Life Settlements Model Act; Stranger-Originated Life Insurance
Enacts the Life Settlements Model Act, which establishes consumer protections in life settlement transactions where the owner of a life insurance policy transfers the death benefit for compensation that is less than the expected death benefit, but more than the surrender value of the policy. Requires the Insurance Commissioner to report annually to the Legislature on the implementation and effects of the Act. Sunsets in 2010. (HB94 CD1)
HOUSE OF REPRESENTATIVES
TWENTY-FOURTH LEGISLATURE, 2007
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO INSURANCE.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:
Part I. General Provisions
§ -1 Short title. This chapter may be cited as the Life Settlements Act.
§ -2 Definitions. As used in this chapter, unless the content otherwise requires:
"Advertisement" means any written, electronic, or printed communication or any communication by means of recorded telephone messages or transmitted on radio, television, the Internet, or similar communications media, including film strips, motion pictures, and videos, which are published, disseminated, circulated, or placed before the public, directly or indirectly, for the purpose of creating an interest in or inducing a person to purchase or sell, assign, devise, bequest, or transfer the death benefit or ownership of a policy or an interest in a policy pursuant to a life settlement contract.
"Broker" means a person who, on behalf of an owner and for a fee, commission, or other valuable consideration, offers or attempts to negotiate life settlement contracts between an owner and providers, represents only the owner, and owes a fiduciary duty to the owner to act according to the owner's instructions, and in the best interest of the owner, notwithstanding the manner in which the broker is compensated. "Broker" does not include an attorney, certified public accountant, or financial planner retained in the type of practice customarily performed in their professional capacity to represent the owner, whose compensation is not paid directly or indirectly by the provider or any other person, except the owner.
"Business of life settlements" means an activity involved in but not limited to offering to enter into, soliciting, negotiating, procuring, effectuating, monitoring, or tracking of life settlement contracts.
"Certificate" means a certificate issued pursuant to a group policy.
"Chronically ill" means:
(1) Being unable to perform at least two activities of daily living, such as eating, toileting, transferring, bathing, dressing, or continence;
(2) Requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment; or
(3) Having a level of disability similar to that described in paragraph (1) as determined by the United States Secretary of Health and Human Services.
"Commissioner" means the insurance commissioner.
"Financing entity" means an underwriter, placement agent, lender, purchaser of securities, purchaser of a policy or certificate from a provider, credit enhancer, or any entity that has a direct ownership in a policy or certificate that is the subject of a life settlement contract, but:
(1) Whose principal activity related to the transaction is providing funds to effect the life settlement contract or purchase of one or more policies; and
(2) Who has an agreement in writing with one or more providers to finance the acquisition of life settlement contracts.
The term shall not include a non-accredited investor or purchaser.
"Financing transaction" means a transaction in which a licensed provider obtains financing from a financing entity including, without limitation, any secured or unsecured financing, any securitization transaction, or any securities offering that is either registered or exempt from registration under federal and state securities law.
"Insured" means the person covered under the policy being considered for sale in a life settlement contract.
"Life expectancy" means the arithmetic mean of the number of months the insured under the policy to be settled can be expected to live as determined by a life expectancy company considering medical records and appropriate experiential data.
"Life insurance producer" means any person licensed in this state as a resident or nonresident insurance producer who has received qualification or authority for life insurance coverage or a life line of coverage pursuant to article 9A of chapter 431.
"Life settlement contract" means:
(a)(1) A written agreement entered into between a provider and an owner, establishing the terms under which compensation or any thing of value will be paid, which compensation or thing of value is less than the expected death benefit of the owner's policy or certificate, in return for the owner's assignment, transfer, sale, devise, or bequest of the death benefit or any portion of the policy or certificate for compensation, where the minimum value of the contract is greater than a cash surrender value or accelerated death benefit available under the policy or certificate at the time of an application for a life settlement contract;
(2) The transfer for compensation or value of ownership or beneficial interest in a trust or other entity that owns such policy or certificate if the trust or other entity was formed or availed of for the principal purpose of acquiring one or more life insurance contracts, which life insurance contract insures the life of a person residing in this state; or
(3) (A) A written agreement for a loan or other lending transaction, secured primarily by an individual or group policy; or
(B) A premium finance loan made for a policy on or before the date of issuance of the policy where:
(i) The loan proceeds are not used solely to pay premiums for the policy and any costs or expenses incurred by the lender or the borrower in connection with the financing;
(ii) The owner receives on the date of the premium finance loan a guarantee of the future life settlement value of the policy; or
(iii) The owner agrees on the date of the premium finance loan to sell the policy or any portion of its death benefit on any date following the issuance of the policy.
"Life settlement contract" does not include:
(b)(1) A policy loan by a life insurance company pursuant to the terms of the policy or accelerated death provisions contained in the policy, whether issued with the original policy or as a rider;
(2) A premium finance loan, as defined herein, or any loan made by a bank or other licensed financial institution, so long as neither default on such loan nor the transfer of the policy in connection with such default is pursuant to an agreement or understanding with any other person for the purpose of evading regulation under this chapter;
(3) A collateral assignment of a policy by an owner;
(4) A loan made by a lender that does not violate any insurance premium finance law of this state; provided that the loan does not qualify as a life settlement contract;
(5) An agreement where all the parties:
(A) Are closely related to the insured by blood or law; or
(B) Have a lawful substantial economic interest in the continued life, health, and bodily safety of the person insured, or are trusts established primarily for the benefit of such parties;
(6) Any designation, consent, or agreement by an insured who is an employee of an employer in connection with the purchase by the employer, or trust established by the employer, of life insurance on the life of the employee;
(7) A bona fide business succession planning arrangement:
(A) Between one or more shareholders in a corporation or between a corporation and one or more of its shareholders or one or more trusts established by its shareholders;
(B) Between one or more partners in a partnership or between a partnership and one or more of its partners or one or more trusts established by its partners; or
(C) Between one or more members in a limited liability company or between a limited liability company and one or more of its members or one or more trusts established by its members;
(8) An agreement entered into by a service recipient, or a trust established by the service recipient, and a service provider, or a trust established by the service provider, who performs significant services for the service recipient's trade or business; or
(9) Any other contract, transaction, or arrangement that is a life settlement contract and that the commissioner determines is not of the type intended to be regulated by this chapter.
"Net death benefit" means the amount of the policy or certificate to be settled less any outstanding debts or liens.
"Owner" means the owner of a policy or a certificate holder under a group policy, with or without a terminal illness, who enters or seeks to enter into a life settlement contract, but shall not be limited to an owner of a policy or a certificate holder under a group policy that insures the life of an individual with a terminal or chronic illness or condition, except where specifically addressed.
"Owner" does not include:
(1) Any provider or other licensee under this chapter;
(2) A qualified institutional buyer as defined in Rule 144A of the Securities Act of 1933, as amended;
(3) A financing entity;
(4) A special purpose entity; or
(5) A related provider trust.
"Patient identifying information" means an insured's address, telephone number, facsimile number, electronic mail address, photograph or likeness, employer, employment status, social security number, or any other information that is likely to lead to the identification of the insured.
"Person" means any natural person or legal entity, including but not limited to a partnership, limited liability company, association, trust, or corporation.
"Policy" means an individual or group policy, certificate, contract, or arrangement of life insurance owned by a resident of this state, regardless of whether delivered or issued for delivery in this state.
"Premium finance loan" means a loan made primarily for the purposes of making premium payments on a policy, which loan is secured by an interest in such policy.
"Provider" means a person, other than an owner, who enters into or effectuates a life settlement contract with an owner. The term does not include:
(1) Any bank, savings bank, savings and loan association, or credit union;
(2) A licensed lending institution or creditor or secured party pursuant to a premium finance loan agreement that takes an assignment of a policy or certificate as collateral for a loan;
(3) The insurer of a policy or rider to the extent of providing accelerated death benefits, riders, or cash surrender value;
(4) Any natural person who enters into or effectuates no more than one agreement in a calendar year for the transfer of a policy or certificate for compensation or anything of value less than the expected death benefit payable under the policy;
(5) A purchaser;
(6) Any authorized or eligible insurer that provides stop loss coverage to a provider, purchaser, financing entity, special purpose entity, or related provider trust;
(7) A financing entity;
(8) A special purpose entity;
(9) A related provider trust;
(10) A broker; or
(11) An accredited investor or qualified institutional buyer as defined respectively in Rule 501 of Regulation D and Rule 144A of the Securities Act of 1933, as amended, who purchases a life settlement contract from a provider.
"Purchased policy" means a policy or certificate that has been acquired by a provider pursuant to a life settlement contract.
"Purchaser" means a person who pays compensation or anything of value as consideration for a beneficial interest in a trust that is vested with, or for the assignment, transfer, or sale of, an ownership or other interest in a policy or a certificate that has been the subject of a life settlement contract.
"Related provider trust" means a titling trust or other trust established by a licensed provider or a financing entity for the sole purpose of holding the ownership or beneficial interest in purchased policies in connection with a financing transaction, that includes a written agreement with the licensed provider under which the licensed provider is responsible for ensuring compliance with all statutory and regulatory requirements and under which the trust agrees to make all records and files relating to life settlement transactions available to the insurance division as if those records and files were maintained directly by the licensed provider.
"Settled policy" means a policy or certificate that has been acquired by a provider pursuant to a life settlement contract.
"Special purpose entity" means a corporation, partnership, trust, limited liability company, or other legal entity formed solely to provide either directly or indirectly access to institutional capital markets for a financing entity or provider in connection with a transaction in which the securities in the special purpose entity:
(1) Are acquired by the owner or by a "qualified institutional buyer" as defined in Rule 144A of the Securities Act of 1933, as amended; or
(2) Pay a fixed rate of return commensurate with established asset-backed institutional capital markets.
"Stranger-originated life insurance" or "STOLI" means a practice or plan to initiate a policy for the benefit of a third party investor who, at the time of policy origination, has no insurable interest in the insured, and includes:
(1) Arrangements in which life insurance is purchased with resources or guarantees from or through a person or entity who at the time of policy inception, could not lawfully initiate the policy by oneself or itself, and where, at the time of inception, there is an arrangement or agreement, whether verbal or written, to directly or indirectly transfer the ownership of the policy, the policy benefits, or both, to a third party; and
(2) Trusts created to give the appearance of insurable interest and used to initiate policies for investors.
"STOLI" does not include those practices set forth in subsection (b) of the definition of "life settlement contract".
"Terminally ill" means having an illness or sickness that can reasonably be expected to result in death in twenty-four months or less.
§ -3 Licensing requirements. (a) No person, wherever located, shall act as a provider or broker with an owner who is a resident of this state, without first having obtained a license from the commissioner.
(b) Application for a provider or broker license shall be made to the commissioner by the applicant on a form prescribed by the commissioner, and the application shall be accompanied by a fee in the amount provided by section 431:7-101.
(c) A life insurance producer who has been duly licensed as a resident insurance producer with a life line of authority in this state or the producer's home state for at least one year and is licensed as a nonresident producer in this state shall be deemed to meet the licensing requirements of this section and shall be permitted to operate as a broker.
(d) Not later than thirty days from the first day of operating as a broker, the life insurance producer shall notify the commissioner that the life insurance producer is acting as a broker on a form prescribed by the commissioner, and shall pay a fee in the amount provided by section 431:7-101. Notification shall include an acknowledgement by the life insurance producer that the life insurance producer will operate as a broker in accordance with this chapter.
(e) The insurer that issued the policy that is the subject of a life settlement contract shall not be responsible for any act or omission of a broker, provider, or purchaser, arising out of or in connection with the life settlement transaction, unless the insurer receives compensation for the placement of a life settlement contract from the provider, purchaser, or broker in connection with the life settlement contract.
(f) A person licensed as an attorney, certified public accountant, or financial planner accredited by a nationally recognized accreditation agency, who is retained to represent the owner, and whose compensation is not paid directly or indirectly by the provider or purchaser, may negotiate life settlement contracts on behalf of the owner without obtaining a license as a broker.
(g) Licenses may be renewed every year on their anniversary date upon payment of fees in the amounts required under section 431:7-101. Failure to pay the fees within the terms prescribed shall result in the automatic inactivation of the license.
(h) The applicant shall provide such information as the commissioner may require on forms prepared by the commissioner. The commissioner shall have authority, at any time, to require such applicant to fully disclose the identity of its stockholders, other than stockholders owning fewer than ten per cent of the shares of an applicant whose shares are publicly traded, and the identity of its partners, officers, and employees. The commissioner may, in the exercise of the commissioner's sole discretion, refuse to issue such a license in the name of any person if not satisfied that any officer, employee, stockholder, or partner thereof who may materially influence the applicant's conduct meets the standards under subsection (j).
(i) A license issued to a partnership, corporation, or other entity authorizes all members, officers, and designated employees to act as a licensee under the license, if those persons are named in the application and any supplements to the application.
(j) Upon the filing of an application and the payment of the license fee, the commissioner shall make an investigation of each applicant and may issue a license if the commissioner finds that the applicant:
(1) If a provider, has provided a detailed plan of operation;
(2) Is competent and trustworthy and intends to transact its business in good faith;
(3) Has a good business reputation and has had experience, training, or education so as to be qualified in the business for which the license is applied;
(4) If a legal entity is formed or organized pursuant to the laws of this state or is a foreign legal entity authorized to transact business in this state, or provides a certificate of good standing from the state of its domicile; and
(5) Has provided to the commissioner an anti-fraud plan that meets the requirements of section -48.
(k) The commissioner shall not issue any license to a nonresident applicant unless a written designation of an agent for service of process is filed and maintained with the commissioner or unless the applicant has filed with the commissioner the applicant's written irrevocable consent that any action against the applicant may be commenced against the applicant by service of process on the commissioner.
(l) Each licensee shall file with the commissioner on or before the first day of March of each year an annual statement containing the information as the commissioner by rule may prescribe.
(m) A provider may not use any person to perform the functions of a broker unless the person holds a current, valid license as a broker.
(n) A broker may not use any person to perform the functions of a provider as defined in this chapter unless such person holds a current, valid license as a provider, and as provided in this section.
(o) A provider or broker shall provide to the commissioner new or revised information about officers, ten per cent or more stockholders, partners, directors, members, or designated employees within thirty days of the change.
(p) An individual licensed as a broker shall complete on a biennial basis fifteen hours of training related to life settlements and life settlement transactions, as required by the commissioner; provided that a life insurance producer who is operating as a broker pursuant to this section shall not be subject to the requirements of this subsection. Any person failing to meet the requirements of this subsection shall be subject to the penalties imposed by the commissioner.
§ -4 License suspension, revocation, or refusal to renew. (a) The commissioner may suspend, revoke, or refuse to renew the license of any licensee if the commissioner finds that:
(1) There was any material misrepresentation in the application for the license;
(2) The licensee or any officer, partner, member, or director has been guilty of fraudulent or dishonest practices, is subject to a final administrative action, or is otherwise shown to be untrustworthy or incompetent to act as a licensee;
(3) The provider demonstrates a pattern of unreasonably withholding payments to policy owners;
(4) The licensee no longer meets the requirements for initial licensure;
(5) The licensee or any officer, partner, member, or director has been convicted of a felony, or of any misdemeanor of which criminal fraud is an element; or the licensee has pleaded guilty or nolo contendere with respect to any felony or any misdemeanor of which criminal fraud or moral turpitude is an element, regardless of whether a judgment of conviction has been entered by the court;
(6) The provider has entered into any life settlement contract that has not been approved pursuant to this chapter;
(7) The provider has failed to honor contractual obligations set out in a life settlement contract;
(8) The provider has assigned, transferred, or pledged a settled policy to a person other than a provider licensed in this state, a purchaser, an accredited investor or qualified institutional buyer as defined respectively in Rule 501 of Regulation D or Rule 144A of the federal Securities Act of 1933, as amended, a financing entity, a special purpose entity, or a related provider trust; or
(9) The licensee or any officer, partner, member, or key management personnel has violated this chapter.
(b) Before the commissioner may deny a license application or suspends, revokes, or refuses to renew the license of any licensee under this chapter, the commissioner shall conduct a hearing in accordance with chapter 91.
§ -5 Contract requirements. (a) No person may use any form of life settlement contract in this state unless it has been filed with and approved, if required, by the commissioner in a manner that conforms with the filing procedures and any time restrictions or deeming provisions, if any, for life insurance forms, policies, and contracts.
(b) No insurer may, as a condition of responding to a request for verification of coverage or in connection with the transfer of a policy pursuant to a life settlement contract, require that the owner, insured, provider, or broker sign any form, disclosure, consent, waiver, or acknowledgment that has not been expressly approved by the commissioner for use in connection with life settlement contracts in this state.
(c) A person shall not use a life settlement contract form or provide to an owner a disclosure statement form in this state unless first filed with and approved by the commissioner. The commissioner shall disapprove a life settlement contract form or disclosure statement form if, in the commissioner’s opinion, the contract or provisions contained therein fail to meet the requirements of sections -21, -31, -33, and -43 of this chapter or are unreasonable, contrary to the interests of the public, or otherwise misleading or unfair to the owner. At the commissioner’s discretion, the commissioner may require the submission of advertising material.
§ -6 Reporting requirements and privacy. (a) For any policy settled within five years of policy issuance, each provider shall file with the commissioner on or before March 1 of each year an annual statement containing the information as the commissioner may prescribe by rule. In addition to any other requirements, the annual statement shall:
(1) Specify the total number, aggregate face amount, and life settlement proceeds of policies settled during the immediately preceding calendar year, together with a breakdown of the information by policy issue year; and
(2) Include the names of the insurance companies whose policies have been settled and the brokers that have settled said policies.
The information shall be limited to only those transactions where the insured is a resident of this state and shall not include individual transaction data regarding the business of life settlements or information that there is a reasonable basis to believe could be used to identify the owner or the insured.
Every provider that wilfully fails to file an annual statement as required in this section, or wilfully fails to reply within thirty days to a written inquiry by the commissioner in connection therewith, shall, in addition to other penalties provided by this chapter, be subject, upon due notice and opportunity to be heard, to a penalty of up to $250 per day of delay, not to exceed $25,000 in the aggregate, for each such failure.
(b) Except as otherwise allowed or required by law, a provider, broker, insurance company, insurance producer, information bureau, rating agency or company, or any other person with actual knowledge of an insured's identity, shall not disclose the identity of an insured or information that there is a reasonable basis to believe could be used to identify the insured or the insured's financial or medical information to any other person unless the disclosure:
(1) Is necessary to effect a life settlement contract between the owner and a provider, and the owner and insured have provided prior written consent to the disclosure;
(2) Is necessary to effectuate the sale of life settlement contracts, or interests therein, as investments, so long as the sale is conducted in accordance with applicable state and federal securities law and the owner and the insured have both provided prior written consent to the disclosure;
(3) Is provided in response to an investigation or examination by the commissioner pursuant to the requirements of section -17 or any other governmental officer or agency;
(4) Is a term or condition to the transfer of a policy by one provider to another provider, in which case the receiving provider shall be required to comply with the confidentiality requirements of this section;
(5) Is necessary to allow the provider or broker or their authorized representatives to make contacts for the purpose of determining health status. For the purposes of this paragraph, the term "authorized representative" shall not include any person who has or may have any financial interest in the life settlement contract other than a provider, licensed broker, financing entity, related provider trust, or special purpose entity. A provider or broker shall require its authorized representative to agree in writing to adhere to the privacy provisions of this section; or
(6) Is required to purchase stop loss coverage.
(c) Non-public personal information solicited or obtained in connection with a proposed or actual life settlement contract shall be subject to the provisions applicable to financial institutions under the federal Gramm Leach Bliley Act, P.L. 106-102 (1999), and all other applicable state and federal laws relating to confidentiality of non-public personal information.
PART II. EXAMINATIONS
§ -11 Examination. (a) The commissioner may, when the commissioner deems it reasonably necessary to protect the interests of the public, examine the business and affairs of any licensee or applicant for a license. The commissioner may order any licensee or applicant to produce any records, books, files or other information reasonably necessary to ascertain whether such licensee or applicant is acting or has acted in violation of the law or otherwise contrary to the interests of the public. The expenses incurred in conducting any examination shall be paid by the licensee or applicant.
(b) In lieu of an examination under this chapter of any foreign or alien licensee licensed in this state, the commissioner may, at the commissioner’s discretion, accept an examination report on the licensee as prepared by the commissioner for the licensee’s state of domicile or port-of-entry state.
(c) Records of all consummated transactions and life settlement contracts shall be maintained by the provider for three years after the death of the insured and shall be available to the commissioner for inspection during reasonable business hours.
§ -12 Conduct of examinations. (a) Upon determining that an examination under section -11 should be conducted, the commissioner shall issue an examination warrant appointing one or more examiners to perform the examination and instructing them as to the scope of the examination. In conducting the examination, the examiner shall use methods common to the examination of any life settlement licensee and shall use the guidelines and procedures set forth in an examiners’ handbook adopted by a national organization.
(b) Every licensee or person from whom information is sought, including its officers, directors and agents, shall provide to the examiners timely, convenient, and free access at all reasonable hours at its offices to all books, records, accounts, papers, documents, assets, and computer or other recordings relating to the property, assets, business, and affairs of the licensee being examined. The officers, directors, employees, and agents of the licensee or person shall facilitate the examination and aid in the examination so far as it is in their power to do so. The refusal of a licensee, by its officers, directors, employees, or agents, to submit to examination or to comply with any reasonable written request of the commissioner shall be grounds for suspension or refusal of, or nonrenewal of any license or authority held by the licensee to engage in the life settlement business or other business subject to the commissioner's jurisdiction. Any proceedings for suspension, revocation, or refusal of any license or authority shall be conducted pursuant to chapter 91.
(c) The commissioner shall have the power to issue subpoenas, to administer oaths, and to examine under oath any person as to any matter pertinent to the examination. Upon the failure or refusal of a person to obey a subpoena, the commissioner may petition a court of competent jurisdiction, and upon proper showing, the court may enter an order compelling the witness to appear and testify or produce documentary evidence.
(d) When making an examination under this chapter, the commissioner may retain attorneys, appraisers, independent actuaries, independent certified public accountants, or other professionals and specialists as examiners, the reasonable cost of which shall be borne by the licensee that is the subject of the examination.
(e) Nothing in this chapter shall be construed to limit the commissioner's authority to terminate or suspend an examination to pursue other legal or regulatory action pursuant to the insurance laws of this state. Findings of fact and conclusions made pursuant to any examination shall be prima facie evidence in any legal or regulatory action.
(f) Nothing in this chapter shall be construed to limit the commissioner's authority to use and, if appropriate, to make public any final or preliminary examination report, any examiner or licensee work papers or other documents, or any other information discovered or developed during the course of any examination in the furtherance of any legal or regulatory action that the commissioner may, in the commissioner's sole discretion, deem appropriate.
§ -13 Examination reports. (a) Examination reports shall be comprised of only facts appearing upon the books, from the testimony of its officers or agents or other persons examined concerning its affairs, and such conclusions and recommendations as the examiners find reasonably warranted from the facts.
(b) No later than sixty days following completion of the examination, the examiner in charge shall file with the commissioner a verified written report of examination under oath. Upon receipt of the verified report, the commissioner shall transmit the report to the licensee examined, together with a notice that shall afford the licensee examined a reasonable opportunity of not more than thirty days to make a written submission or rebuttal with respect to any matters contained in the examination report and which shall become part of the report or to request a hearing on any matter in dispute.
(c) In the event the commissioner determines that regulatory action is appropriate as a result of an examination, the commissioner may initiate any proceedings or actions provided by law.
§ -14 Confidentiality of examination information. (a) Names and individual identification data for all owners, purchasers, and insureds shall be considered private and confidential information and shall not be disclosed by the commissioner, unless the disclosure is to another regulator or is required by law.
(b) Except as otherwise provided in this chapter, all examination reports, working papers, recorded information, documents and copies thereof produced by, obtained by, or disclosed to the commissioner or any other person in the course of an examination made under this chapter, or in the course of analysis or investigation by the commissioner of the financial condition or market conduct of a licensee, shall be confidential by law and privileged, shall not be subject to chapter 92F, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action. The commissioner is authorized to use the documents, materials, or other information in the furtherance of any regulatory or legal action brought as part of the commissioner's official duties. The licensee being examined may have access to all documents used to make the report.
§ -15 Examiner; conflict of interest. (a) An examiner may not be appointed by the commissioner if the examiner, either directly or indirectly, has a conflict of interest or is affiliated with the management of or owns a pecuniary interest in any person subject to examination under this chapter. This section shall not be construed to automatically preclude an examiner from being:
(1) An owner;
(2) An insured in a policy or life settlement contract; or
(3) A beneficiary in a policy that is proposed for a life settlement contract.
(b) Notwithstanding the requirements of this section, the commissioner may retain from time to time, on an individual basis, qualified actuaries, certified public accountants, or other similar individuals who are independently practicing their professions, even though these persons may from time to time be similarly employed or retained by persons subject to examination under this chapter.
§ -16 Immunity from liability. (a) No cause of action shall arise nor shall any liability be imposed against the commissioner, the commissioner's authorized representatives, or any examiner appointed by the commissioner for any statements made or conduct performed in good faith while carrying out the provisions of this chapter.
(b) No cause of action shall arise, nor shall any liability be imposed against any person for the act of communicating or delivering information or data to the commissioner or the commissioner's authorized representative or examiner pursuant to an examination made under this chapter, if the act of communication or delivery was performed in good faith and without fraudulent intent or the intent to deceive. This subsection does not abrogate or modify in any way any common law or statutory privilege or immunity heretofore enjoyed by any person identified in subsection (a).
(c) A person identified in subsection (a) or (b) shall be entitled to an award of attorney's fees and costs if the person is the prevailing party in a civil cause of action for libel, slander, or any other relevant tort arising out of activities in carrying out the provisions of this chapter and the party bringing the action was not substantially justified in doing so. For purposes of this section, a proceeding is "substantially justified" if it had a reasonable basis in law or fact at the time that it was initiated.
§ -17 Investigative authority of the commissioner. The commissioner may investigate suspected fraudulent life settlement acts and persons engaged in the business of life settlements.
PART III. ADVERTISING
§ -21 Advertising. (a) A broker or provider licensed pursuant to this chapter may conduct or participate in advertisements within this state. Such advertisements shall comply with all advertising and marketing laws or rules adopted by the commissioner that are applicable to life insurers or to brokers and providers licensed pursuant to this chapter.
(b) Advertisements shall be accurate, truthful, and not misleading in fact or by implication.
(c) No person or trust shall:
(1) Directly or indirectly market, advertise, solicit, or otherwise promote the purchase of a policy for the sole purpose of or with an emphasis on settling the policy; or
(2) Use the words “free”, “no cost”, or words of similar import in the marketing, advertising, soliciting, or otherwise promoting of the purchase of a policy.
PART IV. DISCLOSURES AND GENERAL PROCEDURES
§ -31 Disclosures to owners. (a) The provider shall provide in writing, in a separate document that is signed by the owner and provider, the following information to the owner no later than the date the life settlement contract is signed by all parties:
(1) The fact that possible alternatives to life settlement contracts exist, including but not limited to accelerated benefits offered by the issuer of the policy;
(2) The fact that some or all of the proceeds of a life settlement contract may be taxable and that assistance should be sought from a professional tax advisor;
(3) The fact that the proceeds from a life settlement contract could be subject to the claims of creditors;
(4) The fact that receipt of proceeds from a life settlement contract may adversely affect the recipients' eligibility for public assistance or other government benefits or entitlements and that advice should be obtained from the appropriate agencies;
(5) The fact that the owner has a right to terminate a life settlement contract within fifteen days of the date it is executed by all parties and the owner has received the disclosures contained herein. Rescission, if exercised by the owner, is effective only if both notice of the rescission is given, and the owner repays all proceeds and any premiums, loans, and loan interest paid on account of the provider within the rescission period. If the insured dies during the rescission period, the contract shall be deemed to have been rescinded subject to repayment by the owner or the owner’s estate of all proceeds and any premiums, loans, and loan interest to the provider;
(6) The fact that proceeds will be sent to the owner within three business days after the provider has received the insurer or group administrator’s acknowledgement that ownership of the policy or interest in the certificate has been transferred and the beneficiary has been designated in accordance with the terms of the life settlement contract;
(7) The fact that entering into a life settlement contract may cause other rights or benefits, including conversion rights and waiver of premium benefits that may exist under the policy or certificate, to be forfeited by the owner and that assistance should be sought from a professional financial advisor;
(8) The amount and method of calculating the compensation paid or to be paid to the broker, or any other person acting for the owner in connection with the transaction, wherein the term compensation includes anything of value paid or given;
(9) The date by which the funds will be available to the owner and the transmitter of the funds;
(10) The fact that the commissioner shall require delivery of a Buyer’s Guide or a similar consumer advisory package in the form prescribed by the commissioner to owners during the solicitation process;
(11) The following language:
“All medical, financial or personal information solicited or obtained by a provider or broker about an insured, including the insured’s identity or the identity of family members, a spouse or a significant other may be disclosed as necessary to effect the life settlement contract between the owner and provider. If you are asked to provide this information, you will be asked to consent to the disclosure. The information may be provided to someone who buys the policy or provides funds for the purchase. You may be asked to renew your permission to share information every two years.";
(12) The fact that the commissioner shall require providers and brokers to print separate signed fraud warnings on their applications and on their life settlement contracts as follows:
“Any person who knowingly presents false information in an application for insurance or life settlement contract is guilty of a crime and may be subject to fines and confinement in prison.”;
(13) The fact that the owner may be contacted by either the provider or broker or its authorized representative for the purpose of determining the owner’s health status or to verify the owner's address;
(14) The affiliation, if any, between the provider and the issuer of the policy to be settled;
(15) That a broker represents exclusively the owner, and not the insurer or the provider or any other person, and owes a fiduciary duty to the owner, including a duty to act according to the owner’s instructions and in the best interest of the owner;
(16) The name, address, and telephone number of the provider;
(17) The name, business address, and telephone number of the independent third party escrow agent, and the fact that the owner may inspect or receive copies of the relevant escrow or trust agreements or documents; and
(18) The fact that a change of ownership could in the future limit the insured’s ability to purchase future insurance on the insured’s life because there is a limit to how much coverage insurers will issue on one life.
(b) The written disclosures shall be conspicuously displayed in any life settlement contract furnished to the owner by a provider, including any affiliations or contractual arrangements between the provider and the broker.
(c) A broker shall provide the owner and the provider with at least the following disclosures no later than the date the life settlement contract is signed by all parties. The disclosures shall be conspicuously displayed in the life settlement contract or in a separate document signed by the owner and provide the following information:
(1) The name, business address, and telephone number of the broker;
(2) A full, complete, and accurate description of all the offers, counter-offers, acceptances, and rejections relating to the proposed life settlement contract;
(3) A written disclosure of any affiliations or contractual arrangements between the broker and any person making an offer in connection with the proposed life settlement contract;
(4) The name of each broker who receives compensation and the amount of compensation received by that broker, which compensation includes anything of value paid or given to the broker in connection with the life settlement contract;
(5) A complete reconciliation of the gross offer or bid by the provider to the net amount of proceeds or value to be received by the owner. For the purpose of this paragraph, "gross offer" or "bid" means the total amount or value offered by the provider for the purchase of one or more life insurance policies, inclusive of commissions and fees; and
(6) The fact that the failure to provide the disclosures or rights described in this section shall be deemed an unfair trade practice under section 480-2.
§ -32 Disclosure to insurer. (a) Without limiting the ability of an insurer from assessing the insurability of a policy applicant and determining whether or not to issue the policy, and in addition to other questions an insurance carrier may lawfully pose to a life insurance applicant, insurance carriers may inquire in the application for insurance whether the proposed owner intends to pay premiums with the assistance of financing from a lender that will use the policy as collateral to support the financing.
(b) If, as described in subsection (a)(3) of the definition of "life settlement contract" in section -2, the loan provides funds that can be used for a purpose other than paying for the premiums, costs, and expenses associated with obtaining and maintaining the policy and loan, the application shall be rejected as a violation of the prohibited practices in section -41.
(c) If the financing does not violate section -41 in this manner, the insurance carrier:
(1) May make disclosures to the applicant and the insured, either on the application or an amendment to the application to be completed no later than the delivery of the policy, including the following:
“If you have entered into a loan arrangement where the policy is used as collateral, and the policy does change ownership at some point in the future in satisfaction of the loan, the following may be true:
(1) A change of ownership could lead to a stranger owning an interest in the insured’s life;
(2) A change of ownership could in the future limit your ability to purchase future insurance on the insured’s life because there is a limit to how much coverage insurers will issue on one life;
(3) Should there be a change of ownership and you wish to obtain more insurance coverage on the insured’s life in the future, the insured’s higher issue age, a change in health status, and/or other factors may reduce the ability to obtain coverage and/or may result in significantly higher premiums;
(4) You should consult a professional advisor, since a change in ownership in satisfaction of the loan may result in tax consequences to the owner, depending on the structure of the loan";
(2) May require certifications, such as the following, from the applicant and/or the insured:
"(1) I have not entered into any agreement or arrangement providing for the future sale of this life insurance policy;
(2) My loan arrangement for this policy provides funds sufficient to pay for some or all of the premiums, costs, and expenses associated with obtaining and maintaining my life insurance policy, but I have not entered into any agreement by which I am to receive consideration in exchange for procuring this policy; and
(3) The borrower has an insurable interest in the insured.”
§ -33 General rules. (a) A provider entering into a life settlement contract with any owner of a policy, wherein the insured is terminally or chronically ill, shall first obtain:
(1) If the owner is the insured, a written statement from a licensed attending physician that the owner is of sound mind and under no constraint or undue influence to enter into a life settlement contract; and
(2) A document in which the insured consents to the release of the insured's medical records to a provider, broker, or insurance producer and, if the policy was issued less than two years from the date of application for a life settlement contract, to the insurance company that issued the policy.
The provider, broker, or its authorized representative shall be limited to contact for the purpose of determining the owner's health status or to verify the owner's address, once every three months if the insured has a life expectancy of more than one year, and no more than once per month if the insured has a life expectancy of one year or less.
(b) The insurer shall respond to a request for verification of coverage submitted by a provider, broker, or life insurance producer, not later than thirty calendar days of the date the request is received. The request for verification of coverage shall be made on a form approved by the commissioner. The insurer shall complete and issue the verification of coverage or indicate in which respects it is unable to respond. In its response, the insurer shall indicate whether, based on the medical evidence and documents provided, the insurer intends to pursue an investigation at this time regarding the validity of the insurance contract.
(c) Before or at the time of execution of the life settlement contract, the provider shall obtain a witnessed document in which the owner:
(1) Consents to the life settlement contract;
(2) Represents that the owner has a full and complete understanding of the life settlement contract;
(3) Represents that the owner has a full and complete understanding of the benefits of the policy;
(4) Acknowledges that the owner is entering into the life settlement contract freely and voluntarily; and
(5) For persons with a chronic or terminal illness or condition, acknowledges that the insured has a chronic or terminal illness and that the chronic or terminal illness or condition was diagnosed after the policy was issued.
(d) An insurer shall not unreasonably delay effecting change of ownership or beneficiary in connection with any life settlement contract lawfully entered into in this state or with a resident of this state.
(e) If a broker or life insurance producer performs any of the activities required of the provider under this section, the provider shall be deemed to have fulfilled the requirements of this section.
(f) If a broker performs those verification of coverage activities required of the provider, the provider is deemed to have performed those activities.
(g) Within twenty days after an owner executes the life settlement contract, the provider shall give written notice to the insurer that issued that policy that the policy has become subject to a life settlement contract. The notice shall be accompanied by the documents required by section -32(c).
(h) All life settlement contracts entered into in this state shall provide that the owner may rescind the contract on or before fifteen days after the date it is executed by all parties thereto. Rescission, if exercised by the owner, is effective only if both notice of the rescission is given, and the owner repays all proceeds and any premiums, loans, and loan interest paid on account of the provider within the rescission period. If the insured dies during the rescission period, the contract shall be deemed to have been rescinded subject to repayment by the owner or the owner’s estate of all proceeds and any premiums, loans, and loan interest to the provider.
(i) Within three business days after receipt from the owner of documents to effect the transfer of the policy, the provider shall pay the proceeds of the settlement to an escrow or trust account managed by a trustee or escrow agent in a state or federally chartered financial institution pending acknowledgement of the transfer by the issuer of the policy. The trustee or escrow agent shall be required to transfer the proceeds due to the owner within three business days of acknowledgement of the transfer from the insurer.
(j) Failure to tender the life settlement contract proceeds to the owner by the date disclosed to the owner shall render the contract voidable by the owner for lack of consideration until the time the proceeds are tendered to and accepted by the owner. A failure to give written notice of the right of rescission hereunder shall toll the right of rescission until thirty days after the written notice of the right of rescission has been given.
(k) Any fee paid by a provider, party, individual, or an owner to a broker in exchange for services provided to the owner pertaining to a life settlement contract shall be computed as a percentage of the offer obtained, not the face value of the policy. Nothing in this section shall be construed as prohibiting a broker from reducing such broker's fee below this percentage if the broker so chooses.
(l) The broker shall disclose to the owner anything of value paid or given to a broker and that relates to a life settlement contract.
(m) No person at any time prior to or at the time of the application for, or issuance of, a policy, or during a two-year period commencing with the date of issuance of the policy, shall enter into a life settlement regardless of the date the compensation is to be provided and regardless of the date the assignment, transfer, sale, devise, bequest, or surrender of the policy is to occur. This prohibition shall not apply if the owner certifies to the provider that:
(1) The policy was issued upon the owner’s exercise of conversion rights arising out of a group or individual policy; provided that the total of the time covered under the conversion policy plus the time covered under the prior policy is at least twenty-four months. The time covered under a group policy shall be calculated without regard to a change in insurance carriers; provided further that the coverage has been continuous and under the same group sponsorship; or
(2) The owner submits independent evidence to the provider that one or more of the following conditions have been met within the two-year period:
(A) The owner or insured is chronically or terminally ill;
(B) The owner or insured disposes of ownership interests in a closely-held corporation, pursuant to the terms of a buyout or other similar agreement in effect at the time the policy was initially issued;
(C) The owner’s spouse dies;
(D) The owner divorces the owner's spouse;
(E) The owner retires from full-time employment;
(F) The owner becomes physically or mentally disabled and a physician determines that the disability prevents the owner from maintaining full-time employment; or
(G) A final order, judgment, or decree is entered by a court of competent jurisdiction, on the application of a creditor of the owner, adjudicating the owner bankrupt or insolvent, or approving a petition seeking reorganization of the owner or appointing a receiver, trustee, or liquidator to all or a substantial part of the owner’s assets;
(3) Copies of the independent evidence required by subsection (m)(2) shall be submitted to the insurer when the provider submits a request to the insurer for verification of coverage. The copies shall be accompanied by a letter of attestation from the provider that the copies are true and correct copies of the documents received by the provider. Nothing in this section shall prohibit an insurer from exercising its right to contest the validity of any policy;
(4) If the provider submits to the insurer a copy of independent evidence required by subsection (m)(2) when the provider submits a request to the insurer to effect the transfer of the policy to the provider, the copy shall be deemed to establish that the life settlement contract satisfies the requirements of this section.
§ -34 Buyer's guide. The commissioner by rule shall require delivery of a Buyer's Guide or a similar consumer advisory package to owners during the process of soliciting a life settlement contract.
PART V. MISCELLANEOUS PROVISIONS
§ -41 Prohibited practices. (a) It is unlawful for any person to:
(1) Enter into a life settlement contract if the person knows or reasonably should have known that the policy was obtained by means of a false, deceptive, or misleading application for such policy;
(2) Engage in any transaction, practice, or course of business if the person knows or reasonably should have known that the intent was to avoid the notice requirements of this chapter;
(3) Engage in any fraudulent act or practice in connection with any transaction relating to any life settlement contract involving an owner who is a resident of this state;
(4) Issue, solicit, market, or otherwise promote the purchase of a policy for the purpose of or with an emphasis on settling the policy;
(5) Enter into a premium finance agreement with any person or agency, or any person affiliated with the person or agency, pursuant to which the person shall receive any proceeds, fees, or other consideration, directly or indirectly, from the policy or owner of the policy or any other person with respect to the premium finance agreement or any life settlement contract or other transaction related to such policy that are in addition to the amounts required to pay the principal, interest, and service charges related to policy premiums pursuant to the premium finance agreement or subsequent sale of such agreement; provided that any payments, charges, fees or other amounts in addition to the amounts required to pay the principal, interest, and service charges related to policy premiums paid under the premium finance agreement shall be remitted to the original owner of the policy or to the owner's estate if the owner not living at the time of the determination of the overpayment;
(6) With respect to any policy or life settlement contract and a broker, knowingly solicit an offer from, effectuate a life settlement contract with or make a sale to any provider, financing entity, or related provider trust that is controlling, controlled by, or under common control with such broker;
(7) With respect to any policy or life settlement contract and a provider, knowingly enter into a life settlement contract with an owner, if, in connection with such life settlement contract, anything of value will be paid to a broker that is controlling, controlled by, or under common control with such provider or the financing entity or related provider trust that is involved in such life settlement contract;
(8) With respect to a provider, enter into a life settlement contract unless the life settlement contract promotional, advertising, and marketing materials, as may be prescribed by rule, have been filed with the commissioner. In no event shall any marketing materials expressly reference that the insurance is “free” for any period of time. The inclusion of any reference in the marketing materials that would cause an owner to reasonably believe that the insurance is free for any period of time shall be considered a violation of this chapter;
(9) With respect to any life insurance producer, insurance company, broker, or provider, make any statement or representation to the applicant or policyholder in connection with the sale or financing of a policy to the effect that the insurance is free or without cost to the policyholder for any period of time unless provided in the policy;
(10) Knowingly and intentionally interfere with the enforcement of the provisions of this chapter or investigations of suspected or actual violations of this chapter; and
(11) With respect to a person in the business of life settlements, knowingly or intentionally permit any person convicted of a felony involving dishonesty or breach of trust to participate in the business of life settlements.
(b) A violation of this section shall be deemed a fraudulent life settlement act.
§ -42 Fraudulent life settlement acts prohibited. It is a violation of this chapter for any person, provider, broker, or any other party related to the business of life settlements, to commit a fraudulent life settlement act.
For the purposes of this section, "fraudulent life settlement act" includes:
(1) Acts or omissions committed by any person who, knowingly and with intent to defraud, for the purpose of depriving another of property or for pecuniary gain, commits, or permits its employees or agents to engage in acts including but not limited to:
(A) Presenting, causing to be presented, or preparing with knowledge and belief that it will be presented to or by a provider, premium finance lender, broker, insurer, insurance producer, or any other person, false material information, or concealing material information, as part of, in support of, or concerning a fact material to one or more of the following:
(i) An application for the issuance of a policy or life settlement contract;
(ii) The underwriting of a policy or life settlement contract;
(iii) A claim for payment or benefit pursuant to a policy or life settlement contract;
(iv) Premiums paid on a policy;
(v) Payments and changes in ownership or beneficiary made in accordance with the terms of a policy or life settlement contract;
(vi) The reinstatement or conversion of a policy;
(vii) In the solicitation, offer to enter into, or effectuation of a policy or life settlement contract;
(viii) The issuance of written evidence of a policy or life settlement contract;
(ix) Any application for or the existence of or any payments related to a loan secured directly or indirectly by any interest in a policy; or
(x) Entering into any practice or plan that involves stranger-originated life insurance;
(B) Failing to disclose to the insurer, where the insurer requests such disclosure, that the prospective insured has undergone a life expectancy evaluation by any person or entity other than the insurer or its authorized representatives in connection with the issuance of the policy;
(C) Employing any device, scheme, or artifice to defraud in the business of life settlements; or
(D) In the solicitation, application, or issuance of a policy, employing any device, scheme, or artifice in violation of state insurable interest laws;
(2) In the furtherance of a fraud or to prevent the detection of a fraud, any person commits or permits its employees or its agents to:
(A) Remove, conceal, alter, destroy, or sequester from the commissioner the assets or records of a licensee or other person engaged in the business of life settlements;
(B) Misrepresent or conceal the financial condition of a licensee, financing entity, insurer, or other person;
(C) Transact the business of life settlements in violation of laws requiring a license, certificate of authority, or other legal authority for the transaction of the business of life settlements;
(D) File with the commissioner or the chief insurance regulatory official of another jurisdiction a document containing false information or otherwise concealing information about a material fact from the commissioner;
(E) Engage in embezzlement, theft, misappropriation, or conversion of moneys, funds, premiums, credits, or other property of a provider, insurer, insured, owner, insurance, policy owner, or any other person engaged in the business of life settlements or insurance;
(F) Knowingly and with intent to defraud, enter into, broker, or otherwise deal in a life settlement contract, the subject of which is a policy that was obtained by presenting false information concerning any fact material to the policy or by concealing, for the purpose of misleading another, information concerning any fact material to the policy, where the owner or the owner's agent intended to defraud the policy's issuer;
(G) Attempt to commit, assist, aid, or abet in the commission of, or conspire to commit the acts or omissions specified in this definition; or
(H) Misrepresent the state of residence of an owner to be a state or jurisdiction that does not have a law substantially similar to this chapter for the purpose of evading or avoiding the provisions of this chapter.
§ -43 Fraud warning required. (a) Life settlement contracts and applications for life settlement contracts, regardless of the form of transmission, shall contain the following statement or a substantially similar statement:
“Any person who knowingly presents false information in an application for insurance or life settlement contract is guilty of a crime and may be subject to fines and confinement in prison.”
(b) The lack of a statement as required in subsection (a) shall not constitute a defense in any prosecution for a fraudulent life settlement act.
§ -44 Mandatory reporting of fraudulent life settlement acts. (a) Any person engaged in the business of life settlements having knowledge or a reasonable belief that a fraudulent life settlement act is being, will be, or has been committed shall provide to the commissioner the information required by, and in a manner prescribed by, the commissioner.
(b) Any other person having knowledge or a reasonable belief that a fraudulent life settlement act is being, will be, or has been committed may provide to the commissioner the information required by, and in a manner prescribed by, the commissioner.
§ -45 Immunity from liability. (a) No civil liability shall be imposed on and no cause of action shall arise from a person’s furnishing information concerning suspected, anticipated, or completed fraudulent life settlement acts or suspected or completed fraudulent insurance acts, if the information is provided to or received from:
(1) The commissioner or the commissioner’s employees, agents or representatives;
(2) Federal, state, or local law enforcement or regulatory officials or their employees, agents, or representatives;
(3) A person involved in the prevention and detection of fraudulent life settlement acts or that person’s agents, employees, or representatives;
(4) Any regulatory body or their employees, agents, or representatives, overseeing life insurance, life settlements, securities, or investment fraud;
(5) The life insurer that issued the policy covering the life of the insured; or
(6) The licensee and any agents, employees, or representatives.
(b) Subsection (a) shall not apply to statements made with actual malice. In an action brought against a person for filing a report or furnishing other information concerning a fraudulent life settlement act or a fraudulent insurance act, the party bringing the action shall plead specifically any allegation that subsection (a) does not apply because the person filing the report or furnishing the information did so with actual malice.
(c) A person identified in subsection (a) shall be entitled to an award of attorney’s fees and costs if the person is the prevailing party in a civil cause of action for libel, slander, or any other relevant tort arising out of activities in carrying out the provisions of this chapter and the party bringing the action was not substantially justified in doing so. For purposes of this section, a proceeding is “substantially justified” if it had a reasonable basis in law or fact at the time that it was initiated.
(d) This section does not abrogate or modify common law or statutory privileges or immunities enjoyed by a person described in subsection (a).
§ -46 Confidentiality. (a) The documents and evidence provided pursuant to section -45 or obtained by the commissioner in an investigation of suspected or actual fraudulent life settlement acts shall be privileged and confidential and shall not be a public record and shall not be subject to discovery or subpoena in a civil or criminal action.
(b) Subsection (a) does not prohibit release by the commissioner of documents and evidence obtained in an investigation of suspected or actual fraudulent life settlement acts:
(1) In administrative or judicial proceedings to enforce laws administered by the commissioner;
(2) To federal, state, or local law enforcement or regulatory agencies, to an organization established for the purpose of detecting and preventing fraudulent life settlement acts or to the National Association of Insurance Commissioners; or
(3) At the discretion of the commissioner, to a person in the business of life settlements that is aggrieved by a fraudulent life settlement act.
(c) Release of documents and evidence under subsection (b) does not abrogate or modify the privilege granted in subsection (a).
§ -47 Other law enforcement or regulatory authority. This chapter shall not:
(1) Preempt the authority or relieve the duty of other law enforcement or regulatory agencies to investigate, examine, and prosecute suspected violations of law;
(2) Preempt, supersede, or limit any provision of any state securities law or any rule, order, or notice issued thereunder;
(3) Prevent or prohibit a person from disclosing voluntarily information concerning life settlement fraud to a law enforcement or regulatory agency other than the insurance division; or
(4) Limit the powers granted elsewhere by the laws of this state to the commissioner or the insurance fraud investigations unit to investigate and examine possible violations of law and to take appropriate action against wrongdoers.
§ -48 Life settlement anti-fraud initiatives. (a) Providers and brokers shall have in place anti-fraud initiatives reasonably calculated to detect, prosecute, and prevent fraudulent life settlement acts. At the discretion of the commissioner, the commissioner may order, or a licensee may request and the commissioner may grant, such modifications of the following required initiatives as necessary to ensure an effective anti-fraud program. The modifications may be more or less restrictive than the required initiatives so long as the modifications may reasonably be expected to accomplish the purpose of this section. Anti-fraud initiatives shall include:
(1) Fraud investigators, who may be provider or broker employees or independent contractors; and
(2) An anti-fraud plan that shall be submitted to the commissioner. The anti-fraud plan shall include but not be limited to:
(A) A description of the procedures for detecting and investigating possible fraudulent life settlement acts and procedures for resolving material inconsistencies between medical records and insurance applications;
(B) A description of the procedures for reporting possible fraudulent life settlement acts to the commissioner;
(C) A description of the plan for anti-fraud education and training of underwriters and other personnel; and
(D) A description or chart outlining the organizational arrangement of the anti-fraud personnel who are responsible for the investigation and reporting of possible fraudulent life settlement acts and investigating unresolved material inconsistencies between medical records and insurance applications.
(b) Anti-fraud plans submitted to the commissioner shall be privileged and confidential and shall not be a public record and shall not be subject to discovery or subpoena in a civil or criminal action.
§ -49 Injunctions; civil remedies; cease and desist. (a) In addition to the penalties and other enforcement provisions of this chapter, if any person violates this chapter or any rule implementing this chapter, the commissioner may seek an injunction in a court of competent jurisdiction in the county where the person resides or has a principal place of business and may apply for temporary and permanent orders that the commissioner determines necessary to restrain the person from further committing the violation.
(b) Any person damaged by the acts of another person in violation of this chapter or any rule implementing this chapter, may bring a civil action for damages against the person committing the violation in a court of competent jurisdiction.
(c) The commissioner may issue a cease and desist order upon a person who violates any provision of this chapter, any rule or order adopted by the commissioner, or any written agreement entered into with the commissioner, in accordance with chapter 91.
(d) When the commissioner finds that such an action presents an immediate danger to the public and requires an immediate final order, the commissioner may issue an emergency cease and desist order reciting with particularity the facts underlying such findings. The emergency cease and desist order shall be effective immediately upon service of a copy of the order on the respondent and shall remain effective for ninety days. If the insurance division begins non-emergency cease and desist proceedings under subsection (a), the emergency cease and desist order shall remain effective, absent an order by an appellate court of competent jurisdiction pursuant to chapter 91. In the event of a wilful violation of this chapter, the trial court may award statutory damages in addition to actual damages in an additional amount up to three times the actual damage award. The provisions of this chapter may not be waived by agreement. No choice of law provision may be used to prevent the application of this chapter to any life settlement contract in which a party to the settlement is a resident of this state.
§ -50 Penalties. (a) The commissioner may levy a civil penalty not exceeding $10,000 and the amount of the claim for each violation upon any person, including those persons and their employees licensed pursuant to this chapter, who is found to have committed a fraudulent life settlement act or violated any other provision of this chapter.
(b) The license of a person licensed under this chapter who commits a fraudulent life settlement act shall be revoked for a period of at least one year.
(c) The penalties under this chapter are cumulative and may be imposed in addition to any other penalties authorized by law.
§ -51 Unfair trade practices. A violation of this chapter shall be considered an unfair trade practice pursuant to section 480-2 and subject to the penalties under chapter 480.
§ -52 Conflict of laws. (a) If there is more than one owner on a single policy, and the owners are residents of different states, the life settlement contract shall be governed by the law of the state in which the owner having the largest percentage ownership resides or, if the owners hold equal ownership, the state of residence of one owner agreed upon in writing by all of the owners. The law of the state of the insured shall govern in the event that equal owners fail to agree in writing upon a state of residence for jurisdictional purposes.
(b) A provider from this state who enters into a life settlement contract with an owner who is a resident of another state that has enacted statutes or adopted regulations governing life settlement contracts, shall be governed in the effectuation of that life settlement contract by the statutes and regulations of the owner’s state of residence. If the state in which the owner is a resident has not enacted statutes or regulations governing life settlement contracts, the provider shall give the owner notice that neither that state nor this State regulates the transaction upon which the owner is entering. For transactions in those states, however, the provider shall maintain all records required if the transactions were executed in the state of residence. The forms used in those states need not be approved by the insurance division.
(c) If there is a conflict in the laws that apply to an owner and a purchaser in any individual transaction, the laws of the state that apply to the owner shall take precedence and the provider shall comply with those laws.
§ -53 Authority to adopt rules. The commissioner may adopt rules to implement this chapter pursuant to chapter 91."
SECTION 2. Section 431:7-101, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:
"(a) The commissioner shall collect in advance the following fees:
(1) Certificate of authority: Issuance............. $900
(2) Organization of domestic insurers and affiliated corporations:
(A). Application and all other papers required for issuance of solicitation permit,
. filing................................... $1,500
(B). Issuance of solicitation permit............ $150
(3) Producer's license:
(A). Issuance, regular license................... $50
(B). Issuance, temporary license................. $50
(4) Nonresident producer's license: Issuance........ $75
(5) Independent adjuster's license: Issuance........ $75
(6) Public adjuster's license: Issuance............. $75
(7) Workers' compensation claim adjuster's limited license: Issuance......................................... $75
(8) Independent bill reviewer's license: Issuance... $80
(9) Limited producer's license: Issuance............ $60
(10) Managing general agent's license: Issuance...... $75
(11) Reinsurance intermediary's license: Issuance.... $75
(12) Surplus lines broker's license: Issuance....... $150
(13) Service contract provider's registration: Issuance $75
(14) Approved course provider certificate: Issuance. $100
(15) Approved continuing education course certificate: Issuance......................................... $30
(16) Vehicle protection product warrantor's registration: Issuance......................................... $75
(17) Criminal history record check.................... $20
(18) Limited line motor vehicle rental company producer's license: Issuance............................ $1,000
(19) Life settlement contract provider's license:
Issuance ........................................ $75
(20) Life settlement contract broker's license:
Issuance ........................................ $75
(19)] (21) Examination
for license: For each examination, a fee to be established by the
(b) The fees for services of the department of commerce and consumer affairs subsequent to the issuance of a certificate of authority, license, or other certificate are as follows:
(1) $600 per year for all services (including extension of the certificate of authority) for an authorized insurer;
(2) $50 per year for all services (including extension of the license) for a regularly licensed producer;
(3) $75 per year for all services (including extension of the license) for a regularly licensed nonresident producer;
(4) $45 per year for all services (including extension of the license) for a regularly licensed independent adjuster;
(5) $45 per year for all services (including extension of the license) for a regularly licensed public adjuster;
(6) $45 per year for all services (including extension of the license) for a workers' compensation claims adjuster's limited license;
(7) $60 per year for all services (including extension of the license) for a regularly licensed independent bill reviewer;
(8) $45 per year for all services (including extension of the license) for a producer's limited license;
(9) $75 per year for all services (including extension of the license) for a regularly licensed managing general agent;
(10) $75 per year for all services (including extension of the license) for a regularly licensed reinsurance intermediary;
(11) $45 per year for all services (including extension of the license) for a licensed surplus lines broker;
(12) $75 per year for all services (including renewal of registration) for a service contract provider;
(13) $65 per year for all services (including extension of the certificate) for an approved course provider;
(14) $20 per year for all services (including extension of the certificate) for an approved continuing education course;
(15) $75 per year for all services (including renewal of registration) for a vehicle protection product warrantor;
(16) $20 for a criminal history record check; [
(17) $600 per year for all services (including
extension of the license) for a regularly licensed limited line motor vehicle
rental company producer[
(18) $75 per year for all services (including extension of the license) for a regularly licensed life settlement contract provider; and
(19) $75 per year for all services (including extension of the license) for a regularly licensed life settlement contract broker.
The services referred to in paragraphs (1) to [
(19) shall not include services in connection with examinations,
investigations, hearings, appeals, and deposits with a depository other than
the department of commerce and consumer affairs."
SECTION 3. (a) A provider as defined in section 1 of this Act lawfully transacting business in this state prior to the effective date of this Act may continue to do so pending approval or disapproval of that person’s application for a license as long as the application is filed with the insurance commissioner not later than thirty days after publication by the commissioner of an application form and instructions for licensure of providers. If the publication of the application form and instructions is prior to the effective date of this Act, then the filing of the application shall not be later than thirty days after the effective date of this Act. During the time that such an application is pending with the commissioner, the applicant may use any form of life settlement contract that has been filed with the commissioner pending approval thereof; provided that such form is otherwise in compliance with the provisions of this Act. Any person transacting business in this state under this provision shall be obligated to comply with all other requirements of this Act.
(b) A person who has lawfully negotiated life settlement contracts between any owner residing in this state and one or more providers as defined in section 1 of this Act for at least one year immediately prior to the effective date of this Act may continue to do so pending approval or disapproval of that person’s application for a license as long as the application is filed with the commissioner not later than thirty days after publication by the commissioner of an application form and instructions for licensure of brokers. If the publication of the application form and instructions is prior to the effective date of this Act, then the filing of the application shall not be later than thirty days after the effective date of this Act. Any person transacting business in this state under this provision shall be obligated to comply with all other requirements of this Act.
SECTION 4. The insurance commissioner shall submit annual reports to the legislature at least twenty days prior to the convening of the regular sessions of 2009 and 2010. The annual report shall include:
(1) Any issues and concerns relating to the implementation and effects of this Act;
(2) The total number and disposition of life settlement cases investigated by the insurance commissioner under this Act;
(3) An evaluation by the insurance commissioner of the effectiveness of this Act in regulating life settlement contracts; and
(4) Any recommendations, including proposed legislation, to improve the provisions of this Act.
SECTION 5. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.
SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 7. This Act shall take effect upon its approval, and shall be repealed two years from the date of its approval.