2009 -- S 0229

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LC01017

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2009

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A N A C T

RELATING TO INSURANCE -- LIFE SETTLEMENTS ACT

     Introduced By: Senators Walaska, and Bates

     Date Introduced: February 11, 2009

     Referred To: Senate Corporations

It is enacted by the General Assembly as follows:

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     SECTION 1. Title 27 of the General Laws entitled "INSURANCE" is hereby amended

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by adding thereto the following chapter:

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     CHAPTER 72

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LIFE SETTLEMENTS ACT

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     27-72-1. Title. – This chapter may be cited and shall be known as the "Life Settlements

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Act."

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     27-72-2. Definitions. – As used in this chapter:

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     (1) "Advertisement" means any written, electronic or printed communication or any

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communication by means of recorded telephone messages or transmitted on radio, television, the

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Internet or similar communications media, including film strips, motion pictures and videos,

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published, disseminated, circulated or placed before the public, directly or indirectly, for the

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purpose of creating an interest in or inducing a person to purchase or sell, assign, devise, bequest

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or transfer the death benefit or ownership of a life insurance policy or an interest in a life

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insurance policy pursuant to a life settlement contract.

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     (2) "Broker" means a person who, on behalf of an owner and for a fee, commission or

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other valuable consideration, offers or attempts to negotiate life settlement contracts between an

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owner and provider. A broker represents only the owner and owes a fiduciary duty to the owner

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to act according to the owner's instructions, and in the best interest of the owner, notwithstanding

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the manner in which the broker is compensated. A broker does not include an attorney, certified

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public accountant or financial planner retained in the type of practice customarily performed in

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their professional capacity to represent the owner whose compensation is not paid directly or

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indirectly by the provider or any other person, except the owner.

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     (3) "Business of life settlements" means an activity involved in, but not limited to,

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offering to enter into, soliciting, negotiating, procuring, effectuating, monitoring, or tracking, of

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life settlement contracts.

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     (4) "Chronically ill" means:

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     (i) Being unable to perform at least two (2) activities of daily living (i.e., eating, toileting,

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transferring, bathing, dressing or continence);

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     (ii) Requiring substantial supervision to protect the individual from threats to health and

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safety due to severe cognitive impairment; or

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     (iii) Having a level of disability similar to that described in subdivision (i) as determined

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by the United States Secretary of Health and Human Services.

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     (5) "Commissioner" means the director of the department of business regulation or his or

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her designee.

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     (6) "Financing entity" means an underwriter, placement agent, lender, purchaser of

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securities, purchaser of a policy or certificate from a provider, credit enhancer, or any entity that

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has a direct ownership in a policy or certificate that is the subject of a life settlement contract, but:

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      (i) Whose principal activity related to the transaction is providing funds to effect the life

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settlement contract or purchase of one or more policies; and

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     (ii) Who has an agreement in writing with one or more providers to finance the

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acquisition of life settlement contracts.

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     "Financing entity" does not include a non-accredited investor or purchaser.

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     (7) "Financing transaction" means a transaction in which a licensed provider obtains

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financing from a financing entity including, without limitation, any secured or unsecured

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financing, any securitization transaction, or any securities offering which either is registered or

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exempt from registration under federal and state securities law.

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     (8) "Fraudulent life settlement act" includes:

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     (i) Acts or omissions committed by any person who, knowingly and with intent to

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defraud, for the purpose of depriving another of property or for pecuniary gain, commits, or

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permits its employees or its agents to engage in acts including, but not limited to:

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     (A) Presenting, causing to be presented or preparing with knowledge and belief that it

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will be presented to or by a provider, premium finance lender, broker, insurer, insurance producer

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or any other person, false material information, or concealing material information, as part of, in

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support of, or concerning a fact material to one or more of the following:

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

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     (II) The underwriting of a life settlement contract or insurance policy;

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     (III) A claim for payment or benefit pursuant to a life settlement contract or insurance

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policy;

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     (IV) Premiums paid on an insurance policy;

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     (V) Payments and changes in ownership or beneficiary made in accordance with the

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terms of a life settlement contract or insurance policy;

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     (VI) The reinstatement or conversion of an insurance policy;

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     (VII) In the solicitation, offer to enter into, or effectuation of a life settlement contract, or

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insurance policy;

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     (VIII) The issuance of written evidence of life settlement contract or insurance;

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     (IX) Any application for or the existence of or any payments related to a loan secured

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directly or indirectly by any interest in a life insurance policy; or

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     (X) Enter into any practice or plan which involves stranger originated life insurance

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(STOLI).

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     (B) Failing to disclose to the insurer where the request for such disclosure has been asked

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for by the insurer that the prospective insured has undergone a life expectancy evaluation by any

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person or entity other than the insurer or its authorized representatives in connection with the

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issuance of the policy.

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     (C) Employing any device, scheme, or artifice to defraud in the business of life

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settlements.

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     (D) In the solicitation, application or issuance of a life insurance policy, employing any

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device, scheme or artifice in violation of state insurable interest laws.

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     (ii) In the furtherance of a fraud or to prevent the detection of a fraud any person commits

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or permits its employees or its agents to:

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     (A) Remove, conceal, alter, destroy or sequester from the commissioner the assets or

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records of a licensee or other person engaged in the business of life settlements;

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     (B) Misrepresent or conceal the financial condition of a licensee, financing entity, insurer

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or other person;

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     (C) Transact the business of life settlements in violation of laws requiring a license,

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certificate of authority or other legal authority for the transaction of the business of life

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settlements;

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     (D) File with the commissioner or the chief insurance regulatory official of another

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jurisdiction a document containing false information or otherwise concealing information about a

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material fact from the commissioner;

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     (E) Engage in embezzlement, theft, misappropriation or conversion of monies, funds,

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premiums, credits or other property of a provider, insurer, insured, owner, insurance, policy

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owner or any other person engaged in the business of life settlements or insurance;

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     (F) Knowingly and with intent to defraud, enter into, broker, or otherwise deal in a life

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settlement contract, the subject of which is a life insurance policy that was obtained by presenting

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false information concerning any fact material to the policy or by concealing, for the purpose of

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misleading another, information concerning any fact material to the policy, where the owner or

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the owner’s agent intended to defraud the policy’s issuer;

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     (G) Attempt to commit, assist, aid or abet in the commission of, or conspiracy to commit

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the acts or omissions specified in this subsection; or

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     (H) Misrepresent the state of residence of an owner to be a state or jurisdiction that does

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not have a law substantially similar to this chapter for the purpose of evading or avoiding the

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provisions of this chapter.

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     (9) "Insured" means the person covered under the policy being considered for sale in a

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life settlement contract.

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     (10) "Life expectancy" means the arithmetic mean of the number of months the insured

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under the life insurance policy to be settled can be expected to live as determined by a life

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expectancy company provider, broker, or financial entity considering medical records and

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appropriate experiential data.

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     (11) "Life insurance producer" means any person licensed in this state as a resident or

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nonresident insurance producer who has received qualification or authority for life insurance

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coverage or a life line of coverage pursuant to chapter 27-2.4.

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     (12) "Life settlement contract" means a written agreement entered into between a

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provider and an owner, establishing the terms under which compensation or any thing of value

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will be paid, which compensation or thing of value is less than the expected death benefit of the

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insurance policy or certificate, in return for the owner’s assignment, transfer, sale, devise or

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bequest of the death benefit or any portion of an insurance policy or certificate of insurance for

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compensation; provided, however, that the minimum value for a life settlement contract shall be

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greater than a cash surrender value or accelerated death benefit available at the time of an

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application for a life settlement contract. “Life settlement contract” also includes the transfer for

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compensation or value of ownership or beneficial interest in a trust or other entity that owns such

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policy if the trust or other entity was formed or availed of for the principal purpose of acquiring

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one or more life insurance contracts, which life insurance contract insures the life of a person

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residing in this state.

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     (i) "Life settlement contract" also includes:

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     (A) A written agreement for a loan or other lending transaction, secured primarily by an

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individual or group life insurance policy; or

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     (B) A premium finance loan made for a policy on or before the date of issuance of the

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policy where:

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     (I) The loan proceeds are not used solely to pay premiums for the policy and any costs or

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expenses incurred by the lender or the borrower in connection with the financing; or

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     (II) The owner receives on the date of the premium finance loan a guarantee of the future

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life settlement value of the policy; or

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     (III) The owner agrees on the date of the premium finance loan to sell the policy or any

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portion of its death benefit on any date following the issuance of the policy.

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     (ii) "Life Settlement Contract" does not include:

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     (A) A policy loan by a life insurance company pursuant to the terms of the life insurance

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policy or accelerated death provisions contained in the life insurance policy, whether issued with

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the original policy or as a rider;

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     (B) A premium finance loan, as defined herein, or any loan made by a bank or other

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licensed financial institution, provided that neither default on such loan nor the transfer of the

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policy in connection with such default is pursuant to an agreement or understanding with any

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other person for the purpose of evading regulation under this chapter;

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     (C) A collateral assignment of a life insurance policy by an owner;

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     (D) A loan made by a lender that does not violate Rhode Island general laws chapter 19-

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14.6, provided such loan is not described in subdivision (i) above, and is not otherwise within the

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definition of life settlement contract;

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     (E) An agreement where all the parties:

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     (I) are closely related to the insured by blood or law; or

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     (II) have a lawful substantial economic interest in the continued life, heath and bodily

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safety of the person insured, or are trusts established primarily for the benefit of such parties;

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     (F) Any designation, consent or agreement by an insured who is an employee of an

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employer in connection with the purchase by the employer, or trust established by the employer,

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of life insurance on the life of the employee;

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     (G) A bona fide business succession planning arrangement:

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     (I) Between one or more shareholders in a corporation or between a corporation and one

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or more of its shareholders or one or more trust established by its shareholders;

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     (II) Between one or more partners in a partnership or between a partnership and one or

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more of its partners or one or more trust established by its partners; or

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     (III) Between one or more members in a limited liability company or between a limited

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liability company and one or more of its members or one or more trust established by its

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members;

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     (H) An agreement entered into by a service recipient, or a trust established by the service

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recipient, and a service provider, or a trust established by the service provider, who performs

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significant services for the service recipient’s trade or business; or

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     (I) Any other contract, transaction or arrangement from the definition of life settlement

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contract that the commissioner determines is not of the type intended to be regulated by this

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chapter.

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     (13) "Net death benefit" means the amount of the life insurance policy or certificate to be

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settled less any outstanding debts or liens.

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     (14) "Owner" means the owner of a life insurance policy or a certificate holder under a

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group policy, with or without a terminal illness, who enters or seeks to enter into a life settlement

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contract. For the purposes of this article, an owner shall not be limited to an owner of a life

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insurance policy or a certificate holder under a group policy that insures the life of an individual

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with a terminal or chronic illness or condition except where specifically addressed. The term

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"owner" does not include:

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     (i) Any provider or other licensee under this chapter;

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     (ii) A qualified institutional buyer as defined in Rule 144A of the Federal Securities Act

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of 1933, as amended;

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     (iii) A financing entity;

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     (iv) A special purpose entity; or

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     (v) A related provider trust.

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     (15) "Patient identifying information" means an insured’s address, telephone number,

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facsimile number, electronic mail address, photograph or likeness, employer, employment status,

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social security number, or any other information that is likely to lead to the identification of the

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insured.

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     (16) "Policy" means an individual or group policy, group certificate, contract or

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arrangement of life insurance owned by a resident of this state, regardless of whether delivered or

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issued for delivery in this state.

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     (17) "Premium finance loan" is a loan made primarily for the purposes of making

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premium payments on a life insurance policy, which loan is secured by an interest in such life

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insurance policy.

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     (18) "Person" means any natural person or legal entity including, but not limited to, a

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partnership, limited liability company, association, trust or corporation.

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     (19) "Provider" means a person, other than an owner, who enters into or effectuates a life

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settlement contract with an owner, a provider does not include:

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     (i) Any bank, savings bank, savings and loan association, credit union;

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     (ii) A licensed lending institution or creditor or secured party pursuant to a premium

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finance loan agreement which takes an assignment of a life insurance policy or certificate issued

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pursuant to a group life insurance policy as collateral for a loan;

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     (iii) The insurer of a life insurance policy or rider to the extent of providing accelerated

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death benefits or riders or cash surrender value;

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     (iv) Any natural person who enters into or effectuates no more than one agreement in a

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calendar year for the transfer of a life insurance policy or certificate issued pursuant to a group

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life insurance policy, for compensation or anything of value less than the expected death benefit

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payable under the policy;

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     (v) A purchaser;

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     (vi) Any authorized or eligible insurer that provides stop loss coverage to a provider;

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purchaser, financing entity, special purpose entity, or related provider trust;

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     (vii) A financing entity;

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     (viii) A special purpose entity;

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     (ix) A related provider trust;

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     (x) A broker; or

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     (xi) An accredited investor or qualified institutional buyer as defined; respectively, in

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regulation D, rule 501 or rule 144A of the Federal Securities Act of 1933, as amended, who

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purchases a life settlement policy from a provider.

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     (20) "Purchased policy" means a policy or group certificate that has been acquired by a

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provider pursuant to a life settlement contract.

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     (21) "Purchaser" means a person who pays compensation or anything of value as

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consideration for a beneficial interest in a trust which is vested with, or for the assignment,

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transfer or sale of, an ownership or other interest in a life insurance policy or a certificate issued

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pursuant to a group life insurance policy which has been the subject of a life settlement contract.

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     (22) "Related provider trust’ means a titling trust or other trust established by a licensed

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provider or a financing entity for the sole purpose of holding the ownership or beneficial interest

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in purchased policies in connection with a financing transaction. In order to qualify as a related

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provider trust, the trust must have a written agreement with the licensed provider under which the

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licensed provider is responsible for ensuring compliance with all statutory and regulatory

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requirements and under which the trust agrees to make all records and files relating to life

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settlement transactions available to the commissioner as if those records and files were

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maintained directly by the licensed provider.

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     (23) "Settled policy" means a life insurance policy or certificate that has been acquired by

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a provider pursuant to a life settlement contract.

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     (24) "Special purpose entity" means a corporation, partnership, trust, limited liability

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company, or other legal entity formed solely to provide either directly or indirectly access to

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institutional capital markets:

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     (i) For a financing entity or provider; or

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     (ii) In connection with a transaction in which the securities in the special purpose entity

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are acquired by the owner or by a “qualified institutional buyer” as defined in Rule 144

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promulgated under the Federal Securities Act of 1933, as amended; or

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     (iii) The securities pay a fixed rate of return commensurate with established asset-backed

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institutional capital markets.

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     (25) "Stranger-originated life insurance" or "STOLI" is a practice or plan to initiate a life

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insurance policy for the benefit of a third-party investor who, at the time of policy origination, has

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no insurable interest in the insured. STOLI practices include, but are not limited to, cases in

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which life insurance is purchased with resources or guarantees from or through a person, or

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entity, who, at the time of policy inception, could not lawfully initiate the policy himself/herself

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or itself, and where, at the time of inception, there is an arrangement or agreement, whether

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verbal or written, to directly or indirectly transfer the ownership of the policy and/or the policy

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benefits to a third party. Trusts, that are created to give the appearance of insurable interest, and

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are used to initiate policies for investors, violate insurable interest laws and the prohibition

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against wagering on life. STOLI arrangements do not include those practices set forth in this

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chapter.

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     (26) "Terminally ill" means having an illness or sickness that can reasonably be expected

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to result in death in twenty-four (24) months or less.

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     27-72-3. Licensing requirements. – (a) No person, wherever located, shall act as a

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provider or broker with an owner or multiple owners who is a resident of this state, without first

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having obtained a license from the commissioner. If there is more than one owner on a single

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policy and the owners are residents of different states, the life settlement contract shall be

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governed by the law of the state in which the owner having the largest percentage ownership

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resides or, if the owners hold equal ownership, the state of residence of one owner agreed upon in

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writing by all owners.

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     (b) Application for a provider, or broker, license shall be made to the commissioner by

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the applicant on a form prescribed by the commissioner, and the application shall be accompanied

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by a fee reasonable in an amount established by the commissioner.

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     (c) A life insurance producer who has been duly licensed as a resident insurance producer

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with a life line of authority in this state or his or her home state for at least one year and is

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licensed as a nonresident producer in this state shall be deemed to meet the licensing

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requirements of this section and shall be permitted to operate as a broker.

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     (d) Not later than thirty (30) days from the first day of operating as a broker, the life

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insurance producer shall notify the commissioner that he or she is acting as a broker on a form

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prescribed by the commissioner, and shall pay any applicable fee to be determined by the

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commissioner. Notification shall include an acknowledgement by the life insurance producer that

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he or she will operate as a broker in accordance with this chapter.

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     (e) The insurer that issued the policy that is the subject of a life settlement contract shall

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not be responsible for any act or omission of a broker or provider or purchaser arising out of or in

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connection with the life settlement transaction, unless the insurer receives compensation for the

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placement of a life settlement contract from the provider or purchaser or broker in connection

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with the life settlement contract.

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     (f) A person licensed as an attorney, certified public accountant or financial planner

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accredited by a nationally recognized accreditation agency, who is retained to represent the

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owner, whose compensation is not paid directly or indirectly by the provider or purchaser, may

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negotiate life settlement contracts on behalf of the owner without having to obtain a license as a

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broker.

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     (g) Broker licenses may be renewed on a schedule prescribed by the commissioner and

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upon payment of the reasonable renewal fee as prescribed by the commissioner. Failure to pay the

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fee within the terms prescribed shall result in the automatic revocation of the license requiring

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periodic renewal.

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     (h) The term of a provider license shall be perpetual; provided, that the provider files the

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annual report and pays the fee as prescribed by the commissioner. Failure to file the annual report

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or pay the fees on or before the due date shall result in immediate suspension of the license.

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     (i) The applicant shall provide such information as the commissioner may require on

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forms prepared by the commissioner. The commissioner shall have authority, at any time, to

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require such applicant to fully disclose the identity of its stockholders (except stockholders

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owning fewer than ten percent (10%) of the shares of an applicant whose shares are publicly

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traded), partners, officers and employees, and the commissioner may, in the exercise of the

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commissioner’s sole discretion, refuse to issue such a license in the name of any person if not

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satisfied that any officer, employee, stockholder or partner thereof who may materially influence

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the applicant's conduct meets the standards set forth in this chapter.

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     (j) Upon the filing of an application and the payment of the license fee, the commissioner

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shall make an investigation of each applicant and may issue a license if the commissioner finds

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that the applicant:

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     (1) If a provider, has provided a detailed plan of operation;

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

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     (3) Has a good business reputation and has had experience, training or education so as to

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be qualified in the business for which the license is applied;

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     (4) If the provider applicant is a legal entity, is formed or organized pursuant to the laws

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of this state or is a foreign legal entity authorized to transact business in this state, or provides a

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certificate of good standing from the state of its domicile; and

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     (5) Has provided to the commissioner an anti-fraud plan that meets the requirements of

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this chapter and includes:

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     (i) A description of the procedures for detecting and investigating possible fraudulent acts

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and procedures for resolving material inconsistencies between medical records and insurance

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applications;

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     (ii) A description of the procedures for reporting fraudulent insurance acts to the

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commissioner;

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     (iii) A description of the plan for anti-fraud education and training of its underwriters and

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other personnel; and

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     (iv) A written description or chart outlining the arrangement of the anti-fraud personnel

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who are responsible for the investigation and reporting of possible fraudulent insurance acts and

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investigating unresolved material inconsistencies between medical records and insurance

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applications.

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     (k) The commissioner shall not issue any license to any nonresident applicant, unless a

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written designation of an agent for service of process is filed and maintained with the

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commissioner or unless the applicant has filed with the commissioner the applicant's written

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irrevocable consent that any action against the applicant may be commenced against the applicant

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by service of process on the commissioner.

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     (l) Each licensee shall file with the commissioner on or before the first day of March of

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each year an annual statement containing such information as the commissioner by rule may

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prescribe. The department may have this annual statement renewed and analyzed by outside

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consultant(s) and the total cost of that review shall be borne by, billed directly to and paid by the

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provider filing the annual statement.

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     (m) A provider may not use any person to perform the functions of a broker as defined in

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this chapter unless the person holds a current, valid license as a broker, and as provided in this

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section.

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     (n) A broker may not use any person to perform the functions of a provider as defined in

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this chapter unless such person holds a current, valid license as a provider, and as provided in this

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section.

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     (o) A provider, or broker shall provide to the commissioner new or revised information

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about officers, ten percent (10%) or more stockholders, partners, directors, members or

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designated employees within thirty (30) days of the change.

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     (p) An individual licensed as a broker shall complete, on a biennial basis, fifteen (15)

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hours of training related to life settlements and life settlement transactions, as required by the

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commissioner; provided, however, that a life insurance producer who is operating as a broker

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pursuant to this section shall not be subject to the requirements of this subsection. Any person

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failing to meet the requirements of this subsection shall be subject to the penalties imposed by the

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commissioner.

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     27-72-4. License suspension, revocation or refusal to renew. – (a) The commissioner

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may suspend, revoke or refuse to renew the license of any licensee if the commissioner finds that:

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     (1) There was any material misrepresentation in the application for the license;

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     (2) The licensee or any officer, partner, member or director has been guilty of fraudulent

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or dishonest practices, is subject to a final administrative action or is otherwise shown to be

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untrustworthy or incompetent to act as a licensee;

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     (3) The provider demonstrates a pattern of unreasonably withholding payments to policy

11-28

owners;

11-29

     (4) The licensee no longer meets the requirements for initial licensure;

11-30

     (5) The licensee or any officer, partner, member or director has been convicted of a

11-31

felony, or of any misdemeanor of which criminal fraud is an element; or the licensee has pleaded

11-32

guilty or nolo contendere with respect to any felony or any misdemeanor of which criminal fraud

11-33

or moral turpitude is an element, regardless whether a judgment of conviction has been entered by

11-34

the court;

12-1

     (6) The provider has entered into any life settlement contract using a form that has been

12-2

approved pursuant to this chapter;

12-3

     (7) The provider has failed to honor contractual obligations set out in a life settlement

12-4

contract;

12-5

     (8) The provider has assigned, transferred or pledged a settled policy to a person other

12-6

than a provider licensed in this state, a purchaser, an accredited investor or qualified institutional

12-7

buyer as defined respectively in Regulation D, Rule 501 or Rule 144A of the Federal Securities

12-8

Act of 1933, as amended, financing entity, special purpose entity, or related provider trust; or

12-9

     (9) The licensee or any officer, partner, member or key management personnel has

12-10

violated any of the provisions of this chapter.

12-11

     (b) Before the commissioner denies a license application or suspends, revokes or refuses

12-12

to renew the license of any licensee under this chapter, the commissioner shall conduct a hearing

12-13

in accordance with this state's laws governing administrative hearings.

12-14

     27-72-5. Contract requirements. – (a) No person may use any form of life settlement

12-15

contract in this state unless it has been filed with and approved, if required, by the commissioner

12-16

in a manner that conforms with the filing procedures and any time restrictions or deeming

12-17

provisions, if any, for life insurance forms, policies and contracts. The commissioner is

12-18

authorized to contract with outside consultants to review life settlement forms and the total cost

12-19

of that review shall be borne by, billed directly to, and paid by the provider filing the form(s).

12-20

      (b) No insurer may, as a condition of responding to a request for verification of coverage

12-21

or in connection with the transfer of a policy pursuant to a life settlement contract, require that the

12-22

owner, insured, provider or broker sign any form, disclosure, consent, waiver or acknowledgment

12-23

that has not been expressly approved by the commissioner for use in connection with life

12-24

settlement contracts in this state.

12-25

     (c) A person shall not use a life settlement contract form or provide to an owner a

12-26

disclosure statement form in this state unless first filed with and approved by the commissioner.

12-27

The commissioner shall disapprove a life settlement contract form or disclosure statement form if,

12-28

in the commissioner’s opinion, the contract or provisions contained therein fail to meet the

12-29

requirements of this chapter or are unreasonable, contrary to the interests of the public, or

12-30

otherwise misleading or unfair to the owner. At the commissioner’s discretion, the commissioner

12-31

may require the submission of advertising material. The commissioner is authorized to contract

12-32

with outside consultants to review life settlement forms and/or advertising and the total cost of

12-33

that review shall be borne by, billed directly to, and paid by the provider filing the form(s).

12-34

     27-72-6. Reporting requirements and privacy. – (a) For any policy settled within five

13-1

(5) years of policy issuance, each provider shall file with the commissioner on or before March 1

13-2

of each year an annual statement containing such information as the commissioner may prescribe

13-3

by regulation. In addition to any other requirements, the annual statement shall specify the total

13-4

number, aggregate face amount and life settlement proceeds of policies settled during the

13-5

immediately preceding calendar year, together with a breakdown of the information by policy

13-6

issue year. The annual statement shall also include the names of the insurance companies whose

13-7

policies have been settled and the brokers that have settled said policies.

13-8

     (1) Such information shall be limited to only those transactions where the insured is a

13-9

resident of this state and shall not include individual transaction data regarding the business of

13-10

life settlements or information that there is a reasonable basis to believe could be used to identify

13-11

the owner or the insured.

13-12

     (2) Every provider that willfully fails to file an annual statement as required in this

13-13

section, or willfully fails to reply within thirty (30) days to a written inquiry by the commissioner

13-14

in connection therewith, shall, in addition to other penalties provided by this chapter, be subject,

13-15

upon due notice and opportunity to be heard, to a penalty of up to two hundred fifty dollars

13-16

($250) per day of delay, not to exceed twenty-five thousand dollars ($25,000) in the aggregate,

13-17

for each such failure.

13-18

     (3) The department may have this annual report reviewed and analyzed by outside

13-19

consultant(s) and the total cost of that review shall be borne by, billed directly to, and paid by the

13-20

provider filing the annual statement.

13-21

     (b) Except as otherwise allowed or required by law, a provider, broker, insurance

13-22

company, insurance producer, information bureau, rating agency or company, or any other person

13-23

with actual knowledge of an insured's identity, shall not disclose the identity of an insured or

13-24

information that there is a reasonable basis to believe could be used to identify the insured or the

13-25

insured's financial or medical information to any other person unless the disclosure:

13-26

     (1) Is necessary to effect a life settlement contract between the owner and a provider and

13-27

the owner and insured have provided prior written consent to the disclosure;

13-28

     (2) Is necessary to effectuate the sale of life settlement contracts, or interests therein, as

13-29

investments, provided the sale is conducted in accordance with applicable state and federal

13-30

securities law and provided further that the owner and the insured have both provided prior

13-31

written consent to the disclosure;

13-32

     (3) Is provided in response to an investigation or examination by the commissioner or any

13-33

other governmental officer or agency or pursuant to the requirements of this chapter;

13-34

     (4) Is a term or condition to the transfer of a policy by one provider to another provider,

14-1

in which case the receiving provider shall be required to comply with the confidentiality

14-2

requirements of this chapter;

14-3

     (5) Is necessary to allow the provider or broker or their authorized representatives to

14-4

make contacts for the purpose of determining health status. For the purposes of this section, the

14-5

term "authorized representative" shall not include any person who has or may have any financial

14-6

interest in the settlement contract other than a provider, licensed broker, financing entity, related

14-7

provider trust or special purpose entity; further, a provider or broker shall require its authorized

14-8

representative to agree in writing to adhere to the privacy provisions of this chapter; or

14-9

     (6) Is required to purchase stop loss coverage.

14-10

     (c) Non-public personal information solicited or obtained in connection with a proposed

14-11

or actual life settlement contract shall be subject to the provisions applicable to financial

14-12

institutions under the federal Gramm Leach Bliley Act, P.L. 106-102 (1999), and all other state

14-13

and federal laws relating to confidentiality of non-public personal information.

14-14

     27-72-7. Examination. – (a) The commissioner may, when the commissioner deems it

14-15

reasonably necessary to protect the interests of the public, examine the business and affairs of any

14-16

licensee or applicant for a license. The commissioner may order any licensee or applicant to

14-17

produce any records, books, files or other information reasonably necessary to ascertain whether

14-18

such licensee or applicant is acting or has acted in violation of the law or otherwise contrary to

14-19

the interests of the public. The expenses incurred in conducting any examination shall be paid by

14-20

the licensee or applicant.

14-21

     (b) In lieu of an examination under this chapter of any foreign or alien licensee licensed

14-22

in this state, the commissioner may, at the commissioner’s discretion, accept an examination

14-23

report on the licensee as prepared by the commissioner for the licensee’s state of domicile or port-

14-24

of-entry state.

14-25

     (c) Names of and individual identification data, or for all owners and insureds shall be

14-26

considered private and confidential information and shall not be disclosed by the commissioner

14-27

unless required by law.

14-28

     (d) Records of all consummated transactions and life settlement contracts shall be

14-29

maintained by the provider for three (3) years after the death of the insured and shall be available

14-30

to the commissioner for inspection during reasonable business hours.

14-31

     (e) Conduct of examinations.

14-32

     (1) Upon determining that an examination should be conducted, the commissioner shall

14-33

issue an examination warrant appointing one or more examiners to perform the examination and

14-34

instructing them as to the scope of the examination. In conducting the examination, the examiner

15-1

shall use methods common to the examination of any life settlement licensee and should use

15-2

those guidelines and procedures set forth in an examiners’ handbook adopted by a national

15-3

organization.

15-4

     (2) Every licensee or person from whom information is sought, its officers, directors and

15-5

agents shall provide to the examiners timely, convenient and free access at all reasonable hours at

15-6

its offices to all books, records, accounts, papers, documents, assets and computer or other

15-7

recordings relating to the property, assets, business and affairs of the licensee being examined.

15-8

The officers, directors, employees and agents of the licensee or person shall facilitate the

15-9

examination and aid in the examination so far as it is in their power to do so. The refusal of a

15-10

licensee, by its officers, directors, employees or agents, to submit to examination or to comply

15-11

with any reasonable written request of the commissioner shall be grounds for suspension or

15-12

refusal of, or nonrenewal of any license or authority held by the licensee to engage in the life

15-13

settlement business or other business subject to the commissioner's jurisdiction. Any proceedings

15-14

for suspension, revocation or refusal of any license or authority shall be conducted pursuant to

15-15

section 42-35-1 et seq.

15-16

     (3) The commissioner shall have the power to issue subpoenas, to administer oaths and to

15-17

examine under oath any person as to any matter pertinent to the examination. Upon the failure or

15-18

refusal of a person to obey a subpoena, the commissioner may petition a court of competent

15-19

jurisdiction, and upon proper showing, the court may enter an order compelling the witness to

15-20

appear and testify or produce documentary evidence.

15-21

     (4) When making an examination under this chapter, the commissioner may retain

15-22

attorneys, appraisers, independent actuaries, independent certified public accountants or other

15-23

professionals and specialists as examiners, the reasonable cost of which shall be borne by the

15-24

licensee that is the subject of the examination.

15-25

     (5) Nothing contained in this chapter shall be construed to limit the commissioner's

15-26

authority to terminate or suspend an examination in order to pursue other legal or regulatory

15-27

action pursuant to the insurance laws of this state. Findings of fact and conclusions made pursuant

15-28

to any examination shall be prima facie evidence in any legal or regulatory action.

15-29

     (6) Nothing contained in this chapter shall be construed to limit the commissioner's

15-30

authority to use and, if appropriate, to make public any final or preliminary examination report,

15-31

any examiner or licensee work papers or other documents, or any other information discovered or

15-32

developed during the course of any examination in the furtherance of any legal or regulatory

15-33

action which the commissioner may, in his or her sole discretion, deem appropriate.

15-34

     (f) Examination reports.

16-1

     (1) Examination reports shall be comprised of only facts appearing upon the books, from

16-2

the testimony of its officers or agents or other persons examined concerning its affairs, and such

16-3

conclusions and recommendations as the examiners find reasonably warranted from the facts.

16-4

     (2) No later than sixty (60) days following completion of the examination, the examiner

16-5

in charge shall file with the commissioner a verified written report of examination under oath.

16-6

Upon receipt of the verified report, the commissioner shall transmit the report to the licensee

16-7

examined, together with a notice that shall afford the licensee examined a reasonable opportunity

16-8

of not more than thirty (30) days to make a written submission or rebuttal with respect to any

16-9

matters contained in the examination report and which shall become part of the report or to

16-10

request a hearing on any matter in dispute.

16-11

     (3) In the event the commissioner determines that regulatory action is appropriate as a

16-12

result of an examination, the commissioner may initiate any proceedings or actions provided by

16-13

law.

16-14

     (g) Confidentiality of examination information.

16-15

     (1) Names and individual identification data for all owners, purchasers, and insureds shall

16-16

be considered private and confidential information and shall not be disclosed by the

16-17

commissioner, unless the disclosure is to another regulator or is required by law.

16-18

     (2) Except as otherwise provided in this chapter, all examination reports, working papers,

16-19

recorded information, documents and copies thereof produced by, obtained by or disclosed to the

16-20

commissioner or any other person in the course of an examination made under this chapter, or in

16-21

the course of analysis or investigation by the commissioner of the financial condition or market

16-22

conduct of a licensee shall be confidential by law and privileged, shall not be subject to open

16-23

records, shall not be subject to subpoena, and shall not be subject to discovery or admissible in

16-24

evidence in any private civil action. The commissioner is authorized to use the documents,

16-25

materials or other information in the furtherance of any regulatory or legal action brought as part

16-26

of the commissioner's official duties. The licensee being examined may have access to all

16-27

documents used to make the report.

16-28

     (h) Conflict of interest.

16-29

     (1) An examiner may not be appointed by the commissioner if the examiner, either

16-30

directly or indirectly, has a conflict of interest or is affiliated with the management of or owns a

16-31

pecuniary interest in any person subject to examination under this chapter. This section shall not

16-32

be construed to automatically preclude an examiner from being:

16-33

     (i) An owner;

16-34

     (ii) An insured in a life settlement contract or insurance policy; or

17-1

     (iii) A beneficiary in an insurance policy that is proposed for a life settlement contract.

17-2

     (2) Notwithstanding the requirements of this clause, the commissioner may retain from

17-3

time to time, on an individual basis, qualified actuaries, certified public accountants, or other

17-4

similar individuals who are independently practicing their professions, even though these persons

17-5

may from time to time be similarly employed or retained by persons subject to examination under

17-6

this chapter.

17-7

     (i) Immunity from liability.

17-8

     (1) No cause of action shall arise nor shall any liability be imposed against the

17-9

commissioner, the commissioner's authorized representatives or any examiner appointed by the

17-10

commissioner for any statements made or conduct performed in good faith while carrying out the

17-11

provisions of this chapter.

17-12

     (2) No cause of action shall arise, nor shall any liability be imposed against any person

17-13

for the act of communicating or delivering information or data to the commissioner or the

17-14

commissioner's authorized representative or examiner pursuant to an examination made under

17-15

this chapter, if the act of communication or delivery was performed in good faith and without

17-16

fraudulent intent or the intent to deceive. This paragraph does not abrogate or modify in any way

17-17

any common law or statutory privilege or immunity heretofore enjoyed by any person identified

17-18

in subdivision (1).

17-19

     (3) A person identified in subdivision (1) or (2) shall be entitled to an award of attorney's

17-20

fees and costs if he or she is the prevailing party in a civil cause of action for libel, slander or any

17-21

other relevant tort arising out of activities in carrying out the provisions of this chapter and the

17-22

party bringing the action was not substantially justified in doing so. For purposes of this section a

17-23

proceeding is "substantially justified" if it had a reasonable basis in law or fact at the time that it

17-24

was initiated.

17-25

     (j) Investigative authority of the commissioner.

17-26

     (1) The commissioner may investigate suspected fraudulent life settlement acts and

17-27

persons engaged in the business of life settlements.

17-28

     (k) Cost of examinations.

17-29

     (1) The total cost of examinations performed pursuant to this chapter shall be borne by

17-30

the provider(s) or broker(s) examined companies in accordance with the provision of paragraph

17-31

27-13.1-7. The commissioner is authorized to retain contract examiners and consultants to

17-32

perform the examinations. The commissioner shall review and affirmatively endorse detailed

17-33

billings from the qualified contract examiner before summary billings are sent to the insurer.

17-34

     27-72-8. Advertising. – (a) A broker, or provider licensed pursuant to this chapter may

18-1

conduct or participate in advertisements within this state. Such advertisements shall comply with

18-2

all Rhode Island advertising and marketing laws or rules and regulations promulgated by the

18-3

commissioner that are applicable to life insurers or to brokers, and providers licensed pursuant to

18-4

this chapter.

18-5

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

18-6

implication.

18-7

     (c) No person or trust shall:

18-8

     (1) Directly or indirectly, market, advertise, solicit or otherwise promote the purchase of

18-9

a policy for the sole purpose of or with an emphasis on settling the policy; or

18-10

     (2) Use the words “free”, “no cost” or words of similar import in the marketing,

18-11

advertising, soliciting or otherwise promoting of the purchase of a policy.

18-12

     (d) The commissioner is authorized to contract with outside consultants to review

18-13

advertisements and the total cost of that review shall be borne by, billed directly to, and paid by

18-14

the provider utilizing or proposing to utilize the advertisement.

18-15

     27-72-9. Disclosures to owners. – (a) The provider shall provide in writing, in a separate

18-16

document that is signed by the owner and provider, the following information to the owner no

18-17

later than the date the life settlement contract is signed by all parties:

18-18

     (1) The fact that possible alternatives to life settlement contracts exist, including, but not

18-19

limited to, accelerated benefits offered by the issuer of the life insurance policy;

18-20

     (2) The fact that some or all of the proceeds of a life settlement contract may be taxable

18-21

and that assistance should be sought from a professional tax advisor;

18-22

     (3) The fact that the proceeds from a life settlement contract could be subject to the

18-23

claims of creditors;

18-24

     (4) The fact that receipt of proceeds from a life settlement contract may adversely affect

18-25

the recipients' eligibility for public assistance or other government benefits or entitlements and

18-26

that advice should be obtained from the appropriate agencies;

18-27

     (5) The fact that the owner has a right to terminate a life settlement contract within fifteen

18-28

(15) days of the date it is executed by all parties and the owner has received the disclosures

18-29

contained herein. Rescission, if exercised by the owner, is effective only if both notice of the

18-30

rescission is given, and the owner repays all proceeds and any premiums, loans, and loan interest

18-31

paid on account of the provider within the rescission period. If the insured dies during the

18-32

rescission period, the contract shall be deemed to have been rescinded subject to repayment by

18-33

the owner or the owner’s estate of all proceeds and any premiums, loans, and loan interest to the

18-34

provider;

19-1

     (6) The fact that proceeds will be sent to the owner within three (3) business days after

19-2

the provider has received the insurer or group administrator’s acknowledgement that ownership

19-3

of the policy or interest in the certificate has been transferred and the beneficiary has been

19-4

designated in accordance with the terms of the life settlement contract;

19-5

     (7) The fact that entering into a life settlement contract may cause other rights or benefits,

19-6

including conversion rights and waiver of premium benefits that may exist under the policy or

19-7

certificate of a group policy to be forfeited by the owner and that assistance should be sought

19-8

from a professional financial advisor;

19-9

     (8) The amount and method of calculating the compensation paid or to be paid to the

19-10

broker, or any other person acting for the owner in connection with the transaction, wherein the

19-11

term compensation includes anything of value paid or given;

19-12

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

19-13

funds;

19-14

     (10) The fact that the commissioner shall require delivery of a buyer’s guide or a similar

19-15

consumer advisory package in the form prescribed by the commissioner to owners during the

19-16

solicitation process;

19-17

     (11) The disclosure document shall contain the following language: “all medical,

19-18

financial or personal information solicited or obtained by a provider or broker about an insured,

19-19

including the insured’s identity or the identity of family members, a spouse or a significant other,

19-20

may be disclosed as necessary to affect the life settlement contract between the owner and

19-21

provider. If you are asked to provide this information, you will be asked to consent to the

19-22

disclosure. The information may be provided to someone who buys the policy or provides funds

19-23

for the purchase. You may be asked to renew your permission to share information every two (2)

19-24

years";

19-25

     (12) The fact that the commissioner shall require providers and brokers to print separate

19-26

signed fraud warnings on their applications and on their life settlement contracts is as follows:

19-27

     “Any person who knowingly presents false information in an application for insurance or

19-28

life settlement contract is guilty of a crime and may be subject to fines and confinement in

19-29

prison.”

19-30

     (13) The fact that the insured may be contacted by either the provider or broker or its

19-31

authorized representative for the purpose of determining the insured’s health status or to verify

19-32

the insured's address. This contact is limited to once every three (3) months if the insured has a

19-33

life expectancy of more than one year, and no more than once per month if the insured has a life

19-34

expectancy of one year or less;

20-1

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

20-2

be settled;

20-3

     (15) That a broker represents exclusively the owner, and not the insurer or the provider or

20-4

any other person, and owes a fiduciary duty to the owner, including a duty to act according to the

20-5

owner’s instructions and in the best interest of the owner;

20-6

     (16) The document shall include the name, address and telephone number of the provider;

20-7

     (17) The name, business address, and telephone number of the independent third-party

20-8

escrow agent, and the fact that the owner may inspect or receive copies of the relevant escrow or

20-9

trust agreements or documents;

20-10

     (18) The fact that a change of ownership could in the future limit the insured’s ability to

20-11

purchase future insurance on the insured’s life because there is a limit to how much coverage

20-12

insurers will issue on one life;

20-13

     (b) The written disclosures shall be conspicuously displayed in any life settlement

20-14

contract furnished to the owner by a provider including any affiliations or contractual

20-15

arrangements between the provider and the broker.

20-16

     (c) A broker shall provide the owner and the provider with at least the following

20-17

disclosures no later than the date the life settlement contract is signed by all parties. The

20-18

disclosures shall be conspicuously displayed in the life settlement contract or in a separate

20-19

document signed by the owner and provide the following information:

20-20

     (1) The name, business address and telephone number of the broker;

20-21

     (2) A full, complete and accurate description of all the offers, counter-offers, acceptances

20-22

and rejections relating to the proposed life settlement contract;

20-23

     (3) A written disclosure of any affiliations or contractual arrangements between the

20-24

broker and any person making an offer in connection with the proposed life settlement contracts;

20-25

     (4) The name of each broker who receives compensation and the amount of

20-26

compensation received by that broker, which compensation includes anything of value paid or

20-27

given to the broker in connection with the life settlement contract;

20-28

     (5) A complete reconciliation of the gross offer or bid by the provider to the net amount

20-29

of proceeds or value to be received by the owner. For the purpose of this section, gross offer or

20-30

bid shall mean the total amount or value offered by the provider for the purchase of one or more

20-31

life insurance policies, inclusive of commissions and fees; and

20-32

     (6) The failure to provide the disclosures or rights described in this section shall be

20-33

deemed an unfair trade practice pursuant to section 27-72-17.

20-34

     27-72-10. Disclosure to insurer. – (a) Without limiting the ability of an insurer from

21-1

assessing the insurability of a policy applicant and determining whether or not to issue the policy,

21-2

and in addition to other questions an insurance carrier may lawfully pose to a life insurance

21-3

applicant, insurance carriers may inquire in the application for insurance whether the proposed

21-4

owner intends to pay premiums with the assistance of financing from a lender that will use the

21-5

policy as collateral to support the financing.

21-6

     (1) If, as described in this chapter, the loan provides funds which can be used for a

21-7

purpose other than paying for the premiums, costs, and expenses associated with obtaining and

21-8

maintaining the life insurance policy and loan, the application shall be rejected as a violation of

21-9

the prohibited practices in section 27-72-13.

21-10

     (2) If the financing does not violate section 27-72-13, the insurance carrier:

21-11

     (i) May make disclosures, including but not limited to such as the following, to the

21-12

applicant and the insured, either on the application or an amendment to the application to be

21-13

completed no later than the delivery of the policy:

21-14

     “If you have entered into a loan arrangement where the policy is used as collateral, and

21-15

the policy does change ownership at some point in the future in satisfaction of the loan, the

21-16

following may be true:

21-17

     (A) A change of ownership could lead to a stranger owning an interest in the insured’s

21-18

life;

21-19

     (B) A change of ownership could in the future limit your ability to purchase future

21-20

insurance on the insured’s life because there is a limit to how much coverage insurers will issue

21-21

on one life;

21-22

     (C) Should there be a change of ownership and you wish to obtain more insurance

21-23

coverage on the insured’s life in the future, the insured’s higher issue age, a change in health

21-24

status, and/or other factors may reduce the ability to obtain coverage and/or may result in

21-25

significantly higher premiums;

21-26

     (D) You should consult a professional advisor, since a change in ownership in

21-27

satisfaction of the loan may result in tax consequences to the owner, depending on the structure of

21-28

the loan;” and

21-29

     (b) May require certifications, such as the following, from the applicant and/or the

21-30

insured:

21-31

     (1) "I have not entered into any agreement or arrangement providing for the future sale of

21-32

this life insurance policy";

21-33

     (2) "My loan arrangement for this policy provides funds sufficient to pay for some or all

21-34

of the premiums, costs, and expenses associated with obtaining and maintaining my life insurance

22-1

policy, but I have not entered into any agreement by which I am to receive consideration in

22-2

exchange for procuring this policy"; and

22-3

     (3) "The borrower has an insurable interest in the insured.”

22-4

     27-72-11. General rules. – (a) A provider entering into a life settlement contract with

22-5

any owner of a policy, wherein the insured is terminally or chronically ill, shall first obtain:

22-6

     (1) If the owner is the insured, a written statement from a licensed attending physician

22-7

that the owner is of sound mind and under no constraint or undue influence to enter into a

22-8

settlement contract; and

22-9

     (2) A document in which the insured consents to the release of his/her medical records to

22-10

a provider, settlement broker, or insurance producer and, if the policy was issued less than two (2)

22-11

years from the date of application for a settlement contract, to the insurance company that issued

22-12

the policy.

22-13

     (b) The insurer shall respond to a request for verification of coverage submitted by a

22-14

provider, settlement broker, or life insurance producer not later than thirty (30) calendar days

22-15

from the date the request is received. The request for verification of coverage must be made on a

22-16

form approved by the commissioner. The insurer shall complete and issue the verification of

22-17

coverage or indicate in which respects it is unable to respond. In its response, the insurer shall

22-18

indicate whether, based on the medical evidence and documents provided, the insurer intends to

22-19

pursue an investigation at this time regarding the validity of the insurance contract.

22-20

     (c) Before or at the time of execution of the settlement contract, the provider shall obtain

22-21

a witnessed document in which the owner consents to the settlement contract, represents that the

22-22

owner has a full and complete understanding of the settlement contract, that the owner has a full

22-23

and complete understanding of the benefits of the policy, acknowledges that the owner is entering

22-24

into the settlement contract freely and voluntarily, and, for persons with a terminal or chronic

22-25

illness or condition, acknowledges that the insured has a terminal or chronic illness and that the

22-26

terminal or chronic illness or condition was diagnosed after the policy was issued.

22-27

     (d) The insurer shall not unreasonably delay effecting change of ownership or beneficiary

22-28

with any life settlement contract lawfully entered into in this state or with a resident of this state.

22-29

     (e) If a settlement broker or life insurance producer performs any of these activities

22-30

required of the provider, the provider is deemed to have fulfilled the requirements of this chapter.

22-31

     (f) If a broker performs those verification of coverage activities required of the provider,

22-32

the provider is deemed to have fulfilled the requirements of section 27-72-9.

22-33

     (g) Within twenty (20) days after an owner executes the life settlement contract, the

22-34

provider shall give written notice to the insurer that issued that insurance policy that the policy

23-1

has become subject to a life settlement contract. The notice shall be accompanied by the

23-2

documents required by subdivision 27-72-10(a)(2).

23-3

     (h) All medical information solicited or obtained by any licensee shall be subject to the

23-4

applicable provision of state law relating to confidentiality of medical information, if not

23-5

otherwise provided in this chapter.

23-6

     (i) All life settlement contracts entered into in this state shall provide that the owner may

23-7

rescind the contract on or before fifteen (15) days after the date it is executed by all parties

23-8

thereto. Rescission, if exercised by the owner, is effective only if both notice of the rescission is

23-9

given, and the owner repays all proceeds and any premiums, loans, and loan interest paid on

23-10

account of the provider within the rescission period. If the insured dies during the rescission

23-11

period, the contract shall be deemed to have been rescinded subject to repayment by the owner or

23-12

the owner’s estate of all proceeds and any premiums, loans, and loan interest to the provider.

23-13

     (j) Within three (3) business days after receipt from the owner of documents to effect the

23-14

transfer of the insurance policy, the provider shall pay the proceeds of the settlement to an escrow

23-15

or trust account managed by a trustee or escrow agent in a state or federally chartered financial

23-16

institution pending acknowledgement of the transfer by the issuer of the policy. The trustee or

23-17

escrow agent shall be required to transfer the proceeds due to the owner within three (3) business

23-18

days of acknowledgement of the transfer from the insurer.

23-19

     (k) Failure to tender the life settlement contract proceeds to the owner by the date

23-20

disclosed to the owner renders the contract voidable by the owner for lack of consideration until

23-21

the time the proceeds are tendered to and accepted by the owner. A failure to give written notice

23-22

of the right of rescission hereunder shall toll the right of rescission until thirty (30) days after the

23-23

written notice of the right of rescission has been given.

23-24

     (l) Any fee paid by a provider, party, individual, or an owner to a broker in exchange for

23-25

services provided to the owner pertaining to a life settlement contract shall be computed as a

23-26

percentage of the offer obtained, not the face value of the policy. Nothing in this section shall be

23-27

construed as prohibiting a broker from reducing such broker's fee below this percentage if the

23-28

broker so chooses.

23-29

     (m) The broker shall disclose to the owner anything of value paid or given to a broker,

23-30

which relates to a life settlement contract.

23-31

     (n) No person at any time prior to, or at the time of, the application for, or issuance of, a

23-32

policy, or during a two (2) year period commencing with the date of issuance of the policy, shall

23-33

enter into a life settlement regardless of the date the compensation is to be provided and

23-34

regardless of the date the assignment, transfer, sale, devise, bequest or surrender of the policy is

24-1

to occur. This prohibition shall not apply if the owner certifies to the provider that:

24-2

     (1) The policy was issued upon the owner’s exercise of conversion rights arising out of a

24-3

group or individual policy, provided the total of the time covered under the conversion policy

24-4

plus the time covered under the prior policy is at least twenty-four (24) months. The time covered

24-5

under a group policy must be calculated without regard to a change in insurance carriers,

24-6

provided the coverage has been continuous and under the same group sponsorship; or

24-7

     (2) The owner submits independent evidence to the provider that one or more of the

24-8

following conditions have been met within the two (2) year period:

24-9

     (i) The owner or insured is terminally or chronically ill;

24-10

     (ii) The owner or insured disposes of his/her ownership interests in a closely held

24-11

corporation, pursuant to the terms of a buyout or other similar agreement in effect at the time the

24-12

insurance policy was initially issued;

24-13

     (iii) The owner’s spouse dies;

24-14

     (iv) The owner divorces his or her spouse;

24-15

     (v) The owner retires from full-time employment;

24-16

     (vi) The owner becomes physically or mentally disabled and a physician determines that

24-17

the disability prevents the owner from maintaining full-time employment; or

24-18

     (vii) A final order, judgment or decree is entered by a court of competent jurisdiction, on

24-19

the application of a creditor of the owner, adjudicating the owner bankrupt or insolvent, or

24-20

approving a petition seeking reorganization of the owner or appointing a receiver, trustee or

24-21

liquidator to all or a substantial part of the owner’s assets;

24-22

     (3) Copies of the independent evidence required by subdivision 27-72-11(n)(2) shall be

24-23

submitted to the insurer when the provider submits a request to the insurer for verification of

24-24

coverage. The copies shall be accompanied by a letter of attestation from the provider that the

24-25

copies are true and correct copies of the documents received by the provider. Nothing in this

24-26

section shall prohibit an insurer from exercising its right to contest the validity of any policy;

24-27

     (4) If the provider submits to the insurer a copy of independent evidence provided for in

24-28

subdivision 27-72-11(n)(2) when the provider submits a request to the insurer to effect the

24-29

transfer of the policy to the provider, the copy is deemed to establish that the settlement contract

24-30

satisfies the requirements of this section.

24-31

     27-72-12. Authority to promulgate regulations -- Conflict of laws. – (a) The

24-32

Commissioner may:

24-33

     (1) Promulgate regulations implementing this chapter and regulating the activities and

24-34

relationships of providers, brokers, insurers and their agents, subject to statutory limitations on

25-1

administrative rule making.

25-2

     (2) Provide by regulation that the commissioner is authorized and may in his or her

25-3

discretion recover the reasonable cost of legal services incurred by the department in enforcement

25-4

actions under this chapter either from the licensee against whom the action is taken or by way of

25-5

an assessment of all providers licensed pursuant to subsection 27-72-3(a). The assessment

25-6

formula shall be set by regulation based upon information provided in the prior years annual

25-7

statement filed pursuant to subsection 27-72-3(l).

25-8

     (b) Conflict of laws.

25-9

     (1) If there is more than one owner on a single policy, and the owners are residents of

25-10

different states, the life settlement contract shall be governed by the law of the state in which the

25-11

owner having the largest percentage ownership resides or, if the owners hold equal ownership, the

25-12

state of residence of one owner agreed upon in writing by all of the owners. The law of the state

25-13

of the insured shall govern in the event that equal owners fail to agree in writing upon a state of

25-14

residence for jurisdictional purposes.

25-15

     (2) A provider from this state who enters into a life settlement contract with an owner

25-16

who is a resident of another state that has enacted statutes or adopted regulations governing life

25-17

settlement contracts, shall be governed in the effectuation of that life settlement contract by the

25-18

statutes and regulations of the owner’s state of residence. If the state in which the owner is a

25-19

resident has not enacted statutes or regulations governing life settlement contracts, the provider

25-20

shall give the owner notice that neither state regulates the transaction upon which he or she is

25-21

entering. For transactions in those states, however, the provider is to maintain all records required

25-22

as if the transactions were executed in the state of residence. The forms used in those states need

25-23

not be approved by the department.

25-24

     (3) If there is a conflict in the laws that apply to an owner and a purchaser in any

25-25

individual transaction, the laws of the state that apply to the owner shall take precedence and the

25-26

provider shall comply with those laws.

25-27

     27-72-13. Prohibited practices. – (a) it is unlawful for any person to:

25-28

     (1) Enter into a life settlement contract if such person knows or reasonably should have

25-29

known that the life insurance policy was obtained by means of a false, deceptive or misleading

25-30

application for such policy;

25-31

     (2) Engage in any transaction, practice or course of business if such person knows or

25-32

reasonably should have known that the intent was to avoid the notice requirements of this

25-33

chapter;

25-34

     (3) Engage in any fraudulent act or practice in connection with any transaction relating to

26-1

any settlement involving an owner who is a resident of this state;

26-2

     (4) Issue, solicit, market or otherwise promote the purchase of an insurance policy for the

26-3

purpose of or with an emphasis on settling the policy;

26-4

     (5) Enter into a premium finance agreement with any person or agency, or any person

26-5

affiliated with such person or agency, pursuant to which such person shall receive any proceeds,

26-6

fees or other consideration, directly or indirectly, from the policy or owner of the policy or any

26-7

other person with respect to the premium finance agreement or any settlement contract or other

26-8

transaction related to such policy that are in addition to the amounts required to pay the principal,

26-9

interest and service charges related to policy premiums pursuant to the premium finance

26-10

agreement or subsequent sale of such agreement; provided, further, that any payments, charges,

26-11

fees or other amounts in addition to the amounts required to pay the principal, interest and service

26-12

charges related to policy premiums paid under the premium finance agreement shall be remitted

26-13

to the original owner of the policy or to his or her estate if he or she is not living at the time of the

26-14

determination of the overpayment;

26-15

     (6) With respect to any settlement contract or insurance policy and a broker, knowingly

26-16

solicit an offer from, effectuate a life settlement contract with or make a sale to any provider,

26-17

financing entity or related provider trust that is controlling, controlled by, or under common

26-18

control with such broker;

26-19

     (7) With respect to any life settlement contract or insurance policy and a provider,

26-20

knowingly enter into a life settlement contract with an owner, if, in connection with such life

26-21

settlement contract, anything of value will be paid to a broker that is controlling, controlled by, or

26-22

under common control with such provider or the financing entity or related provider trust that is

26-23

involved in such settlement contract;

26-24

     (8) With respect to a provider, enter into a life settlement contract unless the life

26-25

settlement promotional, advertising and marketing materials, as may be prescribed by regulation,

26-26

have been filed with the commissioner. In no event shall any marketing materials expressly

26-27

reference that the insurance is “free” for any period of time. The inclusion of any reference in the

26-28

marketing materials that would cause an owner to reasonably believe that the insurance is free for

26-29

any period of time shall be considered a violation of this chapter; or

26-30

     (9) With respect to any life insurance producer, insurance company, broker, or provider

26-31

make any statement or representation to the applicant or policyholder in connection with the sale

26-32

or financing of a life insurance policy to the effect that the insurance is free or without cost to the

26-33

policyholder for any period of time unless provided in the policy.

26-34

     (b) A violation of this section shall be deemed a fraudulent life settlement act.

27-1

     27-72-14. Fraud prevention and control. – (a) Fraudulent life settlement acts,

27-2

interference and participation of convicted felons prohibited.

27-3

     (1) A person shall not commit a fraudulent life settlement act.

27-4

     (2) A person shall not knowingly and intentionally interfere with the enforcement of the

27-5

provisions of this chapter or investigations of suspected or actual violations of this chapter.

27-6

     (3) A person in the business of life settlements shall not knowingly or intentionally

27-7

permit any person convicted of a felony involving dishonesty or breach of trust to participate in

27-8

the business of life settlements.

27-9

     (b) Fraud warning required.

27-10

     (1) Life settlement contracts and applications for life settlement contracts, regardless of

27-11

the form of transmission, shall contain the following statement or a substantially similar

27-12

statement:

27-13

     “Any person who knowingly presents false information in an application for insurance or

27-14

life settlement contract is guilty of a crime and may be subject to fines and confinement in

27-15

prison.”

27-16

     (2) The lack of a statement as required in subdivision (1) of this subsection does not

27-17

constitute a defense in any prosecution for a fraudulent life settlement act.

27-18

     (c) Mandatory reporting of fraudulent life settlement acts.

27-19

     (1) Any person engaged in the business of life settlements having knowledge or a

27-20

reasonable belief that a fraudulent life settlement acts is being, will be or has been committed

27-21

shall provide to the commissioner the information required by, and in a manner prescribed by, the

27-22

commissioner.

27-23

     (2) Any other person having knowledge or a reasonable belief that a fraudulent life

27-24

settlement act is being, will be or has been committed may provide to the commissioner the

27-25

information required by, and in a manner prescribed by, the commissioner.

27-26

     (d) Immunity from liability.

27-27

     (1) No civil liability shall be imposed on and no cause of action shall arise from a

27-28

person’s furnishing information concerning suspected, anticipated or completed fraudulent life

27-29

settlement acts or suspected or completed fraudulent insurance acts, if the information is provided

27-30

to or received from:

27-31

     (i) The commissioner or the commissioner’s employees, agents or representatives;

27-32

     (ii) Federal, state or local law enforcement or regulatory officials or their employees,

27-33

agents or representatives;

27-34

     (iii) A person involved in the prevention and detection of fraudulent life settlement acts

28-1

or that person’s agents, employees or representatives;

28-2

     (iv) Any regulatory body or their employees, agents or representatives, overseeing life

28-3

insurance, life settlements, securities or investment fraud;

28-4

     (v) The life insurer that issued the life insurance policy covering the life of the insured; or

28-5

     (vi) The licensee and any agents, employees or representatives.

28-6

     (2) Subdivision (1) of this subsection shall not apply to statements made with actual

28-7

malice. In an action brought against a person for filing a report or furnishing other information

28-8

concerning a fraudulent life settlement act or a fraudulent insurance act, the party bringing the

28-9

action shall plead specifically any allegation that subdivision (1) does not apply because the

28-10

person filing the report or furnishing the information did so with actual malice.

28-11

     (3) A person identified in subdivision (1) shall be entitled to an award of attorney’s fees

28-12

and costs if he or she is the prevailing party in a civil cause of action for libel, slander or any

28-13

other relevant tort arising out of activities in carrying out the provisions of this chapter and the

28-14

party bringing the action was not substantially justified in doing so. For purposes of this section a

28-15

proceeding is “substantially justified” if it had a reasonable basis in law or fact at the time that it

28-16

was initiated.

28-17

     (4) This section does not abrogate or modify common law or statutory privileges or

28-18

immunities enjoyed by a person described in subdivision (1).

28-19

     (e) Confidentiality.

28-20

     (1) The documents and evidence provided pursuant to subsection (d) of this section or

28-21

obtained by the commissioner in an investigation of suspected or actual fraudulent life settlement

28-22

acts shall be privileged and confidential and shall not be a public record and shall not be subject

28-23

to discovery or subpoena in a civil or criminal action.

28-24

     (2) Subdivision (1) of this subsection does not prohibit release by the commissioner of

28-25

documents and evidence obtained in an investigation of suspected or actual fraudulent life

28-26

settlement acts:

28-27

     (i) In administrative or judicial proceedings to enforce laws administered by the

28-28

commissioner;

28-29

     (ii) To federal, state or local law enforcement or regulatory agencies, to an organization

28-30

established for the purpose of detecting and preventing fraudulent life settlement acts or to the

28-31

NAIC; or

28-32

     (iii) At the discretion of the commissioner, to a person in the business of life settlements

28-33

that is aggrieved by a fraudulent life settlement act.

28-34

     (3) Release of documents and evidence under subdivision (2) of this subsection does not

29-1

abrogate or modify the privilege granted in subdivision (1).

29-2

     (f) Other law enforcement or regulatory authority. This chapter shall not:

29-3

     (1) Preempt the authority or relieve the duty of other law enforcement or regulatory

29-4

agencies to investigate, examine and prosecute suspected violations of law;

29-5

     (2) Preempt, supersede, or limit any provision of any state securities law or any rule,

29-6

order, or notice issued thereunder;

29-7

     (3) Prevent or prohibit a person from voluntarily disclosing information concerning life

29-8

settlement fraud to a law enforcement or regulatory agency other than the insurance department;

29-9

or

29-10

     (4) Limit the powers granted elsewhere by the laws of this state to the commissioner or

29-11

an insurance fraud unit to investigate and examine possible violations of law and to take

29-12

appropriate action against wrongdoers.

29-13

     (g) Life settlement antifraud initiatives.

29-14

     (1) Providers and brokers shall have in place antifraud initiatives reasonably calculated to

29-15

detect, prosecute and prevent fraudulent life settlement acts. At the discretion of the

29-16

commissioner, the commissioner may order, or a licensee may request and the commissioner may

29-17

grant, such modifications of the following required initiatives as necessary to ensure an effective

29-18

antifraud program. The modifications may be more or less restrictive than the required initiatives

29-19

so long as the modifications may reasonably be expected to accomplish the purpose of this

29-20

section. Antifraud initiatives shall include:

29-21

     (i) Fraud investigators, who may be provider or broker employees or independent

29-22

contractors; and

29-23

     (ii) An antifraud plan, which shall be submitted to the commissioner. The antifraud plan

29-24

shall include, but not be limited to:

29-25

     (A) A description of the procedures for detecting and investigating possible fraudulent

29-26

life settlement acts and procedures for resolving material inconsistencies between medical records

29-27

and insurance applications;

29-28

     (B) A description of the procedures for reporting possible fraudulent life settlement acts

29-29

to the commissioner;

29-30

     (C) A description of the plan for antifraud education and training of underwriters and

29-31

other personnel; and

29-32

     (D) A description or chart outlining the organizational arrangement of the antifraud

29-33

personnel who are responsible for the investigation and reporting of possible fraudulent life

29-34

settlement acts and investigating unresolved material inconsistencies between medical records

30-1

and insurance applications.

30-2

     (2) Antifraud plans submitted to the commissioner shall be privileged and confidential

30-3

and shall not be a public record and shall not be subject to discovery or subpoena in a civil or

30-4

criminal action.

30-5

     27-72-15. Injunctions -- Civil remedies -- Cease and desist. – (a) In addition to the

30-6

penalties and other enforcement provisions of this chapter, if any person violates this chapter or

30-7

any rule implementing this chapter, the commissioner may seek an injunction in a court of

30-8

competent jurisdiction in this state and may apply for temporary and permanent orders that the

30-9

commissioner determines necessary to restrain the person from further committing the violation.

30-10

     (b) Any person damaged by the acts of another person in violation of this chapter or any

30-11

rule or regulation implementing this chapter, may bring a civil action for damages against the

30-12

person committing the violation in a court of competent jurisdiction.

30-13

     (c) The commissioner may issue a cease and desist order upon a person who violates any

30-14

provision of this part, any rule or order adopted by the commissioner, or any written agreement

30-15

entered into with the commissioner, in accordance with the chapter governing administrative

30-16

procedures, section 42-35-1 et seq.

30-17

     (d) When the commissioner finds that such an action presents an immediate danger to the

30-18

public and requires an immediate final order, he may issue an emergency cease and desist order

30-19

reciting with particularity the facts underlying such findings. The emergency cease and desist

30-20

order is effective immediately upon service of a copy of the order on the respondent and remains

30-21

effective for ninety (90) days. If the department begins non-emergency cease and desist

30-22

proceedings under subsection (a), the emergency cease and desist order remains effective, absent

30-23

an order by a court of competent jurisdiction pursuant to section 42-35-1 et seq. In the event of a

30-24

willful violation of this chapter, the superior court may award statutory damages in addition to

30-25

actual damages in an additional amount up to three (3) times the actual damage award. The

30-26

provisions of this chapter may not be waived by agreement. No choice of law provision may be

30-27

utilized to prevent the application of this chapter to any settlement in which a party to the

30-28

settlement is a resident of this state.

30-29

     27-72-16. Penalties. – (a) It is a violation of this chapter for any person, provider, broker,

30-30

or any other party related to the business of life settlements, to commit a fraudulent life settlement

30-31

act.

30-32

     (b) For criminal liability purposes, a person that commits a fraudulent life settlement act

30-33

is guilty of committing insurance fraud and shall be subject to additional penalties under section

30-34

27-54-1 et seq.

31-1

     (c) The commissioner shall be empowered to levy a civil penalty not exceeding one

31-2

thousand dollars ($1,000) and the amount of the claim for each violation upon any person,

31-3

including those persons and their employees licensed pursuant to this chapter, who is found to

31-4

have committed a fraudulent life settlement act or violated any other provision of this chapter.

31-5

     (d) The license of a person licensed under this chapter that commits a fraudulent life

31-6

settlement act shall be revoked.

31-7

     27-72-17. Unfair trade practices. -- A violation of this chapter shall be considered an

31-8

unfair trade practice pursuant to state law and subject to the penalties provided by state law.

31-9

     27-72-18. Effective Date. – (a) A provider lawfully transacting business in this state

31-10

prior to the effective date of this act may continue to do so pending approval or disapproval of

31-11

that person’s application for a license as long as the application is filed with the commissioner not

31-12

later than thirty (30) days after publication by the commissioner of an application form and

31-13

instructions for licensure of providers. If the publication of the application form and instructions

31-14

is prior to the effective date of this act, then the filing of the application shall not be later than

31-15

thirty (30) days after the effective date of this act. During the time that such an application is

31-16

pending with the commissioner, the applicant may use any form of life settlement contract that

31-17

has been filed with the commissioner pending approval thereof, provided that such form is

31-18

otherwise in compliance with the provisions of this chapter. Any person transacting business in

31-19

this state under this provision shall be obligated to comply with all other requirements of this

31-20

chapter.

31-21

     (b) A person who has lawfully negotiated life settlement contracts between any owner

31-22

residing in this state and one or more providers for at least one year immediately prior to the

31-23

effective date of this act may continue to do so pending approval or disapproval of that person’s

31-24

application for a license as long as the application is filed with the commissioner not later than

31-25

thirty (30) days after publication by the commissioner of an application form and instructions for

31-26

licensure of brokers. If the publication of the application form and instructions is prior to the

31-27

effective date of this chapter, then the filing of the application shall not be later than thirty (30)

31-28

days after the effective date of this act. Any person transacting business in this state under this

31-29

provision shall be obligated to comply with all other requirements of this chapter.

31-30

     SECTION 2. This act shall take effect on July 1, 2010.

=======

LC01017

========

EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO INSURANCE -- LIFE SETTLEMENTS ACT

***

32-1

     This act would create comprehensive standards in the establishment and administration of

32-2

life settlements contracts.

32-3

     This act would take effect on July 1, 2010.

=======

LC01017

=======