|
|
|
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. |