REPORT TITLE:
Viatical Settlements


DESCRIPTION:
Establishes requirements for the regulation of viatical
settlements.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
HOUSE OF REPRESENTATIVES                H.B. NO.580        
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO VIATICAL SETTLEMENTS.



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

 1      SECTION 1.  The purpose of this Act is to:
 
 2      (1)  Establish requirements and authority for the adoption
 
 3           of rules relating to the registration, disclosure,
 
 4           educational requirements, and form approval for persons
 
 5           engaged in the business of viatical settlements;
 
 6      (2)  Provide consumer protection for viators seeking advice
 
 7           or services from viatical settlement brokers; and
 
 8      (3)  Provide expedited and administrative recourse for
 
 9           viators who fail to receive consideration from a
 
10           viatical settlement company.
 
11      SECTION 2.  The Hawaii Revised Statutes is amended by adding
 
12 a new article to chapter 431 to be appropriately designated and
 
13 to read as follows:
 
14                             "ARTICLE
 
15                       VIATICAL SETTLEMENTS
 
16      431:   -1 Short title.  This article may be cited as the
 
17 Viatical Settlements Act.
 
18      431:   -2 Definitions.  As used in this article, unless
 
19 the context clearly requires otherwise:
 

 
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 1      "Commissioner" means the insurance commissioner of this
 
 2 State.
 
 3      "Financing entity" means any participant, or any transferee
 
 4 of or successor to the interest of a participant, in any
 
 5 financing transaction.
 
 6      "Financing transaction" means any transaction in which a
 
 7 duly licensed viatical settlement company obtains financing for
 
 8 the purchase of viatical settlement contracts, viated policies,
 
 9 or interests therein, including, without limitation, any secured
 
10 or unsecured financing, any securitization transaction or any
 
11 securities offering either registered or exempt from registration
 
12 under federal and state securities law, direct purchase of
 
13 interests in a policy or certificate on behalf of a financing
 
14 entity by a viatical settlement company acting as the financing
 
15 entity's appointed attorney in fact, or otherwise sells, assigns,
 
16 transfers, pledges, hypothecates, or otherwise disposes of
 
17 viatical settlement contracts, viated policies, or interests
 
18 therein.
 
19      "Participant" means any underwriter, placement agent,
 
20 lender, purchaser of securities, purchaser of a policy or
 
21 certificate from a viatical settlement company, credit enhancer,
 
22 or person who may be a party to a viatical settlement and has a
 
23 direct ownership in any policy or certificate which is the
 

 
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 1 subject of a viatical settlement contract but whose sole activity
 
 2 related to the transaction is providing funds to effect the
 
 3 viatical settlement in exchange for future investment proceeds
 
 4 and who has appointed in writing a registered viatical settlement
 
 5 company to act as the person's agent in such transactions, or
 
 6 other participant (other than the viatical settlement company) in
 
 7 any financing transaction.
 
 8      "Person" means any natural pperson or legal entity,
 
 9 including individuals, partnerships, associations, trusts,
 
10 limited liability companies, or corporations.
 
11      "Viated policy" means any life insurance policy or
 
12 certificate that has been acquired by a viatical settlement
 
13 company from a viator directly pursuant to a viatical settlement
 
14 contract.
 
15      "Viatical settlement" means a transaction in which a
 
16 viatical settlement company pays compensation or anything of
 
17 value, which compensation or value is less than the expected
 
18 death benefit of the insurance policy or certificate under a
 
19 group life insurance policy, in return for the viator's absolute
 
20 assignment, transfer, sale, devise, or bequest of the death
 
21 benefit or ownership of the life insurance policy or certificate
 
22 to the viatical settlement company or its designee.
 
23      "Viatical settlement broker" means any person who, on behalf
 

 
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 1 of a viator and for a fee, commission, or other valuable
 
 2 consideration, offers or advertises services and advice to
 
 3 viators relating to viatical settlements, introduces viators to
 
 4 viatical settlement companies, or offers or attempts to negotiate
 
 5 viatical settlements between a viator and one or more viatical
 
 6 settlement companies.  Irrespective of the manner in which the
 
 7 viatical settlement broker is compensated, a viatical settlement
 
 8 broker is deemed to represent only the interests of the viator
 
 9 and owes a fiduciary duty to the viator to act according to the
 
10 viator's instructions and in the best interest of the viator.
 
11 "Viatical settlement broker" does not include an attorney,
 
12 accountant, or financial planner retained to represent the viator
 
13 who does not perform the services of a viatical settlement broker
 
14 and whose compensation is paid directly by or at the direction of
 
15 the viator, nor does the term include a viatical settlement
 
16 company, viatical settlement company representative, or financing
 
17 entity.  A viatical settlement broker is deemed to represent only
 
18 the interests of the viator and owes a fiduciary duty to the
 
19 viator to act according to the viator's instructions and in the
 
20 best interest of the viator unless otherwise disclosed to the
 
21 viator in writing.
 
22      "Viatical settlement broker representative" means any person
 
23 who is an agent of and who is appointed and authorized by one
 

 
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                                     H.B. NO.580        
                                                        
                                                        


 1 exclusive duly licensed viatical settlement broker and any
 
 2 subagent or other representative of that agent who acts or aids
 
 3 in any manner in the soliciting of a viatical settlement contract
 
 4 on behalf of the viatical settlement broker or who, for valuable
 
 5 consideration, advertises, offers, or advises the availability of
 
 6 viatical settlements.  "Viatical settlement broker
 
 7 representative" does not include a viatical settlement broker or
 
 8 any employee thereof, viatical settlement company or any employee
 
 9 thereof, attorney, accountant, financing entity, or person
 
10 exercising a power of attorney granted by a viator or any person
 
11 retained to represent the viator and whose compensation is paid
 
12 by or at the direction of the viator without regard to whether
 
13 the viatical settlement is effected.  The viatical settlement
 
14 broker representative is deemed to represent the appointing
 
15 viatical settlement broker.
 
16      "Viatical settlement company" means any person that enters
 
17 or attempts to enter into a viatical settlement contract, either
 
18 on the person's own behalf or as an attorney in fact or other
 
19 agent for a financing entity.  The term does not include:
 
20      (1)  Any bank, savings bank, savings and loan association,
 
21           credit union, or other licensed financial or lending
 
22           institution which takes an assignment of a life
 
23           insurance policy as collateral for a loan, from a party
 

 
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 1           which is not a viator;
 
 2      (2)  The issuer of a life insurance policy providing
 
 3           accelerated benefits under section 431:10A-527.5(b);
 
 4      (3)  Any member of a viator's immediate family or other
 
 5           individual with a close consensual or close personal
 
 6           relationship to the viator who enters into no more than
 
 7           one agreement in a calendar year for the assignment,
 
 8           sale, or transfer of life insurance policies for any
 
 9           value less than the expected death benefit.  "Immediate
 
10           family" means parents, mother-in-law or father-in-law,
 
11           spouse, brother or sister, brother-in-law or sister-in-
 
12           law, son-in-law or daughter-in-law, or children; or
 
13      (4)  Any financing entity, viatical settlement broker,
 
14           viatical settlement company representative, or viatical
 
15           settlement broker representative.
 
16      "Viatical settlement company representative" means any
 
17 person who is an agent of and who is appointed and authorized by
 
18 one exclusive duly licensed viatical settlement company and any
 
19 subagent or other representative of that agent who acts or aids
 
20 in any manner in the soliciting of a viatical settlement contract
 
21 on behalf of the viatical settlement company or who, for valuable
 
22 consideration, advertises, offers, or advises the availability of
 
23 viatical settlements.  "Viatical settlement company
 

 
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                                     H.B. NO.580        
                                                        
                                                        


 1 representative" does not include a viatical settlement company or
 
 2 any employee thereof, viatical settlement broker or any employee
 
 3 thereof, attorney, accountant, financing entity, or person
 
 4 exercising a power of attorney granted by a viator or any person
 
 5 retained to represent the viator, and whose compensation is paid
 
 6 by or at the direction of the viator without regard to whether
 
 7 the viatical settlement is effected.  The viatical settlement
 
 8 company representative is deemed to represent the appointing
 
 9 viatical settlement company.
 
10      "Viatical settlement contract" means a written agreement
 
11 entered into between a viatical settlement company and a viator.
 
12 The agreement shall establish the terms under which the viatical
 
13 settlement company will pay compensation or anything of value,
 
14 which compensation or value is less than the expected death
 
15 benefit of the insurance policy or certificate, in return for the
 
16 viator's absolute assignment, transfer, sale, devise, or bequest
 
17 of the death benefit or ownership of the life insurance policy or
 
18 certificate to the viatical settlement company.  "Viatical
 
19 settlement contract" also includes a non-recourse loan executed
 
20 by the viator and secured by a viator's interest in the viator's
 
21 life insurance policy or certificate, other than a loan by a life
 
22 insurance company pursuant to the terms of the life insurance
 
23 contract.  If the viatical settlement contract is structured as a
 

 
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                                     H.B. NO.580        
                                                        
                                                        


 1 loan executed by the viator, the lender shall only be entitled to
 
 2 the principal balance of the loan plus accrued interest and
 
 3 closing fees.
 
 4      "Viator" means the owner of a life insurance policy or
 
 5 certificate holder under a group life insurance policy whose
 
 6 policy or certificate covers the life of a person with a
 
 7 catastrophic or life-threatening illness or condition who enters
 
 8 or seeks to enter into a viatical settlement contract with a
 
 9 viatical settlement company.  The term does not include a
 
10 viatical settlement company or financing entity.
 
11      431:   -3 License requirements for viatical settlement
 
12 companies.(a)  Except as provided elsewhere in this article, no
 
13 person may operate in this State as a viatical settlement company
 
14 unless duly licensed by the commissioner.
 
15      (b)  Application for a viatical settlement company license
 
16 shall be made to the commissioner by the applicant on a form
 
17 prescribed by the commissioner.  The application shall be
 
18 accompanied by a fee in an amount to be established by rules
 
19 adopted by the commissioner pursuant to chapter 91.
 
20      (c)  If the licensee for a viatical settlement company is an
 
21 entity other than a natural person, a license issued to a person
 
22 authorizes all partners, officers, and key management personnel
 
23 of that person to act on behalf of the licensee, and all those
 

 
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 1 persons shall be named in the application and any supplements to
 
 2 the application.
 
 3      (d)  A viatical settlement company license shall permit the
 
 4 licensee to operate in this State and regularly engage in and
 
 5 conduct the business of viatical settlements as a viatical
 
 6 settlement company.
 
 7      (e)  A viatical settlement company license does not
 
 8 authorize or permit the licensee to represent viators or
 
 9 otherwise engage in the business of a viatical settlement broker.
 
10 Nothing in this section shall prohibit a viatical settlement
 
11 company from receiving applications for a viatical settlement
 
12 directly from viators and conducting activities ancillary to
 
13 viatical settlements; provided that the viatical settlement
 
14 company clearly discloses that it is not the representative of
 
15 the viator and that the viator has the right to consult
 
16 independent counsel with regard to the transaction.  An applicant
 
17 or licensee engaged in both the business of a viatical settlement
 
18 company and a viatical settlement broker shall apply for and
 
19 obtain separate licenses for each type of business.
 
20      (f)  A license for a viatical settlement company may be
 
21 renewed from year to year on March 31 upon payment of an annual
 
22 renewal fee in an amount to be established by rules adopted by
 
23 the commissioner pursuant to chapter 91.  Failure to pay the fee
 

 
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 1 within the terms prescribed shall result in the automatic
 
 2 revocation of the license unless cured within ten business days
 
 3 after the receipt of written notice of that failure.  Notice
 
 4 shall be mailed to the principal office of the licensee.
 
 5      (g)  The commissioner shall not issue any license to any
 
 6 nonresident applicant unless a written designation of an agent
 
 7 for service of process is filed and maintained with the
 
 8 commissioner, or the applicant has filed with the commissioner
 
 9 the applicant's written irrevocable consent that any action
 
10 against the applicant may be commenced against the applicant by
 
11 service of process on the commissioner.
 
12      (h)  The commissioner shall maintain a complete listing of
 
13 all viatical settlement companies licensed or with license
 
14 applications pending in this State or authorized to enter into
 
15 viatical settlement contracts with residents of this State
 
16 pursuant to section 431:   -18, which shall be government records
 
17 available to the general public for inspection.
 
18      431:   -4  License requirements for viatical settlement
 
19 brokers.(a)  A viatical settlement broker shall not operate in
 
20 this State without first obtaining a license from the
 
21 commissioner.
 
22      (b)  A viatical settlement broker shall make application on
 
23 a form required by the commissioner.
 

 
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 1      (c)  If the licensee for a viatical settlement broker is an
 
 2 entity other than a natural person, a license issued to a person
 
 3 authorizes all partners, officers, and key management personnel
 
 4 of that person to act on behalf of the licensee, and all those
 
 5 persons shall be named in the application and any supplements to
 
 6 the application.
 
 7      (d)  The viatical settlement broker license shall permit the
 
 8 licensee to conduct the following activities:
 
 9      (1)  Consult, advise, and represent viators in regard to
 
10           viatical settlements (not to include legal advice);
 
11      (2)  Represent the interests of viators and act on behalf of
 
12           viators as their agent in negotiations, relations,
 
13           communications, or other business communications with
 
14           any viatical settlement company, insurance company,
 
15           group insurance administrator, employer of a viator,
 
16           health care provider, custodian of records, or any
 
17           other party from whom records, information, or forms of
 
18           any type must be obtained in order to effect a viatical
 
19           settlement; and
 
20      (3)  Perform personal services for viators related to a
 
21           viatical settlement, including identifying viatical
 
22           settlement companies to which the policy may be
 
23           presented, compiling information necessary for policy
 

 
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 1           evaluation by a viatical settlement company, presenting
 
 2           a policy for purchase to a viatical settlement company,
 
 3           providing notary services for a viator if the applicant
 
 4           or an employee thereof is a registered notary in this
 
 5           State, and any other personal service related to
 
 6           effecting a viatical settlement.
 
 7      (e)  Viatical settlement brokers shall not be subject to
 
 8 prelicensing education and continuing education; provided that
 
 9 the commissioner may require a detailed recitation of education,
 
10 training, or experience in connection with life insurance, group
 
11 insurance benefits, and viatical settlements in order to
 
12 demonstrate a body of knowledge by the applicant or applicant's
 
13 officers, partners, or employees, sufficient to adequately
 
14 represent the best interest of viators in a viatical transaction.
 
15      (f)  Viatical settlement brokers shall at all times act in
 
16 the best interest of the viator and according to the instructions
 
17 of the viator.
 
18      (g)  Viatical settlement brokers shall not seek or obtain
 
19 any compensation from the viator without the written agreement of
 
20 the viator obtained prior to performing any services in
 
21 connection with a viatical settlement.
 
22      (h)  A license for a viatical settlement broker may be
 
23 renewed from year to year on March 31 upon payment of an annual
 

 
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                                     H.B. NO.580        
                                                        
                                                        


 1 renewal fee in an amount to be established by rules adopted by
 
 2 the commissioner pursuant to chapter 91.  Failure to pay the fee
 
 3 within the terms prescribed shall result in the automatic
 
 4 revocation of the license unless cured within ten business days
 
 5 after the receipt of written notice of that failure.  Notice
 
 6 shall be mailed to the principal office of the licensee.
 
 7      (i)  The commissioner shall not issue any license to any
 
 8 nonresident applicant unless a written designation of an agent
 
 9 for service of process is filed and maintained with the
 
10 commissioner, or the applicant has filed with the commissioner
 
11 the applicant's written irrevocable consent that any action
 
12 against the applicant may be commenced against the applicant by
 
13 service of process on the commissioner.
 
14      (j)  The commissioner shall maintain a complete listing of
 
15 all viatical settlement brokers licensed or with license
 
16 applicantions pending in this State or authorized to represent
 
17 residents of this State pursuant to section 431:   -18, which
 
18 shall be government records available to the general public for
 
19 inspection.
 
20      431:   -5 Appointments of viatical settlement company
 
21 representatives and viatical settlement broker representatives.
 
22 (a)  Each viatical settlement company representative or viatical
 
23 settlement broker representative shall be appointed in writing by
 

 
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 1 the viatical settlement company or viatical settlement broker,
 
 2 which appointment shall be filed with the commissioner on such
 
 3 form as provided by the commissioner and accompanied by an
 
 4 appointment fee in an amount to be established by rules adopted
 
 5 by the commissioner pursuant to chapter 91.
 
 6      (b)  Each viatical settlement company or viatical settlement
 
 7 broker making such an appointment shall be legally responsible
 
 8 for the conduct of its appointed representatives operating in
 
 9 this State.
 
10      (c)  An appointment as a viatical settlement company
 
11 representative or a viatical settlement broker representative may
 
12 be renewed from year to year on March 31 upon payment of an
 
13 annual renewal fee in an amount to be established by rules
 
14 adopted by the commissioner pursuant to chapter 91.  Failure to
 
15 pay the fee within the terms prescribed shall result in the
 
16 automatic revocation of the appointment unless cured within ten
 
17 business days after the receipt of written notice of that
 
18 failure.  Notice shall be mailed to the principal office of the
 
19 appointing viatical settlement company or viatical settlement
 
20 broker.
 
21      431:   -6 Enforcement powers and administrative
 
22 assessments; viatical settlement companies.(a)  The
 
23 commissioner may refuse to issue, suspend, revoke, or refuse to
 

 
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                                     H.B. NO.580        
                                                        
                                                        


 1 renew the license of any viatical settlement company or, at the
 
 2 commissioner's discretion, may impose an administrative fine of
 
 3 not more than $1,000 per violation, if the commissioner finds
 
 4 that:
 
 5      (1)  There was any material misrepresentation in the
 
 6           application for a license;
 
 7      (2)  The licensee or any officer, partner, director, or key
 
 8           management personnel has been found guilty of a felony
 
 9           or any misdemeanor of which criminal fraud is an
 
10           element or is otherwise shown to be untrustworthy or
 
11           incompetent;
 
12      (3)  The licensee has taken ownership or assignment of a
 
13           policy without payment of consideration under the terms
 
14           of the viatical settlement contract, failed to honor
 
15           any provision of the viatical settlement contract,
 
16           utilized a trustee or escrow agent for a viatical
 
17           settlement transaction which is not independent of the
 
18           licensee, or contacted viators in a manner which
 
19           violates the requirement of this article; or
 
20      (4)  The licensee has violated any provision of this article
 
21           or any rules adopted thereunder.
 
22      (b)  Failure of the viatical settlement company to tender
 
23 the full consideration for the viatical settlement to the viator
 

 
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                                     H.B. NO.580        
                                                        
                                                        


 1 renders the contract void for lack of consideration.  In such
 
 2 event, the commissioner has specific authority to order a
 
 3 viatical settlement company to immediately retransfer ownership
 
 4 back into the name of the viator and to provide proof of that
 
 5 retransfer or, at the commissioner's discretion, to file on
 
 6 behalf of the viator an action for injunctive relief against the
 
 7 viatical settlement company to order the retransfer of that
 
 8 ownership back to the viator.  A judgment for injunctive relief
 
 9 in an action brought pursuant to this section may include an
 
10 award of reasonable attorney's fees and costs of court.
 
11      431:   -7 Enforcement powers and administrative
 
12 assessments; viatical settlement brokers.  The commissioner may
 
13 refuse to issue, suspend, revoke, or refuse to renew the license
 
14 of any viatical settlement broker or, at the commissioner's
 
15 discretion, may impose an administrative fine of not more than
 
16 $1,000 per violation, if the commissioner finds that:
 
17      (1)  There was any material misrepresentation in the
 
18           application for a license;
 
19      (2)  The licensee or any officer, partner, director, or key
 
20           management personnel has been found guilty of a felony
 
21           or any misdemeanor of which criminal fraud is an
 
22           element or is otherwise shown to be untrustworthy or
 
23           incompetent;
 

 
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                                     H.B. NO.580        
                                                        
                                                        


 1      (3)  The licensee has acted against the interest of the
 
 2           viator, intentionally withheld information from a
 
 3           viator which is necessary for a viator to make an
 
 4           informed decision regarding a viatical settlement,
 
 5           engaged in self-dealing to the detriment of a viator,
 
 6           failed to follow the instructions of a viator (unless
 
 7           those instructions would cause the licensee to be in
 
 8           violation of any state or federal law), engaged in
 
 9           contacting viators after the consummation of a viatical
 
10           settlement after being informed by the viator that such
 
11           contact was unwanted, or has otherwise acted or
 
12           conducted business in a manner which does not represent
 
13           the interest of the viator; or
 
14      (4)  The licensee has violated any provision of this article
 
15           or any rules adopted thereunder.
 
16      431:   -8 Enforcement powers and administrative
 
17 assessments; viatical settlement company representatives and
 
18 viatical settlement broker representatives.  The commissioner may
 
19 refuse to issue, suspend, revoke, or refuse to renew the license
 
20 or appointment of any viatical settlement broker, viatical
 
21 settlement company, viatical settlement company representative or
 
22 viatical settlement broker representative or, at the
 
23 commissioner's discretion, may impose an administrative fine of
 

 
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                                     H.B. NO.580        
                                                        
                                                        


 1 not more than $1,000 per violation if the commissioner finds
 
 2 that:
 
 3      (1)  The representative has engaged in any activity which,
 
 4           if committed by the viatical settlement company or
 
 5           viatical settlement broker, would subject the viatical
 
 6           settlement company or viatical settlement broker to
 
 7           administrative sanctions under this section; or
 
 8      (2)  The licensee has violated any provision of this article
 
 9           or any rules adopted thereunder.
 
10      431:   -9 Approval of viatical settlement contracts,
 
11 disclosure statements, and applications.  Unless operating in
 
12 this State pursuant to section 431:   -18 and utilizing forms
 
13 filed and approved by the commissioner for the state of domicile,
 
14 no viatical settlement company or viatical settlement broker
 
15 operating in this State may use any contract, disclosure
 
16 statement, or application when dealing with a viator unless it
 
17 has been filed with and approved by the commissioner.  Any
 
18 contract, disclosure statement, or application filed with the
 
19 commissioner shall be deemed approved unless disapproved within
 
20 sixty days of the filing.  The commissioner may disapprove a
 
21 contract, disclosure statement, or application if, in the
 
22 commissioner's opinion, the contract or form's provisions are
 
23 unreasonable, not in compliance with this article, or otherwise
 

 
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                                     H.B. NO.580        
                                                        
                                                        


 1 misleading to the viator.
 
 2      431:   -10  Reporting requirements and confidentiality of
 
 3 information.  (a)  Each licensee shall file with the commissioner
 
 4 on or before March 31 of each year an annual statement containing
 
 5 such information as the commissioner by rule may prescribe.  The
 
 6 commissioner is specifically and strictly prohibited from
 
 7 prescribing any rule which requires the submission of information
 
 8 which would permit the identification of a viator.  The
 
 9 commissioner is further prohibited from requesting, collecting,
 
10 or compiling personal information which would identify any
 
11 viator, except in connection with the investigation of a specific
 
12 complaint and with the express written permission of the viator
 
13 for the collection of such personal information.
 
14      (b)  No person, including any viatical settlement company or
 
15 any appointed representative thereof, viatical settlement broker
 
16 or appointed representative thereof, insurance company, insurance
 
17 agent, insurance broker, information bureau, rating company, or
 
18 any other person with actual knowledge of the identity of a
 
19 viator may disclose that identity to any other person unless such
 
20 disclosure is:
 
21      (1)  Necessary to effect the viatical settlement or any
 
22           subsequent assignment of the policy or certificate
 
23           which was the subject of a viatical settlement and the
 

 
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                                     H.B. NO.580        
                                                        
                                                        


 1           viator provides written consent to the disclosure;
 
 2      (2)  Provided in response to an investigation by the
 
 3           commissioner and for which the viator has provided
 
 4           written consent to the disclosure; or
 
 5      (3)  Necessary to facilitate a financing transaction,
 
 6           provided that the viator has previously consented to
 
 7           the disclosure.
 
 8      (c)  The confidentiality requirements of this section shall
 
 9 apply to all persons without regard to changes in corporate
 
10 control, identity, or location.
 
11      431:   -11  Examination.(a)  In response to a complaint
 
12 concerning a licensee or in connection with an application for a
 
13 license, the commissioner may examine the business and affairs of
 
14 any licensee or applicant for a license.  Subject to sections
 
15 431:   -6, 431:   -7, and 431:   -8, the commissioner may order
 
16 any licensee or applicant to produce any records, books, files,
 
17 or other information reasonably necessary to ascertain whether or
 
18 not the licensee or applicant is acting or has acted in violation
 
19 of this article or rules adopted thereunder.
 
20      (b)  Names and individual identification data for all
 
21 viators shall be considered private and confidential information
 
22 and shall not be disclosed by the commissioner, unless required
 
23 by law.
 

 
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                                     H.B. NO.580        
                                                        
                                                        


 1      (c)  Records of all completed viatical settlements shall be
 
 2 maintained by the licensee and, subject to sections 431:   -6,
 
 3 431:   -7, and 431:   -8, shall be available to the commissioner
 
 4 for three years after policy maturity for inspection during
 
 5 reasonable business hours.
 
 6      (d)  Any licensee responding to an order of the commissioner
 
 7 issued under color of law and pursuant to this section shall be
 
 8 immune from any civil action arising out of compliance with that
 
 9 order and shall not be required to challenge the authority or
 
10 validity of that order as a prerequisite to receiving immunity.
 
11      431:   -12  Disclosure.(a)  A viatical settlement company
 
12 or its appointed representative, and a viatical settlement broker
 
13 or its appointed representative, shall disclose in writing the
 
14 following information to the viator no later than the date the
 
15 viatical settlement contract is signed by all parties:
 
16      (1)  The fact that some or all of the proceeds of the
 
17           viatical settlement may be taxable or may be exempt
 
18           from federal taxation under federal law and that
 
19           assistance should be sought from a personal tax
 
20           advisor;
 
21      (2)  The fact that some or all of the proceeds of the
 
22           viatical settlement may be exempt from state franchise
 
23           and income tax under section 431:   -13(h), and that
 

 
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                                     H.B. NO.580        
                                                        
                                                        


 1           assistance should be sought from a personal tax
 
 2           advisor;
 
 3      (3)  The possibility that the viatical settlement proceeds
 
 4           could be subject to the claims of creditors;
 
 5      (4)  The fact that receipt of viatical settlement proceeds
 
 6           may adversely affect the recipient's eligibility for
 
 7           medicaid or other means-based government programs,
 
 8           benefits, or entitlements, and that advice should be
 
 9           obtained from the appropriate agencies; and
 
10      (5)  The viator's right to rescind a viatical settlement
 
11           contract within thirty days of the date it is executed
 
12           by all parties or fifteen days of the receipt of the
 
13           viatical settlement proceeds by the viator, whichever
 
14           is less, as provided in section 431:   -13(b).
 
15      (b)  A viatical settlement company representative or
 
16 viatical settlement broker representative shall disclose in
 
17 writing and in all written or electronically published materials
 
18 of every kind and nature, including advertising and press
 
19 releases, that it is acting as the exclusive agent of a viatical
 
20 settlement company or viatical settlement broker and shall
 
21 identify the person making the appointment by name.
 
22      (c)  A viatical settlement company shall disclose to the
 
23 viator or the viator's viatical settlement broker if it is unable
 

 
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                                     H.B. NO.580        
                                                        
                                                        


 1 or unwilling to purchase the life insurance policy or certificate
 
 2 presented to it and, with the written authorization of the
 
 3 viator, may act as the viator's viatical settlement broker if
 
 4 licensed to act in such a capacity, or may transfer the file as
 
 5 directed by the viator to another viatical settlement broker or
 
 6 viatical settlement company for evaluation.  In that event, the
 
 7 transfer of the file, without any further services performed on
 
 8 behalf of the viator, shall be considered an accommodation to the
 
 9 viator and shall not constitute the business of a viatical
 
10 settlement broker.
 
11      431:   -13  General rules.(a)  A viatical settlement
 
12 company entering into a viatical settlement contract with a
 
13 viator shall first obtain:
 
14      (1)  If the viator is also the insured, a written statement
 
15           from a licensed attending physician that the viator is
 
16           of sound mind and under no constraint or undue
 
17           influence;
 
18      (2)  A witnessed document in which the viator consents to
 
19           the viatical settlement contract, acknowledges that the
 
20           insured has a catastrophic or life-threatening illness,
 
21           represent that the viator has a full and complete
 
22           understanding of the viatical settlement contract, that
 
23           the viator has full and complete understanding of the
 

 
Page 24                                                    
                                     H.B. NO.580        
                                                        
                                                        


 1           benefits of the life insurance policy or certificate
 
 2           under a group life insurance policy, and acknowledges
 
 3           that the viator has entered into the viatical
 
 4           settlement contract freely and voluntarily; and
 
 5      (3)  A witnessed document in which the insured consents to
 
 6           the release of the insured's medical records.
 
 7      (b)  All viatical settlement contracts performable in this
 
 8 State shall contain a provision for an unconditional recision
 
 9 period of at least thirty days from the date of execution of the
 
10 contract, or fifteen days of the receipt by the viator of the
 
11 viatical settlement proceeds, whichever is less.  This recision,
 
12 if exercised by the viator, is effective only if both notice of
 
13 the recision is given and a full return of funds to the trustee
 
14 or escrow agent is made within the recision period.
 
15      (c)  Immediately upon receipt from the viator of an executed
 
16 viatical settlement contract, the viatical settlement company
 
17 shall pay the proceeds of the settlement to an escrow account in
 
18 a state or federally chartered financial institution that is a
 
19 member of the federal reserve system which is managed by a
 
20 trustee or escrow agent that is wholly independent of the
 
21 viatical settlement company and without any related or shared
 
22 directors, officers, employees, or shareholders and which is
 
23 neither a parent, subsidiary, or affiliate of the viatical
 

 
Page 25                                                    
                                     H.B. NO.580        
                                                        
                                                        


 1 settlement company, pending acknowledgement of the transfer by
 
 2 the issuer of the policy.  The escrow agent shall be required to
 
 3 transfer the proceeds due to the viator or otherwise according to
 
 4 the viator's written instructions immediately upon receipt of
 
 5 acknowledgement of the transfer from the insurer.
 
 6      (d)  A viatical settlement contract shall contain a full
 
 7 disclosure regarding what effect the viatical settlement will
 
 8 have on payment of premiums and disposition of proceeds, cash
 
 9 value, and dividends, if the policy that is the subject of the
 
10 viatical settlement contains a provision for double or additional
 
11 indemnity for accidental death, or contains riders or other
 
12 provisions insuring the lives of spouses, family members, or
 
13 anyone else other than the viator.
 
14      (e)  Payment of the consideration for a viatical settlement
 
15 shall be by means of wire transfer to the account of the viator
 
16 or to such other accounts as the viator may instruct the escrow
 
17 agent, or by certified check or by a corporate escrow check.
 
18      (f)  Payment of the consideration for a viatical settlement
 
19 shall be made in a lump sum.  Retention of a portion of the
 
20 consideration by the viatical settlement company is not
 
21 permissible.  Retention by the escrow agent of any amount payable
 
22 to the viator is permissible only if the escrow agent is so
 
23 instructed by the viator.
 

 
Page 26                                                    
                                     H.B. NO.580        
                                                        
                                                        


 1      (g)  Neither a viatical settlement company, viatical
 
 2 settlement broker, nor any agent, employee, or other party on
 
 3 their behalf shall pay or offer to pay any finder's fee,
 
 4 commission, or other compensation to any viator's physician,
 
 5 attorney, accountant, or other person providing medical, legal,
 
 6 social, or financial planning services to the viator.  Provided,
 
 7 however, that nothing in this section shall prevent or prohibit
 
 8 the viator from directing the escrow agent in a viatical
 
 9 settlement transaction to pay a specified amount to one or more
 
10 persons who may fall under the above-referenced categories in
 
11 payment of fees for professional services which may have been
 
12 incurred by the viator (whether or not in connection with the
 
13 viatical settlement transaction.
 
14      (h)  Income received by the viator from a viatical
 
15 settlement shall be exempt from this State's franchise or income
 
16 tax.
 
17      (i)  Advertising standards:
 
18      (1)  No viatical settlement company or appointed
 
19           representative thereof or viatical settlement broker or
 
20           appointed representative thereof shall advertise or in
 
21           any other way solicit business in a manner that is
 
22           untruthful or misleading by fact or implication;
 
23      (2)  The names of viatical settlement companies or appointed
 

 
Page 27                                                    
                                     H.B. NO.580        
                                                        
                                                        


 1           representatives thereof and viatical settlement brokers
 
 2           or appointed representatives thereof shall be clearly
 
 3           identified in all advertisements placed by those
 
 4           persons; and
 
 5      (3)  In all advertising, the appointed representative of a
 
 6           viatical settlement company or a viatical settlement
 
 7           broker shall identify the viatical settlement company
 
 8           or a viatical settlement broker represented by the
 
 9           appointed representative.
 
10      (j)  Contacts with the insured or another person designated
 
11 by the insured for the purpose of determining the health status
 
12 of the insured by the viatical settlement company or its
 
13 appointed representative or viatical settlement broker or its
 
14 appointed representative, after the viatical settlement has
 
15 occurred should be limited to no more than once per month for an
 
16 insured with an estimated life expectancy of one year or less at
 
17 the time of the contract.  The viatical settlement company or the
 
18 appointed representative thereof and the viatical settlement
 
19 broker or the appointed representative thereof shall explain the
 
20 procedure for these contacts at the time the viatical settlement
 
21 contract is entered into.  The limitation on contacts provided
 
22 under this paragraph does not apply to contacts initiated by the
 
23 insured or which may be necessary in order to maintain the policy
 

 
Page 28                                                    
                                     H.B. NO.580        
                                                        
                                                        


 1 in force.  If the life insurance policy or certificate under a
 
 2 group life policy which was the subject of a viatical settlement
 
 3 is subsequently assigned or otherwise transferred to another
 
 4 person, that person shall take the assignment or transfer subject
 
 5 to the same provisions and procedures regarding contacts as set
 
 6 forth in this subsection.
 
 7      431:   -14  Prohibited practices and provisions under
 
 8 policies.(a)  Policy rights freely assignable.
 
 9      (1)  No policy of individual or group life insurance issued
 
10           or delivered in this State which permits assignment of
 
11           a covered person's rights under that policy shall in
 
12           any way restrict the covered person from making an
 
13           absolute assignment of those rights.  Prohibited
 
14           restrictions shall include assignments only as a gift
 
15           and without consideration, assignments only to a
 
16           limited class of persons, and assignments only to a
 
17           natural person and not to a legal entity;
 
18      (2)  Any provision in any individual or group life insurance
 
19           policy that places limitations on assignments shall be
 
20           deemed void as a matter of public policy and
 
21           unenforceable; and
 
22      (3)  A life insurance company that acknowledges and records
 
23           an absolute assignment of a life insurance policy or
 

 
Page 29                                                    
                                     H.B. NO.580        
                                                        
                                                        


 1           rights under a group life insurance policy may rely
 
 2           solely on the authorization of the assignor to make
 
 3           that assignment, and the life insurance company shall
 
 4           not be obligated to inquire into the validity,
 
 5           sufficiency, or terms of the assignment.  In
 
 6           acknowledging and recording such an assignment, a life
 
 7           insurance company acting in good faith and reliance on
 
 8           the presentation of an absolute assignment, acts in a
 
 9           ministerial capacity and may exhibit no discretion as
 
10           to whether or not an assignor may make that assignment
 
11           or whether the assignment comports with applicable law.
 
12      (b)  Assignee to take same position as assignor.
 
13      (1)  The absolute assignee of an individual life policy or
 
14           of all rights under a group life insurance policy shall
 
15           have all rights at law or in equity as the assignor
 
16           held under that policy, including the right to convert
 
17           the coverage to an individual policy, the right to
 
18           timely notice of the right to conversion at the time
 
19           the right accrues, the right to make premium payments
 
20           or take such other action as may be necessary under the
 
21           policy in order to preserve the value of the coverage
 
22           assigned, the right to receive information concerning
 
23           the coverage, the right to receive notice of a lapse or
 

 
Page 30                                                    
                                     H.B. NO.580        
                                                        
                                                        


 1           discontinuation of coverage, the exclusive right to
 
 2           exercise any options concerning the assigned coverage
 
 3           during an open enrollment period, and all such other
 
 4           rights and privileges initially granted to the insured
 
 5           under the terms of the group life insurance policy;
 
 6      (2)  Upon assignment, the assignor may no longer exercise
 
 7           any option for accelerated benefits under any such
 
 8           policy provision which may exist; provided that, as a
 
 9           matter of public policy, accelerated benefits
 
10           provisions are deemed to be solely for the benefit of
 
11           the insured and may not be exercised by any subsequent
 
12           assignee of the policy or rights under a group policy.
 
13           Nothing in this section shall prevent an insured from
 
14           exercising any option for accelerated benefits under
 
15           the terms of any individual or group life policy and
 
16           subsequently assigning the remainder of that coverage,
 
17           if any, in a viatical settlement;
 
18      (3)  A self-administered group is deemed to be the agent of
 
19           the insurance company for purposes of notice,
 
20           communications, premium collection, and other
 
21           administrative functions, and this section shall apply
 
22           to any such self-administered group in that agency
 
23           capacity and the underwriting insurance company through
 

 
Page 31                                                    
                                     H.B. NO.580        
                                                        
                                                        


 1           that agency; and
 
 2      (4)  A life insurance company issuing a group life insurance
 
 3           policy which replaces an existing policy of life
 
 4           insurance for that group shall accept and honor any
 
 5           assignment made under any prior group life insurance
 
 6           policy, except in instances in which, by the terms of
 
 7           the group life insurance policy being replaced, the
 
 8           coverage remains payable by the insurance company which
 
 9           issued the policy being replaced.
 
10      (c)  If the rights under a group life insurance policy have
 
11 been assigned and the administrator of that policy fails to give
 
12 notice to the assignee that the insured is no longer a covered
 
13 person under the group and of the right to convert the policy to
 
14 an individual life insurance policy, the period of time during
 
15 which the assignee must make application for conversion under the
 
16 terms of the group life insurance policy shall begin from the
 
17 date that notice is given to the assignee.
 
18      (d)  No insurance company may raise against any assignee of
 
19 a policy or rights under a group life insurance policy any
 
20 defense to payment under the terms of that policy if the defense
 
21 is based on the statements, concealments, misrepresentations,
 
22 warranties, or other actions by the insured, and if the assignee
 
23 took assignment for value in good faith without knowledge of
 

 
Page 32                                                    
                                     H.B. NO.580        
                                                        
                                                        


 1 those actions by the insured at the time those actions are
 
 2 alleged to have occurred.
 
 3      (e)  All policies of individual life insurance which have
 
 4 been converted from a group life insurance policy under the terms
 
 5 of the policy shall contain a rider or other policy provision
 
 6 which provides that, for purposes of measuring the period of
 
 7 incontestability or suicide exclusion, the date of issue shall be
 
 8 the original date of coverage under the group policy and not the
 
 9 date of issue of the individual policy.
 
10      431:   -15  Required insurance company practices.(a)
 
11 Every insurance company licensed to do business in this State or
 
12 group policy administrator, whether self-administered or
 
13 administrated by a third party, which administrates a policy
 
14 underwritten by an insurance company licensed to do business in
 
15 this State shall provide the specified information requested on
 
16 the status of a viator's life insurance policy or certificate
 
17 under a group life insurance policy within twenty business days
 
18 after the receipt of the following documents by the insurance
 
19 company or group policy administrator:
 
20      (1)  An authorization signed by the viator to release
 
21           information regarding the policy or certificate to a
 
22           named viatical settlement company or its appointed
 
23           representative or viatical settlement broker or its
 

 
Page 33                                                    
                                     H.B. NO.580        
                                                        
                                                        


 1           appointed representative; and
 
 2      (2)  A written request from the named viatical settlement
 
 3           company or its appointed representative or viatical
 
 4           settlement broker or its appointed representative for
 
 5           the specified policy or certificate information.
 
 6      (b)  Every issuer of a group life insurance policy in this
 
 7 State, within thirty days of the receipt by the insurer or the
 
 8 group administrator of such a policy of a written request from a
 
 9 certificate holder for a conversion to an individual life
 
10 insurance policy or a completed application for conversion,
 
11 payment of the conversion premiums due and written notice that
 
12 the conversion is ancillary to a viatical settlement, shall
 
13 deliver the conversion policy to the applicant for conversion or
 
14 the applicant's designee.
 
15      (c)  Nothing in subsection (a) or (b) is intended to
 
16 prohibit a viator under a group life insurance policy from
 
17 assigning the viator's rights or benefits under that policy to a
 
18 viatical settlement company or converting that coverage to an
 
19 individual life insurance policy.
 
20      (d)  Every insurance company licensed to do business in this
 
21 State and any group administrator which administers a policy
 
22 issued by an insurance company licensed to do business in this
 
23 State shall record and acknowledge a change of ownership,
 

 
Page 34                                                    
                                     H.B. NO.580        
                                                        
                                                        


 1 beneficiary, or an assignment of an individual life insurance
 
 2 policy or a certificate under a group life insurance policy
 
 3 written within ten business days of receiving the appropriate and
 
 4 properly completed change forms.
 
 5      (e)  Nothing in this article shall be interpreted to require
 
 6 notice to the commissioner of, or restrict an insurance company
 
 7 from investing in, or participating in or purchasing any
 
 8 securities issued in any transaction (including without
 
 9 limitation any financing, any securitization transaction, any
 
10 securities offering or any direct ownership by appointment of a
 
11 duly licensed viatical settlement company) in which the duly
 
12 licensed viatical settlement company sells, assigns, tranfers,
 
13 pledges, hypothecates, or otherwise disposes of a viatical
 
14 settlement contract, viated policy, or any interest therein.
 
15      431:   -16  Financing.(a)  Nothing in this article shall
 
16 be interpreted to require a financing entity to obtain a viatical
 
17 settlement company or a viatical settlement broker license.
 
18      (b)  Nothing in this article shall be interpreted to
 
19 restrict any person from receiving a fee, commission, or other
 
20 valuable consideration for its services in connection with any
 
21 financing transaction.
 
22      431:   -17  Unfair trade practices.  A violation of this
 
23 article shall be considered an unfair trade practice under
 

 
Page 35                                                    
                                     H.B. NO.580        
                                                        
                                                        


 1 article 13 and subject to the penalties contained in that
 
 2 article.
 
 3      431:   -18  Reciprocity with other licensing states.(a)
 
 4 In lieu of licensing under this article, a viatical settlement
 
 5 company or viatical settlement broker will be deemed to be
 
 6 authorized to enter into contracts with viators in this State
 
 7 only upon the following conditions:
 
 8      (1)  The viatical settlement company or viatical settlement
 
 9           broker has no offices, agents, representatives,
 
10           property, or other presence in this State and is not
 
11           subject to taxation by this State;
 
12      (2)  That it is duly licensed or otherwise authorized to
 
13           operate as a viatical settlement company or viatical
 
14           settlement broker, as appropriate for the business in
 
15           which it is engaged, in the state in which it is
 
16           domiciled; and
 
17      (3)  That the laws and rules of the state in which the
 
18           viatical settlement company or viatical settlement
 
19           broker is domiciled provide the commissioner with
 
20           investigation and enforcement powers.
 
21      (b)  Any viatical settlement company or viatical settlement
 
22 broker which enters into any contract with a viator who is a
 
23 resident of this State pursuant to this section agrees and
 

 
Page 36                                                    
                                     H.B. NO.580        
                                                        
                                                        


 1 consents to the application of the licensing state's
 
 2 investigation and enforcement powers for the benefit and
 
 3 protection of a resident of this State, and may not avoid any
 
 4 complaint or investigation referred to the licensing state's
 
 5 commissioner by this State on the basis that the complainant is a
 
 6 resident of another state.
 
 7      431:   -19  Rules.  The commissioner shall adopt rules
 
 8 pursuant to chapter 91 as may be necessary to implement this
 
 9 article."
 
10      SECTION 3.  Section 235-7, Hawaii Revised Statutes, is
 
11 amended by amending subsection (a) to read as follows:
 
12      "(a)  There shall be excluded from gross income, adjusted
 
13 gross income, and taxable income:
 
14      (1)  Income not subject to taxation by the State under the
 
15           Constitution and laws of the United States;
 
16      (2)  Rights, benefits, and other income exempted from
 
17           taxation by section 88-91, having to do with the state
 
18           retirement system, and the rights, benefits, and other
 
19           income, comparable to the rights, benefits, and other
 
20           income exempted by section 88-91, under any other
 
21           public retirement system;
 
22      (3)  Any compensation received in the form of a pension for
 
23           past services;
 

 
Page 37                                                    
                                     H.B. NO.580        
                                                        
                                                        


 1      (4)  Compensation paid to a patient affected with Hansen's
 
 2           disease employed by the State or the United States in
 
 3           any hospital, settlement, or place for the treatment of
 
 4           Hansen's disease;
 
 5      (5)  Except as otherwise expressly provided, payments made
 
 6           by the United States or this State, under an act of
 
 7           Congress or a law of this State, which by express
 
 8           provision or administrative regulation or
 
 9           interpretation are exempt from both the normal and
 
10           surtaxes of the United States, even though not so
 
11           exempted by the Internal Revenue Code itself;
 
12      (6)  Any income expressly exempted or excluded from the
 
13           measure of the tax imposed by this chapter by any other
 
14           law of the State, it being the intent of this chapter
 
15           not to repeal or supersede any such express exemption
 
16           or exclusion;
 
17      (7)  The first $1,750 received by each member of the reserve
 
18           components of the Army, Navy, Air Force, Marine Corps,
 
19           or Coast Guard of the United States of America, and the
 
20           Hawaii national guard as compensation for performance
 
21           of duty;
 
22      (8)  Income derived from the operation of ships or aircraft
 
23           if the income is exempt under the Internal Revenue Code
 

 
Page 38                                                    
                                     H.B. NO.580        
                                                        
                                                        


 1           pursuant to the provisions of an income tax treaty or
 
 2           agreement entered into by and between the United States
 
 3           and a foreign country, provided that the tax laws of
 
 4           the local governments of that country reciprocally
 
 5           exempt from the application of all of their net income
 
 6           taxes, the income derived from the operation of ships
 
 7           or aircraft which are documented or registered under
 
 8           the laws of the United States;
 
 9      (9)  The value of legal services provided by a prepaid legal
 
10           service plan to a taxpayer, the taxpayer's spouse, and
 
11           the taxpayer's dependents;
 
12     (10)  Amounts paid, directly or indirectly, by a prepaid
 
13           legal service plan to a taxpayer as payment or
 
14           reimbursement for the provision of legal services to
 
15           the taxpayer, the taxpayer's spouse, and the taxpayer's
 
16           dependents;
 
17     (11)  Contributions by an employer to a prepaid legal service
 
18           plan for compensation (through insurance or otherwise)
 
19           to the employer's employees for the costs of legal
 
20           services incurred by the employer's employees, their
 
21           spouses, and their dependents; [and]
 
22     (12)  Amounts received in the form of a monthly surcharge by
 
23           a utility acting on behalf of an affected utility under
 

 
Page 39                                                    
                                     H.B. NO.580        
                                                        
                                                        


 1           section 269-16.3 shall not be gross income, adjusted
 
 2           gross income, or taxable income for the acting utility
 
 3           under this chapter.  Any amounts retained by the acting
 
 4           utility for collection or other costs shall not be
 
 5           included in this exemption[.]; and
 
 6     (13)  Income received from a viator from a viatical
 
 7           settlement under section 431:   -13(h)."
 
 8      SECTION 4.  A viatical settlement company or a viatical
 
 9 settlement broker that is currently closing viatical settlement
 
10 contracts with residents of this State may continue to operate
 
11 pending approval or disapproval of the applicant's license under
 
12 this article, provided that the applicant files an application
 
13 with the insurance commissioner pursuant to this Act within
 
14 ninety days after the adoption of application forms by the
 
15 insurance commissioner.
 
16      SECTION 5.  Statutory material to be repealed is bracketed.
 
17 New statutory material is underscored.
 
18      SECTION 6.  This Act shall take effect on July 1, 2000;
 
19 provided that no viatical settlement company or appointed
 
20 representative thereof or viatical settlement broker or appointed
 
21 representative thereof operating in this State may continue to do
 
22 so after July 1, 2000 unless it is in compliance with this Act.
 
23 
 
24                           INTRODUCED BY: ________________________
 

 
Page 40                                                    
                                     H.B. NO.580        
                                                        
                                                        


 1