.

(b) Advertisements and prospectuses shall be accurate, truthful, and not misleading in fact or by implication.

SECTION 9. Section 1111A.012(a), Insurance Code, is amended to read as follows:

(a) The broker, or the provider if no broker is involved in the application, shall provide in writing, in a separate document that is signed by the owner, the following information to the owner not later than the date of application for a life settlement contract:

(1) the fact that possible alternatives to life settlement contracts exist, including accelerated benefits offered by the issuer of the life insurance policy;

(2) the fact that some or all of the proceeds of a life settlement contract may be taxable and that assistance should be sought from a professional tax advisor;

(3) the fact that the proceeds from a life settlement contract could be subject to the claims of creditors;

(4) the fact that receipt of proceeds from a life settlement contract may adversely affect the recipients' eligibility for public assistance or other government benefits or entitlements and that advice should be obtained from the appropriate agency;

(5) the fact that the owner has a right to terminate a life settlement contract within 15 days of the date the contract is executed by all parties and the owner has received the disclosures described in this section, that rescission, if exercised by the owner, is effective only if both notice of the rescission is given and the owner repays all proceeds and any premiums, loans, and loan interest paid on account of the provider during the rescission period, and that if the insured dies during the rescission period, the contract is considered rescinded subject to repayment by the owner or the owner's estate of all proceeds and any premiums, loans, and loan interest to the provider;

(6) the fact that proceeds will be sent to the owner within three business days after the provider has received the insurer or group administrator's acknowledgement that ownership of the policy or interest in the certificate has been transferred and the beneficiary has been designated in accordance with the terms of the life settlement contract;

(7) the fact that entering into a life settlement contract may cause the owner to forfeit other rights or benefits, including conversion rights and waiver of premium benefits that may exist under the policy or certificate of a group policy, and that assistance should be sought from a professional financial advisor;

(8) the amount and method of calculating the compensation, including anything of value, paid or given, or to be paid or given, to the broker, or any other person acting for the owner in connection with the transaction;

(9) the date by which the funds will be available to the owner and the identity of the transmitter of the funds;

(10) the fact that the commissioner requires delivery of a buyer's guide or a similar consumer advisory package in the form prescribed by the commissioner to owners during the solicitation process;

(11) the following language: "All medical, financial, or personal information solicited or obtained by a provider or broker about an insured, including the insured's identity or the identity of family members or a spouse or a significant other, may be disclosed as necessary to effect the life settlement contract between the owner and 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.";

(12) the fact that the commissioner requires providers and brokers to print separate signed fraud warnings on the applications and on the life settlement contracts as follows: "Any person who knowingly presents false information in an application for insurance or a life settlement contract is guilty of a crime and may be subject to fines and confinement in prison.";

(13) the fact that the insured may be contacted by either the provider or broker or an authorized representative of the provider or broker for the purpose of determining the insured's health status or to verify the insured's address and that 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;

(14) the affiliation, if any, between the provider and the issuer of the insurance policy to be settled;

(15) that a broker represents exclusively the owner, and not the insurer or the provider or any other person, and owes a fiduciary duty to the owner, including a duty to act according to the owner's instructions and in the best interest of the owner;

(16) the name, address, and telephone number of the provider;

(17) the name, business address, and telephone number of the independent third party escrow agent, and the fact that the owner may inspect or receive copies of the relevant escrow or trust agreements or documents; [and]

(18) the fact that a change of ownership could in the future limit the insured's ability to purchase future insurance on the insured's life because there is a limit to how much coverage insurers will issue on one life; and

(19) the fact that the purchased policy or life settlement contract may be the subject of a secondary market transaction.

SECTION 10. Chapter 1111A, Insurance Code, is amended by adding Sections 1111A.0135 and 1111A.0136 to read as follows:

Sec. 1111A.0135. DISCLOSURES TO INVESTORS. (a) A secondary provider shall provide to investors, in a separate document that is signed by the investors, written disclosures as required by rule adopted by the commissioner.

(b) The disclosures described by Subsection (a) must be provided to the investor not less than seven days before the date the secondary market transaction closes.

(c) The failure to provide the written disclosures described by Subsection (a) is an unfair method of competition or an unfair or deceptive act or practice.

Sec. 1111A.0136. LIMITATION ON SECONDARY MARKET TRANSACTIONS. A secondary provider may enter into a secondary market transaction only with an accredited investor.

SECTION 11. Section 1111A.014, Insurance Code, is amended by amending Subsections (a), (b), (c), and (d) and adding Subsection (g-1) to read as follows:

(a) Before entering into a life settlement contract with an owner of a policy with respect to which the insured is terminally or chronically ill, the provider must obtain:

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

(2) a document in which the insured consents to the release of medical records to a provider, settlement broker, [or] insurance agent, secondary provider, or investor and, if the policy was issued less than two years after the date of application for a settlement contract, to the insurance company that issued the policy.

(b) An insurer shall respond to a request for verification of coverage submitted by a provider, settlement broker, [or] life insurance agent, secondary provider, or investor not later than the 30th calendar day after the date the request is received. The request for verification of coverage must be made on a form approved by the commissioner. The insurer shall complete and issue the verification of coverage or indicate in which respects the insurer is unable to respond. In the response, the insurer shall indicate whether at the time of the response, based on the medical evidence and documents provided, the insurer intends to pursue an investigation about the validity of the insurance contract.

(c) On or before the date of execution of the life settlement contract, the provider shall obtain a witnessed document in which the owner consents to the settlement contract, represents that the owner has a full and complete understanding of the settlement contract and of the benefits of the policy, acknowledges that the owner is entering into the settlement contract freely and voluntarily, acknowledges that the purchased policy or contract may be the subject of a secondary market transaction, and, for persons with a terminal or chronic illness or condition, acknowledges that the insured has a terminal or chronic illness and that the terminal or chronic illness or condition was diagnosed after the policy was issued.

(d) The insurer may not unreasonably delay effecting change of ownership or beneficiary with any life settlement contract or secondary market transaction lawfully entered into in this state or with a resident of this state.

(g-1) Not later than the 20th day after the date that a secondary market transaction closes, the secondary provider shall give written notice to the insurer that issued the purchased policy that is subject to a life settlement contract that the contract has become subject to a secondary market transaction. The notice shall be accompanied by the documents required by Section 1111A.0135.

SECTION 12. Sections 1111A.015(a) and (b), Insurance Code, are amended to read as follows:

(a) The commissioner may adopt rules implementing this chapter and regulating the activities and relationships of providers, brokers, insurers, secondary providers, investors, and their authorized representatives.

(b) The commissioner may not adopt a rule establishing a price or fee for the sale or purchase of a life settlement contract or for a secondary market transaction. 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 contract or for a secondary market transaction.

SECTION 13. Section 1111A.016, Insurance Code, is amended by adding Subsection (d) to read as follows:

(d) A secondary provider licensed in this state who enters into a secondary market transaction with an investor who is a resident of another state that has enacted statutes or adopted rules governing secondary market transactions is governed with respect to that secondary market transaction by the statutes and rules of the investor's state of residence. If the state in which the investor is a resident has not enacted statutes or adopted rules governing secondary market transactions, the secondary provider shall give the investor notice that the secondary provider:

(1) is governed by the statutes and rules of this state; and

(2) must maintain all records required by this chapter.

SECTION 14. Section 1111A.017(a), Insurance Code, is amended to read as follows:

(a) A person may not:

(1) enter into a life settlement contract or a secondary market transaction if the person knows or reasonably should have known that:

(A) the life insurance policy was obtained by means of a false, deceptive, or misleading application for the life insurance policy; or

(B) the purchased policy or life settlement contract was obtained by means of a false, deceptive, or misleading act or practice;

(2) engage in a transaction, practice, or course of business if the person knows or reasonably should have known that the intent of engaging in the transaction, practice, or course of business is to avoid the notice requirements of this chapter;

(3) engage in a fraudulent act or practice in connection with:

(A) a transaction relating to any settlement involving an owner who is a resident of this state; or

(B) a secondary market transaction involving a secondary provider or investor who is a resident of this state;

(4) issue, solicit, market, or otherwise promote the purchase of an insurance policy for the purpose of, or with an emphasis on, settling the policy;

(5) if providing premium financing, receive any proceeds, fee, or other consideration from the policy or owner in addition to the amounts required to pay principal, interest, and any reasonable costs or expenses incurred by the lender or borrower in connection with the premium finance agreement, except in event of a default, unless either the default on the loan or transfer of the policy occurs pursuant to an agreement or understanding with any other person for the purpose of evading regulation under this chapter;

(6) with respect to any settlement contract or insurance policy and to a broker, knowingly solicit an offer from, effectuate a life settlement contract with, or make a sale to any provider, financing entity, or related provider trust that is controlling, controlled by, or under common control with the broker unless the relationship is fully disclosed to the owner;

(7) with respect to any life settlement contract or insurance policy and a provider, knowingly enter into a life settlement contract with an owner if, in connection with the life settlement contract, anything of value will be paid to a broker that is controlling, controlled by, or under common control with the provider or the financing entity or related provider trust that is involved in such settlement contract, unless the relationship is fully disclosed to the owner;

(8) with respect to a provider, enter into a life settlement contract unless the life settlement promotional, advertising, and marketing materials, as may be prescribed by rule, have been filed with the commissioner, provided that in no event may any marketing materials expressly reference that the insurance is free for any period of time; [or]

(9) with respect to any life insurance agent, insurance company, broker, or provider, make any statement or representation to the applicant or policyholder in connection with the sale or financing of a life insurance policy to the effect that the insurance is free or without cost to the policyholder for any period of time unless provided in the policy; or

(10) with respect to a secondary provider:

(A) enter into a secondary market transaction unless the prospectus and forms, as required by statute or may be prescribed by rule, have been filed with or approved by the commissioner, as applicable; or

(B) make any statement or representation to an investor in connection with a secondary market transaction that is false, misleading, or deceptive.

SECTION 15. Section 1111A.018(d), Insurance Code, is amended to read as follows:

(d) A life settlement contract, [and] an application for a life settlement contract, a purchased policy, a prospectus, and a contract in a secondary market transaction, regardless of the form of transmission, must contain the following, or a substantially similar, statement: "Any person who knowingly presents false information in an application for insurance, [or] a life settlement contract, a purchased policy, a prospectus, or a contract in a secondary market transaction is guilty of a crime and may be subject to fines and confinement in prison."

SECTION 16. Section 1111A.021, Insurance Code, is amended to read as follows:

Sec. 1111A.021. OTHER LAW ENFORCEMENT OR REGULATORY AUTHORITY. (a) This chapter does not:

(1) except as provided by Subsection (b) preempt the authority or relieve the duty of another law enforcement or regulatory agency to investigate, examine, and prosecute a suspected violation of law;

(2) except as provided by Subsection (b) preempt, supersede, or limit any provision of any state securities law or any rule, order, or notice issued under the law;

(3) prevent or prohibit a person from disclosing voluntarily information concerning life settlement fraud or fraud in a secondary market transaction to a law enforcement or regulatory agency other than the department; or

(4) limit the powers granted by the laws of this state to the commissioner or an insurance fraud unit to investigate and examine a possible violation of law and to take appropriate action against wrongdoers.

(b) A secondary market transaction deemed not to involve a public offering under 17 C.F.R. Section 230.506 under the Securities Act of 1933 (15 U.S.C. Section 77a et seq.) may not be considered a security under The Securities Act (Article 581-1 et seq., Vernon's Texas Civil Statutes).

SECTION 17. Section 1111A.022(a), Insurance Code, is amended to read as follows:

(a) A provider, [or] broker, or secondary provider shall implement antifraud initiatives reasonably calculated to detect, prosecute, and prevent fraudulent life settlement acts. At the discretion of the commissioner, the commissioner may order, or a license holder may request and the commissioner may grant, a modification of the following required initiatives as necessary to ensure an effective antifraud program. A modification granted under this section may be more or less restrictive than the required initiatives so long as the modification may reasonably be expected to accomplish the purpose of this section. Antifraud initiatives must include:

(1) fraud investigators, who may be provider, secondary provider, or broker employees or independent contractors; and

(2) an antifraud plan, which must be submitted to the commissioner and must include:

(A) a description of the procedures for detecting and investigating possible fraudulent life settlement acts and procedures for resolving material inconsistencies between medical records and insurance applications or information provided by a provider, secondary provider, life expectancy estimator, or other person in connection with a secondary market transaction;

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

(C) a description of the plan for antifraud education and training of underwriters and other personnel; and

(D) a description or chart outlining the organizational arrangement of the antifraud personnel who are responsible for the investigation and reporting of possible fraudulent life settlement acts and investigating unresolved material inconsistencies between medical records and insurance applications.

SECTION 18. Section 1111A.023(d), Insurance Code, is amended to read as follows:

(d) The provisions of this chapter may not be waived by agreement. No choice of law provision may prevent the application of this chapter to any life settlement or secondary market transaction.

SECTION 19. Section 1111A.024(a), Insurance Code, is amended to read as follows:

(a) It is a violation of this chapter for any person, provider, broker, secondary provider, or any other party related to the business of life settlements to commit a fraudulent life settlement act.

SECTION 20. Section 1111A.026, Insurance Code, is amended to read as follows:

Sec. 1111A.026. APPLICABILITY OF CERTAIN PROVISIONS TO CERTAIN LIFE EXPECTANCY ESTIMATORS. (a) The following provisions do not apply to a broker who acts solely as a life expectancy estimator on behalf of an owner:

(1) Section 1111A.003(p);

(2) Section 1111A.012; and

(3) Sections 1111A.014(l) and (m).

(b) The commissioner may exempt a broker who acts only as a life expectancy estimator on behalf of an owner from other provisions of this chapter if the commissioner finds that the application of those provisions to the broker is not necessary for the public welfare.

SECTION 21. A secondary provider or life expectancy estimator other than a broker lawfully transacting business in this state before the effective date of this Act may continue to do so pending approval or disapproval of the person's application for a license as long as the application is filed with the commissioner of insurance not later than the 30th day after the date of the publication by the commissioner of an application form and instructions for licensure of secondary providers and life expectancy estimators. If the publication of the application form and instructions is before the effective date of this Act, then the application must be filed not later than the 30th day after the effective date of this Act and the applicant may use in connection with a secondary market transaction any form or prospectus that has been filed with the commissioner pending approval or disapproval, provided that the form and prospectus are otherwise in compliance with the provisions of this Act. A person transacting business in this state under this provision shall comply with all other requirements of this Act.

SECTION 22. This Act takes effect September 1, 2015.