Bill Text: TX SB1213 | 2011-2012 | 82nd Legislature | Engrossed
Bill Title: Relating to consumer protections in the purchase of life settlement contracts; imposing penalties.
Spectrum: Bipartisan Bill
Status: (Engrossed - Dead) 2011-05-16 - Committee report sent to Calendars [SB1213 Detail]
Download: Texas-2011-SB1213-Engrossed.html
By: Carona | S.B. No. 1213 |
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relating to consumer protections in the purchase of life settlement | ||
contracts; imposing penalties. | ||
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: | ||
ARTICLE 1. LIFE SETTLEMENT CONTRACTS | ||
SECTION 1.01. Subtitle A, Title 7, Insurance Code, is | ||
amended by adding Chapter 1111A to read as follows: | ||
CHAPTER 1111A. LIFE SETTLEMENT CONTRACTS | ||
Sec. 1111A.001. SHORT TITLE. This Act may be cited as the | ||
Life Settlements Act. | ||
Sec. 1111A.002. DEFINITIONS. In this chapter: | ||
(1) "Advertisement" means a written, electronic, or | ||
printed communication or a communication by means of a recorded | ||
telephone message or transmitted on radio, television, the | ||
Internet, or similar communications media, including film strips, | ||
motion pictures, and videos, published, disseminated, circulated, | ||
or placed directly before the public for the purpose of creating an | ||
interest in or inducing a person to purchase or sell, assign, | ||
devise, bequest, or transfer the death benefit or ownership of a | ||
life insurance policy or an interest in a life insurance policy | ||
under a life settlement contract. | ||
(2) "Broker" means a person who, on behalf of an owner | ||
and for a fee, commission, or other valuable consideration, offers | ||
or attempts to negotiate a life settlement contract between an | ||
owner and a provider or estimates life expectancies for a life | ||
settlement contract. A broker who offers or attempts to negotiate a | ||
life settlement contract represents only the owner and owes a | ||
fiduciary duty to the owner to act according to the owner's | ||
instructions, and in the best interest of the owner, | ||
notwithstanding the manner in which the broker is compensated. A | ||
broker does not include an attorney, certified public accountant, | ||
or financial planner retained in the type of practice customarily | ||
performed in a professional capacity to represent the owner whose | ||
compensation is not paid directly or indirectly by the provider or | ||
any other person, except the owner. | ||
(3) "Business of life settlements" means an activity | ||
involved in, but not limited to, offering to enter into, | ||
soliciting, negotiating, procuring, effectuating, monitoring, or | ||
tracking, of life settlement contracts. | ||
(4) "Chronically ill" means: | ||
(A) being unable to perform at least two | ||
activities of daily living such as eating, toileting, transferring, | ||
bathing, dressing, or continence; | ||
(B) requiring substantial supervision to protect | ||
the individual from threats to health and safety due to severe | ||
cognitive impairment; or | ||
(C) having a level of disability similar to that | ||
described in Paragraph (A) as determined under rules adopted by the | ||
commissioner after consideration of any applicable regulation, | ||
guideline, or determination of the United States Secretary of | ||
Health and Human Services. | ||
(5) "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 whose principal | ||
activity related to the transaction is providing funds to effect | ||
the life settlement contract or purchase of a policy, and who has an | ||
agreement in writing with a provider to finance the acquisition of a | ||
life settlement contract. The term does not include a | ||
non-accredited investor or purchaser. | ||
(6) "Financing transaction" means a transaction in | ||
which a licensed provider obtains financing from a financing entity | ||
including secured or unsecured financing, a securitization | ||
transaction, or a securities offering that is either registered or | ||
exempt from registration under federal and state securities law. | ||
(7) "Fraudulent life settlement act" includes: | ||
(A) an act or omission committed by a person who, | ||
knowingly and with intent to defraud, for the purpose of depriving | ||
another of property or for pecuniary gain, commits, or permits an | ||
employee or an agent to engage in, acts including: | ||
(i) presenting, causing to be presented, or | ||
preparing with knowledge and belief that it will be presented to or | ||
by a provider, premium finance lender, broker, insurer, insurance | ||
agent, or any other person, false material information, or | ||
concealing material information, as part of, in support of, or | ||
concerning a fact material to one or more of the following: | ||
(a) an application for the issuance of | ||
a life settlement contract or an insurance policy; | ||
(b) the underwriting of a life | ||
settlement contract or an insurance policy; | ||
(c) a claim for payment or benefit | ||
pursuant to a life settlement contract or an insurance policy; | ||
(d) premium paid on an insurance | ||
policy; | ||
(e) payment for and changes in | ||
ownership or beneficiary made in accordance with the terms of a life | ||
settlement contract or an insurance policy; | ||
(f) the reinstatement or conversion | ||
of an insurance policy; | ||
(g) in the solicitation, offer to | ||
enter into, or effectuation of a life settlement contract, or an | ||
insurance policy; | ||
(h) the issuance of written evidence | ||
of life settlement contracts or insurance; or | ||
(i) an application for or the | ||
existence of or any payment related to a loan secured directly or | ||
indirectly by an interest in a life insurance policy; | ||
(ii) failing to disclose to the insurer, if | ||
the insurer has requested the disclosure, that the prospective | ||
insured has undergone a life expectancy evaluation by any person or | ||
entity other than the insurer or its authorized representatives in | ||
connection with the issuance of the policy; or | ||
(iii) employing a device, scheme, or | ||
artifice to defraud in the business of life settlements; and | ||
(B) acts or omissions in the furtherance of a | ||
fraud or to prevent the detection of a fraud, or acts or omissions | ||
that permit an employee or an agent to: | ||
(i) remove, conceal, alter, destroy, or | ||
sequester from the commissioner the assets or records of a license | ||
holder or another person engaged in the business of life | ||
settlements; | ||
(ii) misrepresent or conceal the financial | ||
condition of a license holder, financing entity, insurer, or other | ||
person; | ||
(iii) transact the business of life | ||
settlements in violation of laws requiring a license, certificate | ||
of authority, or other legal authority for the transaction of the | ||
business of life settlements; | ||
(iv) file with the commissioner or the | ||
chief insurance regulatory official of another jurisdiction a | ||
document containing false information or concealing information | ||
about a material fact; | ||
(v) engage in embezzlement, theft, | ||
misappropriation, or conversion of monies, funds, premiums, | ||
credits, or other property of a provider, insurer, insured, owner, | ||
insurance policy owner, or any other person engaged in the business | ||
of life settlements or insurance; | ||
(vi) knowingly and with intent to defraud, | ||
enter into, broker, or otherwise deal in a life settlement | ||
contract, the subject of which is a life insurance policy that was | ||
obtained by presenting false information concerning any fact | ||
material to the policy or by concealing that fact, for the purpose | ||
of misleading another, or providing information concerning any fact | ||
material to the policy, if the owner or the owner's agent intended | ||
to defraud the policy's issuer; | ||
(vii) attempt to commit, assist, aid or | ||
abet in the commission of, or engage in conspiracy to commit the | ||
acts or omissions specified in this paragraph; or | ||
(viii) misrepresent the state of residence | ||
of an owner 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. | ||
(8) "Insured" means a person covered under the policy | ||
being considered for sale in a life settlement contract. | ||
(9) "Life expectancy" means the arithmetic mean of the | ||
number of months the insured under the life insurance policy to be | ||
settled can be expected to live as determined by a life expectancy | ||
company or provider considering medical records and appropriate | ||
experiential data. | ||
(10) "Life insurance agent" means a person licensed in | ||
this state as a resident or nonresident insurance agent who has | ||
received qualification or authority to write life insurance | ||
coverage under this code. | ||
(11) "Life settlement contract" means a written | ||
agreement entered into between a provider and an owner establishing | ||
the terms under which compensation or anything of value will be paid | ||
and is less than the expected death benefit of the insurance policy | ||
or certificate, in return for the owner's assignment, transfer, | ||
sale, devise, or bequest of the death benefit or a portion of an | ||
insurance policy or certificate of insurance for compensation; | ||
provided, however, that the minimum value for a life settlement | ||
contract must be greater than a cash surrender value or accelerated | ||
death benefit available at the time of an application for a life | ||
settlement contract. The term also includes the transfer for | ||
compensation or value of ownership or beneficial interest in a | ||
trust or other entity that owns the policy if the trust or other | ||
entity was formed or used for the principal purpose of acquiring one | ||
or more life insurance contracts that insure the life of an | ||
individual residing in this state. The term also includes: | ||
(A) a written agreement for a loan or other | ||
lending transaction, secured primarily by an individual or group | ||
life insurance policy; and | ||
(B) a premium finance loan made for a policy on or | ||
before the date of issuance of the policy if: | ||
(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 a date following the issuance of the policy. | ||
(11-A) "Life settlement contract" does not include: | ||
(A) a policy loan by a life insurance company | ||
under the terms of a life insurance policy or accelerated death | ||
provision contained in the life insurance policy, whether issued | ||
with the original policy or as a rider; | ||
(B) a premium finance loan or any loan made by a | ||
bank or other licensed financial institution, provided that neither | ||
default on the loan nor the transfer of the policy in connection | ||
with the default is under an agreement or understanding with any | ||
other person for the purpose of evading regulation under this | ||
chapter; | ||
(C) a collateral assignment of a life insurance | ||
policy by an owner; | ||
(D) a loan made by a lender that does not violate | ||
Chapter 651, provided that the loan is not described in Subdivision | ||
(11) and is not otherwise within the definition of life settlement | ||
contract; | ||
(E) an agreement with respect to which all the | ||
parties are closely related to the insured by blood or law or 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 the parties; | ||
(F) a 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; | ||
(G) a bona fide business succession planning | ||
arrangement: | ||
(i) 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; | ||
(ii) 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 | ||
(iii) 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; | ||
(H) 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 | ||
(I) any other contract, transaction, or | ||
arrangement from the definition of life settlement contract that | ||
the commissioner determines is not of the type intended to be | ||
regulated by this chapter. | ||
(12) "Net death benefit" means the amount of the life | ||
insurance policy or certificate to be settled less any outstanding | ||
debts or liens. | ||
(13) "Owner" means the owner of a life insurance | ||
policy or a certificate holder under a group policy, with or without | ||
a terminal illness, who enters or seeks to enter into a life | ||
settlement contract. In this chapter, the term "owner" is not | ||
limited to an owner of a life insurance policy or a certificate | ||
holder under a group policy that insures the life of an individual | ||
with a terminal or chronic illness or condition except as | ||
specifically provided. The term does not include: | ||
(A) a provider or other license holder under this | ||
chapter; | ||
(B) a qualified institutional buyer as defined by | ||
17 C.F.R. Section 230.144A, as amended; | ||
(C) a financing entity; | ||
(D) a special purpose entity; or | ||
(E) a related provider trust. | ||
(14) "Patient identifying information" means an | ||
insured's address, telephone number, facsimile number, e-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. | ||
(15) "Policy" means an individual or group policy, | ||
group 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. | ||
(16) "Premium finance loan" is a loan made primarily | ||
for the purposes of making premium payments on a life insurance | ||
policy that is secured by an interest in the life insurance policy. | ||
(17) "Person" means an individual or legal entity, | ||
including a partnership, limited liability company, association, | ||
trust, or corporation. | ||
(18) "Provider" means a person, other than an owner, | ||
who enters into or effectuates a life settlement contract with an | ||
owner. The term does not include: | ||
(A) a bank, savings bank, savings and loan | ||
association, or credit union; | ||
(B) a licensed lending institution or creditor or | ||
secured party pursuant to a premium finance loan agreement that | ||
takes an assignment of a life insurance policy or certificate | ||
issued pursuant to a group life insurance policy as collateral for a | ||
loan; | ||
(C) the insurer of a life insurance policy or | ||
rider to the extent of providing accelerated death benefits or | ||
riders under Subchapter B, Chapter 1111, or cash surrender value; | ||
(D) an individual who enters into or effectuates | ||
not more than one agreement in a calendar year for the transfer of a | ||
life insurance policy or certificate issued pursuant to a group | ||
life insurance policy, for compensation or anything of value less | ||
than the expected death benefit payable under the policy; | ||
(E) a purchaser; | ||
(F) any authorized or eligible insurer that | ||
provides stop loss coverage to a provider, purchaser, financing | ||
entity, special purpose entity, or related provider trust; | ||
(G) a financing entity; | ||
(H) a special purpose entity; | ||
(I) a related provider trust; | ||
(J) a broker; or | ||
(K) an accredited investor or qualified | ||
institutional buyer as those terms are defined by 17 C.F.R. Section | ||
230.144A, as amended, who purchases a life settlement policy from a | ||
provider. | ||
(19) "Purchased policy" means a policy or group | ||
certificate that has been acquired by a provider pursuant to a life | ||
settlement contract. | ||
(20) "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 life insurance policy or a | ||
certificate issued pursuant to a group life insurance policy that | ||
has been the subject of a life settlement contract. | ||
(21) "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. In order to qualify as a related provider trust, the | ||
trust must have 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 department as if | ||
those records and files were maintained directly by the licensed | ||
provider. | ||
(22) "Settled policy" means a life insurance policy or | ||
certificate that has been acquired by a provider pursuant to a life | ||
settlement contract. | ||
(23) "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: | ||
(A) for a financing entity or provider; or | ||
(B) in connection with a transaction in which: | ||
(i) the securities in the special purpose | ||
entity are acquired by the owner or by a qualified institutional | ||
buyer as defined by 17 C.F.R. Section 230.144A, as amended; or | ||
(ii) the securities pay a fixed rate of | ||
return commensurate with established asset-backed institutional | ||
capital markets. | ||
(24) "Terminally ill" means having an illness or | ||
sickness that can reasonably be expected to result in death not | ||
later than 24 months after the date of diagnosis. | ||
Sec. 1111A.003. LICENSING REQUIREMENTS; EXEMPTION. (a) A | ||
person, wherever located, may not act as a provider or broker with | ||
an owner who is a resident of this state, unless the person holds a | ||
license from the department. | ||
(b) An application for a provider or broker license must be | ||
made to the department by the applicant on a form prescribed by the | ||
commissioner. The application must be accompanied by a fee in an | ||
amount established by the commissioner by rule. The license and | ||
renewal fees for a provider license must be reasonable and the | ||
license and renewal fees for a broker license may not exceed those | ||
established for an insurance agent, as otherwise provided by this | ||
chapter. | ||
(c) A person who has been licensed as a life insurance agent | ||
in this state or the person's home state for at least one year and is | ||
licensed as a nonresident agent in this state meets the licensing | ||
requirements of this section and may operate as a broker. | ||
(d) Not later than the 30th day after the first date of | ||
operating as a broker, a life insurance agent shall notify the | ||
commissioner on a form prescribed by the commissioner that the | ||
agent is acting as a broker and shall pay any applicable fee to be | ||
determined by the commissioner by rule. Notification must include | ||
an acknowledgement by the life insurance agent that the agent will | ||
operate as a broker in accordance with this chapter. | ||
(e) An insurer that issued a policy that is the subject of a | ||
life settlement contract is not responsible for any act or omission | ||
of a broker or 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 | ||
for the owner without having to obtain a license as a broker. | ||
(g) A license expires on the second anniversary of the date | ||
of issuance. A license holder may renew the license on payment of a | ||
renewal fee. As specified by Subsection (b), the renewal fee for a | ||
provider license may not exceed a reasonable fee. | ||
(h) An applicant shall provide the information that the | ||
commissioner requires on forms adopted by the commissioner. The | ||
commissioner may, at any time, require an applicant to fully | ||
disclose the identity of the applicant's stockholders that own at | ||
least 10 percent of the shares of an applicant the shares of which | ||
are publicly traded, partners, officers and employees, and the | ||
commissioner may, in the exercise of the commissioner's sole | ||
discretion, refuse to issue a license in the name of any person if | ||
the commissioner is not satisfied that an officer, an employee, a | ||
stockholder, or a partner of the applicant who may materially | ||
influence the applicant's conduct meets the standards of Sections | ||
1111A.001 to 1111A.018. | ||
(i) A license issued to a partnership, corporation, or other | ||
entity authorizes each member, officer, and designated employee | ||
named in the application and any supplement to the application to | ||
act as a license holder under the license. | ||
(j) After the filing of an application and the payment of | ||
the license fee, the commissioner shall investigate each applicant | ||
and may issue a license if the commissioner finds that the | ||
applicant: | ||
(1) if a provider, has provided a detailed plan of | ||
operation; | ||
(2) is competent and trustworthy and intends to | ||
transact business in good faith; | ||
(3) has a good business reputation and has had | ||
experience, training, or education to qualify in the business for | ||
which the license is applied; | ||
(4) if the applicant is a legal entity, is formed or | ||
organized under the laws of this state or is a foreign legal entity | ||
authorized to transact business in this state, or provides a | ||
certificate of good standing from the state of its domicile; and | ||
(5) has provided to the commissioner an antifraud plan | ||
that meets the requirements of Section 1111A.022 and includes: | ||
(A) a description of the procedures for detecting | ||
and investigating possible fraudulent acts and procedures for | ||
resolving material inconsistencies between medical records and | ||
insurance applications; | ||
(B) a description of the procedures for reporting | ||
fraudulent insurance acts to the commissioner; | ||
(C) a description of the plan for antifraud | ||
education and training of its underwriters and other personnel; and | ||
(D) a written description or chart outlining the | ||
arrangement of the antifraud personnel who are responsible for the | ||
investigation and reporting of possible fraudulent insurance acts | ||
and the investigation of unresolved material inconsistencies | ||
between medical records and insurance applications. | ||
(k) The commissioner may not issue a license to a | ||
nonresident applicant unless a written designation of an agent for | ||
service of process is filed and maintained with the department or | ||
unless the applicant has filed with the department the applicant's | ||
written irrevocable consent that any action against the applicant | ||
may be commenced by service of process on the commissioner. | ||
(l) A license holder shall file with the department not | ||
later than March 1 of each year an annual statement containing the | ||
information as the commissioner by rule prescribes. | ||
(m) A provider may not allow any person to perform the | ||
functions of a broker unless the person holds a current, valid | ||
license as a broker, and as provided in this section. | ||
(n) A broker may not allow any person to perform the | ||
functions of a provider unless the 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, stockholders described | ||
by Subsection (h), partners, directors, members, or designated | ||
employees within 30 days of the change. | ||
(p) An individual licensed as a broker shall complete on a | ||
biennial basis 15 hours of training related to life settlements and | ||
life settlement transactions, as required by the commissioner. A | ||
life insurance agent who is operating as a broker under this section | ||
is not subject to the requirements of this subsection. | ||
(q) The business of life settlements constitutes the | ||
business of insurance. | ||
Sec. 1111A.004. LICENSE SUSPENSION, REVOCATION, OR REFUSAL | ||
TO RENEW. (a) The commissioner may suspend, revoke, or refuse to | ||
renew the license of a license holder if the commissioner finds | ||
that: | ||
(1) there was a material misrepresentation in the | ||
application for the license; | ||
(2) the license holder or an officer, partner, member, | ||
or director of the license holder has been guilty of fraudulent or | ||
dishonest practices, is subject to a final administrative action, | ||
or is otherwise shown to be untrustworthy or incompetent to act as a | ||
license holder; | ||
(3) the license holder is a provider and demonstrates | ||
a pattern of unreasonably withholding payments to policy owners; | ||
(4) the license holder no longer meets the | ||
requirements for initial licensure; | ||
(5) the license holder or any officer, partner, | ||
member, or director of the license holder has been convicted of a | ||
felony, or of any misdemeanor with respect to which criminal fraud | ||
is an element, or has pleaded guilty or nolo contendere with respect | ||
to a felony or a misdemeanor with respect to which criminal fraud or | ||
moral turpitude is an element, regardless of whether a judgment of | ||
conviction has been entered by the court; | ||
(6) the license holder is a provider and has entered | ||
into a life settlement contract using a form that has not been | ||
approved under this chapter; | ||
(7) the license holder is a provider and has failed to | ||
honor contractual obligations in a life settlement contract; | ||
(8) the license holder is a provider and 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 17 C.F.R. Section 230.144A, as amended, a financing entity, a | ||
special purpose entity, or a related provider trust; or | ||
(9) the license holder or any officer, partner, | ||
member, or key management personnel of the license holder has | ||
violated this chapter. | ||
(b) The commissioner may deny a license application or | ||
suspend, revoke, or refuse to renew the license of a license holder | ||
in accordance with Chapter 2001, Government Code. | ||
Sec. 1111A.005. REQUIREMENTS FOR CONTRACT FORMS, | ||
DISCLOSURE FORMS, AND ADVERTISEMENTS. (a) A person may not use | ||
any form of life settlement contract in this state unless the form | ||
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 for life insurance forms, | ||
policies, and contracts. | ||
(b) An insurer may not, as a condition of responding to a | ||
request for verification of coverage or in connection with the | ||
transfer of a policy pursuant to a life settlement contract, | ||
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. | ||
(c) A person may not use a life settlement contract form or | ||
provide to an owner a disclosure statement form unless the form is | ||
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 contract provisions fail to meet the requirements of | ||
Sections 1111A.011, 1111A.012, 1111A.014, and 1111A.023(b), or are | ||
unreasonable, contrary to the interests of the public, or otherwise | ||
misleading or unfair to the owner. | ||
(d) At the commissioner's discretion, the commissioner may | ||
require the submission of advertisements. | ||
Sec. 1111A.006. REPORTING REQUIREMENTS AND PRIVACY. | ||
(a) For a policy settled not later than the fifth anniversary of | ||
the date of policy issuance, each provider shall file with the | ||
commissioner not later than March 1 of each year an annual statement | ||
containing the information that the commissioner prescribes by | ||
rule. In addition to any other requirements, the annual statement | ||
must specify 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. The annual statement must also | ||
include the names of each insurance company whose policies have | ||
been settled and the brokers that have settled the policies. | ||
(b) The information required under Subsection (a) is | ||
limited to only those transactions in which the insured is a | ||
resident of this state and may not include individual transaction | ||
data regarding the business of life settlements or information if | ||
there is a reasonable basis to find that the information could be | ||
used to identify the owner or the insured. | ||
(c) A provider that wilfully fails to file an annual | ||
statement as required in this section, or wilfully fails to reply | ||
not later than the 30th day after the date the provider receives a | ||
written inquiry from the department about the filing of the annual | ||
statement, shall, in addition to other penalties provided by this | ||
chapter, after notice and opportunity for hearing be subject to a | ||
penalty of up to $250 for each day of delay, not to exceed $25,000 in | ||
the aggregate, for the failure to file or respond. | ||
(d) Except as otherwise allowed or required by law, a | ||
provider, broker, insurance company, insurance agent, information | ||
bureau, rating agency or company, or any other person with actual | ||
knowledge of an insured's identity, may not disclose the identity | ||
of an insured or information that there is a reasonable basis to | ||
believe could be used to identify the insured or the insured's | ||
financial or medical information to any other person unless the | ||
disclosure is: | ||
(1) necessary to effect a life settlement contract | ||
between the owner and a provider and the owner and insured have | ||
provided prior written consent to the disclosure; | ||
(2) necessary to effectuate the sale of a life | ||
settlement contract, or interests in the contract, as an | ||
investment, provided the sale is conducted in accordance with | ||
applicable state and federal securities law and provided further | ||
that the owner and the insured have both provided prior written | ||
consent to the disclosure; | ||
(3) provided in response to an investigation or | ||
examination by the commissioner or another governmental officer or | ||
agency or under Section 1111A.018; | ||
(4) a term or condition of the transfer of a policy by | ||
one provider to another licensed provider, in which case the | ||
receiving provider shall comply with the confidentiality | ||
requirements of this subsection; | ||
(5) necessary to allow the provider or broker or the | ||
provider's or broker's authorized representative to make contact | ||
for the purpose of determining health status provided that in this | ||
subdivision, authorized representative does not include a person | ||
who has or may have a financial interest in the settlement contract | ||
other than a provider, licensed broker, financing entity, related | ||
provider trust, or special purpose entity and that the provider or | ||
broker requires the authorized representative to agree in writing | ||
to adhere to the privacy provisions of this chapter; or | ||
(6) required to purchase stop loss coverage. | ||
(e) Nonpublic personal information solicited or obtained in | ||
connection with a proposed or actual life settlement contract is | ||
subject to the provisions applicable to financial institutions | ||
under the federal Gramm-Leach-Bliley Act (Pub. L. No. 106-102), and | ||
any other state and federal laws relating to confidentiality of | ||
nonpublic personal information. | ||
Sec. 1111A.007. EXAMINATION. Subchapter B, Chapter 401, | ||
applies to a person engaged in the business of life settlements. | ||
Sec. 1111A.008. 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 a statement made or | ||
conduct performed in good faith while carrying out 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 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 enjoyed by any | ||
person identified in Subsection (a). | ||
Sec. 1111A.009. INVESTIGATIVE AUTHORITY OF THE | ||
COMMISSIONER. The commissioner may investigate a suspected | ||
fraudulent life settlement act and a person engaged in the business | ||
of life settlements. | ||
Sec. 1111A.010. COST OF EXAMINATIONS. The reasonable and | ||
necessary cost of an examination under this chapter is to be | ||
assessed against the person being examined in accordance with | ||
Section 751.208. | ||
Sec. 1111A.011. ADVERTISING. (a) A broker or provider | ||
licensed pursuant to this chapter may conduct or participate in an | ||
advertisement in this state. The advertisement must comply with | ||
all advertising and marketing laws under Chapter 541 and rules | ||
adopted by the commissioner that are applicable to life insurers or | ||
to license holders under this chapter. | ||
(b) Advertisements shall be accurate, truthful, and not | ||
misleading in fact or by implication. | ||
(c) A person may not: | ||
(1) 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, or soliciting of, or | ||
otherwise promoting, the purchase of a policy. | ||
Sec. 1111A.012. DISCLOSURES TO OWNERS. (a) Not later than | ||
the fifth day after the date a provider receives the application for | ||
a life settlement contract, the provider shall provide, in a | ||
separate written document, the following information to the owner: | ||
(1) the fact that possible alternatives to life | ||
settlement contracts exist, including accelerated benefits offered | ||
by the issuer of the life insurance policy; | ||
(2) the fact that some or all of the proceeds of a life | ||
settlement contract may be taxable and that assistance should be | ||
sought from a professional tax advisor; | ||
(3) the fact that the proceeds from a life settlement | ||
contract could be subject to the claims of creditors; | ||
(4) the fact that receipt of proceeds from a life | ||
settlement contract may adversely affect the recipients' | ||
eligibility for public assistance or other government benefits or | ||
entitlements and that advice should be obtained from the | ||
appropriate agency; | ||
(5) the fact that the owner has a right to terminate a | ||
life settlement contract within 15 days of the date the contract is | ||
executed by all parties and the owner has received the disclosures | ||
described in this section, that rescission, if exercised by the | ||
owner, is effective only if both notice of the rescission is given | ||
and the owner repays all proceeds and any premiums, loans, and loan | ||
interest paid on account of the provider during the rescission | ||
period, and that if the insured dies during the rescission period, | ||
the contract is considered rescinded subject to repayment by the | ||
owner or the owner's estate of all proceeds and any premiums, loans, | ||
and loan interest to the provider; | ||
(6) the fact that proceeds will be sent to the owner | ||
within three business days after the provider has received the | ||
insurer or group administrator's acknowledgement that ownership of | ||
the policy or interest in the certificate has been transferred and | ||
the beneficiary has been designated in accordance with the terms of | ||
the life settlement contract; | ||
(7) the fact that entering into a life settlement | ||
contract may cause the owner to forfeit other rights or benefits, | ||
including conversion rights and waiver of premium benefits that may | ||
exist under the policy or certificate of a group policy, and that | ||
assistance should be sought from a professional financial advisor; | ||
(8) the amount and method of calculating the | ||
compensation, including anything of value, paid or given, or to be | ||
paid or given, to the broker, or any other person acting for the | ||
owner in connection with the transaction; | ||
(9) the date by which the funds will be available to | ||
the owner and the identity of the transmitter of the funds; | ||
(10) the fact that the commissioner requires delivery | ||
of a buyer's guide or a similar consumer advisory package in the | ||
form prescribed by the commissioner to owners during the | ||
solicitation process; | ||
(11) the following language: "All medical, financial, | ||
or personal information solicited or obtained by a provider or | ||
broker about an insured, including the insured's identity or the | ||
identity of family members or a spouse or a significant other, may | ||
be disclosed as necessary to effect the life settlement contract | ||
between the owner and provider. If you are asked to provide this | ||
information, you will be asked to consent to the disclosure. The | ||
information may be provided to someone who buys the policy or | ||
provides funds for the purchase. You may be asked to renew your | ||
permission to share information every two years."; | ||
(12) the fact that the commissioner requires providers | ||
and brokers to print separate signed fraud warnings on the | ||
applications and on the life settlement contracts as follows: "Any | ||
person who knowingly presents false information in an application | ||
for insurance or a life settlement contract is guilty of a crime and | ||
may be subject to fines and confinement in prison."; | ||
(13) the fact that the insured may be contacted by | ||
either the provider or broker or an authorized representative of | ||
the provider or broker for the purpose of determining the insured's | ||
health status or to verify the insured's address and that this | ||
contact is limited to once every three months if the insured has a | ||
life expectancy of more than one year, and not more than once per | ||
month if the insured has a life expectancy of one year or less; | ||
(14) the affiliation, if any, between the provider and | ||
the issuer of the insurance policy to be settled; | ||
(15) that a broker represents exclusively the owner, | ||
and not the insurer or the provider or any other person, and owes a | ||
fiduciary duty to the owner, including a duty to act according to | ||
the owner's instructions and in the best interest of the owner; | ||
(16) the name, address, and telephone number of the | ||
provider; | ||
(17) the name, business address, and telephone number | ||
of the independent third party escrow agent, and the fact that the | ||
owner may inspect or receive copies of the relevant escrow or trust | ||
agreements or documents; and | ||
(18) the fact that a change of ownership could in the | ||
future limit the insured's ability to purchase future insurance on | ||
the insured's life because there is a limit to how much coverage | ||
insurers will issue on one life. | ||
(b) The written disclosures described by Subsection (a) | ||
must be conspicuously displayed in a 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 not later than the date on which | ||
the life settlement contract is signed by all parties and which must | ||
be conspicuously displayed in the life settlement contract or in a | ||
separate document signed by the owner: | ||
(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, including anything of value, paid | ||
or given to the broker in connection with the life settlement | ||
contract; and | ||
(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. | ||
(d) For the purpose of this section, "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. | ||
(e) The failure to provide the disclosures or rights | ||
described in this section is an unfair method of competition or an | ||
unfair or deceptive act or practice. | ||
Sec. 1111A.013. DISCLOSURE TO INSURER. (a) Without | ||
limiting the ability of an insurer to assess the insurability of a | ||
policy applicant and to determine whether to issue the policy, and | ||
in addition to other questions an insurance carrier may lawfully | ||
pose to a life insurance applicant, an insurer 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 Sections 1111A.002(11) and (11-A), | ||
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 life insurance policy and loan, and | ||
notwithstanding any other law, the application must be rejected as | ||
a violation of Section 1111A.017. | ||
(c) If the financing does not violate Section 1111A.017, the | ||
insurance carrier: | ||
(1) may make disclosures, not later than the date of | ||
the delivery of the policy, to the applicant and the insured, either | ||
on the application or on an amendment to the application that | ||
include the following or substantially similar statements: | ||
"If you have entered into a loan arrangement in which 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: | ||
(A) a change of ownership could lead to a | ||
stranger owning an interest in the insured's life; | ||
(B) 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; | ||
(C) 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, | ||
or other factors may reduce the ability to obtain coverage or may | ||
result in significantly higher premiums; and | ||
(D) 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 or the insured: | ||
(A) "I have not entered into any agreement or | ||
arrangement providing for the future sale of this life insurance | ||
policy"; | ||
(B) "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 | ||
(C) "The borrower has an insurable interest in | ||
the insured." | ||
Sec. 1111A.014. GENERAL RULES. (a) Before entering into a | ||
life settlement contract with an owner of a policy with respect to | ||
which the insured is terminally or chronically ill, the provider | ||
must obtain: | ||
(1) if the owner is the insured, a written statement | ||
from a licensed attending physician that the owner is of sound mind | ||
and under no constraint or undue influence to enter into a | ||
settlement contract; and | ||
(2) a document in which the insured consents to the | ||
release of medical records to a provider, settlement broker, or | ||
insurance agent and, if the policy was issued less than two years | ||
after the date of application for a settlement contract, to the | ||
insurance company that issued the policy. | ||
(b) An insurer shall respond to a request for verification | ||
of coverage submitted by a provider, settlement broker, or life | ||
insurance agent not later than the 30th calendar day after the date | ||
the request is received. The request for verification of coverage | ||
must be made on a form approved by the commissioner. The insurer | ||
shall complete and issue the verification of coverage or indicate | ||
in which respects the insurer is unable to respond. In the | ||
response, the insurer shall indicate whether at the time of the | ||
response, based on the medical evidence and documents provided, the | ||
insurer intends to pursue an investigation about the validity of | ||
the insurance contract. | ||
(c) On or before the date of execution of the life | ||
settlement contract, the provider shall obtain a witnessed document | ||
in which the owner consents to the settlement contract, represents | ||
that the owner has a full and complete understanding of the | ||
settlement contract and of the benefits of the policy, acknowledges | ||
that the owner is entering into the settlement contract freely and | ||
voluntarily, and, for persons with a terminal or chronic illness or | ||
condition, acknowledges that the insured has a terminal or chronic | ||
illness and that the terminal or chronic illness or condition was | ||
diagnosed after the policy was issued. | ||
(d) The insurer may not unreasonably delay effecting change | ||
of ownership or beneficiary with any life settlement contract | ||
lawfully entered into in this state or with a resident of this | ||
state. | ||
(e) If a settlement broker or life insurance agent performs | ||
any of these activities required of the provider, the provider is | ||
deemed to have fulfilled the requirements of this section. | ||
(f) If a broker performs the verification of coverage | ||
activities required of the provider, the provider is deemed to have | ||
fulfilled the requirements of Section 1111A.012. | ||
(g) Not later than the 20th day after the date that an owner | ||
executes the life settlement contract, the provider shall give | ||
written notice to the insurer that issued that insurance policy | ||
that the policy has become subject to a life settlement contract. | ||
The notice shall be accompanied by the documents required by | ||
Section 1111A.013(c). | ||
(h) Medical information solicited or obtained by a license | ||
holder is subject to the applicable provision of state law relating | ||
to confidentiality of medical information, if not otherwise | ||
provided in this chapter. | ||
(i) A life settlement contract entered into in this state | ||
must provide that the owner may rescind the contract on or before 15 | ||
days after the date the contract is executed by all parties to the | ||
contract. Rescission, if exercised by the owner, is effective only | ||
if 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 is 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. | ||
(j) Not later than the third business day after the date the | ||
provider receives from the owner the documents to effect the | ||
transfer of the insurance policy, the provider shall pay the | ||
proceeds of the settlement into 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 | ||
transfer to the owner the proceeds due to the owner not later than | ||
the third business day after the date the trustee or escrow officer | ||
receives from the insurer acknowledgment of the transfer of the | ||
insurance policy. | ||
(k) Failure to tender the life settlement contract proceeds | ||
to the owner on or before the date disclosed to the owner renders | ||
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 under this | ||
subsection tolls the right of rescission for 30 days after the date | ||
the written notice of the right of rescission has been given. | ||
(l) A fee paid by a provider, an owner, or other person to a | ||
broker in exchange for services provided to the owner pertaining to | ||
a life settlement contract must be computed as a percentage of the | ||
offer obtained, not the face value of the policy. Nothing in this | ||
section prohibits a broker from voluntarily reducing the broker's | ||
fee to less than a percentage of the offer obtained. | ||
(m) A broker shall disclose to the owner anything of value | ||
paid or given to a broker that relates to a life settlement | ||
contract. | ||
(n) A 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 beginning on the date of issuance of the policy, may not | ||
enter into a life settlement contract 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 does not apply if: | ||
(1) the owner certifies to the provider that the | ||
policy was issued on the owner's exercise of conversion rights | ||
arising out of a group or individual policy, provided the total of | ||
the time covered under the conversion policy plus the time covered | ||
under the prior policy is at least 24 months; or | ||
(2) the owner submits independent evidence to the | ||
provider that one or more of the following conditions have been met | ||
during the two-year period described by this subsection: | ||
(A) the owner or insured is terminally or | ||
chronically ill; | ||
(B) the owner or insured disposes of the owner's | ||
or insured's ownership interests in a closely held corporation, | ||
pursuant to the terms of a buyout or other similar agreement in | ||
effect at the time the insurance 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. | ||
(o) For the purposes of Subsection (n)(1), time covered | ||
under a group policy must be calculated without regard to a change | ||
in insurance carriers, provided the coverage has been continuous | ||
and under the same group sponsorship. | ||
(p) Copies of the independent evidence described by | ||
Subsection (n)(2) must be submitted to the insurer at the time the | ||
provider submits a request to the insurer for verification of | ||
coverage. The copies must 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. This section does not prohibit | ||
an insurer from exercising its right to contest the validity of a | ||
policy. | ||
(q) If the provider submits to the insurer a copy of | ||
independent evidence provided for Subsection (n)(2)(A) at the time | ||
the provider submits a request to the insurer to effect the transfer | ||
of the policy to the provider, the copy is deemed to establish that | ||
the settlement contract satisfies the requirements of this section. | ||
Sec. 1111A.015. AUTHORITY TO ADOPT RULES. (a) The | ||
commissioner may adopt rules implementing this chapter and | ||
regulating the activities and relationships of providers, brokers, | ||
insurers, and their authorized representatives. | ||
(b) The commissioner may not adopt a rule establishing a | ||
price or fee for the sale or purchase of a life settlement contract. | ||
This subsection does not prohibit the commissioner from adopting a | ||
rule relating to an unjust price or fee for the sale or purchase of a | ||
life settlement contract. | ||
(c) The commissioner may not adopt a rule that regulates the | ||
actions of an investor providing money to a life or viatical | ||
settlement company. | ||
Sec. 1111A.016. 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 is 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 on 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 on a state of residence for | ||
jurisdictional purposes. | ||
(b) A provider licensed in 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 rules governing life | ||
settlement contracts is governed in the effectuation of that life | ||
settlement contract by the statutes and rules of the owner's state | ||
of residence. If the state in which the owner is a resident has not | ||
enacted statutes or adopted rules governing life settlement | ||
contracts, the provider shall give the owner notice that neither | ||
state regulates the transaction on which the owner is entering. For | ||
transactions in those states, however, the provider shall maintain | ||
all records required by this chapter if the transactions were | ||
executed in this state. The forms used in those states need not be | ||
approved by the department. | ||
(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. | ||
Sec. 1111A.017. PROHIBITED PRACTICES. (a) A person may | ||
not: | ||
(1) enter into a life settlement contract if the | ||
person knows or reasonably should have known that the life | ||
insurance policy was obtained by means of a false, deceptive, or | ||
misleading application for the policy; | ||
(2) engage in a transaction, practice, or course of | ||
business if the person knows or reasonably should have known that | ||
the intent of engaging in the transaction, practice, or course of | ||
business is to avoid the notice requirements of this chapter; | ||
(3) engage in a fraudulent act or practice in | ||
connection with a transaction relating to any settlement involving | ||
an owner who is a resident of this state; | ||
(4) issue, solicit, market, or otherwise promote the | ||
purchase of an insurance policy for the purpose of, or with an | ||
emphasis on, settling the policy; | ||
(5) if providing premium financing, receive any | ||
proceeds, fee, or other consideration from the policy or owner in | ||
addition to the amounts required to pay principal, interest, and | ||
any reasonable costs or expenses incurred by the lender or borrower | ||
in connection with the premium finance agreement, except in event | ||
of a default, unless either the default on the loan or transfer of | ||
the policy occurs pursuant to an agreement or understanding with | ||
any other person for the purpose of evading regulation under this | ||
chapter; | ||
(6) with respect to any settlement contract or | ||
insurance policy and to a broker, knowingly solicit an offer from, | ||
effectuate a life settlement contract with, or make a sale to any | ||
provider, financing entity, or related provider trust that is | ||
controlling, controlled by, or under common control with the broker | ||
unless the relationship is fully disclosed to the owner; | ||
(7) with respect to any life settlement contract or | ||
insurance policy and a provider, knowingly enter into a life | ||
settlement contract with an owner if, in connection with the life | ||
settlement contract, anything of value will be paid to a broker that | ||
is controlling, controlled by, or under common control with the | ||
provider or the financing entity or related provider trust that is | ||
involved in such settlement contract, unless the relationship is | ||
fully disclosed to the owner; | ||
(8) with respect to a provider, enter into a life | ||
settlement contract unless the life settlement promotional, | ||
advertising, and marketing materials, as may be prescribed by rule, | ||
have been filed with the commissioner, provided that in no event may | ||
any marketing materials expressly reference that the insurance is | ||
free for any period of time; or | ||
(9) with respect to any life insurance agent, | ||
insurance company, broker, or provider, make any statement or | ||
representation to the applicant or policyholder in connection with | ||
the sale or financing of a life insurance policy to the effect that | ||
the insurance is free or without cost to the policyholder for any | ||
period of time unless provided in the policy. | ||
(b) A violation of this section is a fraudulent life | ||
settlement act. | ||
Sec. 1111A.018. FRAUD PREVENTION AND CONTROL. (a) A | ||
person may not commit a fraudulent life settlement act. | ||
(b) A person may not interfere with the enforcement of this | ||
chapter or an investigation of a suspected or actual violation of | ||
this chapter. | ||
(c) A person in the business of life settlements may not | ||
knowingly or intentionally permit a person convicted of a felony | ||
involving dishonesty or breach of trust to participate in the | ||
business of life settlements. | ||
(d) A life settlement contract and an application for a life | ||
settlement contract, regardless of the form of transmission, must | ||
contain the following, or a substantially similar, statement: "Any | ||
person who knowingly presents false information in an application | ||
for insurance or a life settlement contract is guilty of a crime and | ||
may be subject to fines and confinement in prison." | ||
(e) The failure to include a statement as required in | ||
Subsection (d) is not a defense in any prosecution for a fraudulent | ||
life settlement act. | ||
Sec. 1111A.019. MANDATORY REPORTING OF FRAUDULENT LIFE | ||
SETTLEMENT ACTS. A person engaged in the business of life | ||
settlements has a duty under Section 701.051 to report a fraudulent | ||
life settlement act. | ||
Sec. 1111A.020. CONFIDENTIALITY. (a) The documents and | ||
evidence obtained by the commissioner in an investigation of a | ||
suspected or an actual fraudulent life settlement act are | ||
privileged and confidential, are not a public record, and are not | ||
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 a suspected or an actual fraudulent life settlement act: | ||
(1) in an administrative or judicial proceeding to | ||
enforce a provision of this code or another insurance law of this | ||
state; | ||
(2) to a federal, state, or local law enforcement or | ||
regulatory agency, to an organization established for the purpose | ||
of detecting and preventing a fraudulent life settlement act, 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). | ||
Sec. 1111A.021. OTHER LAW ENFORCEMENT OR REGULATORY | ||
AUTHORITY. This chapter does not: | ||
(1) preempt the authority or relieve the duty of | ||
another law enforcement or regulatory agency to investigate, | ||
examine, and prosecute a suspected violation of law; | ||
(2) preempt, supersede, or limit any provision of any | ||
state securities law or any rule, order, or notice issued under the | ||
law; | ||
(3) prevent or prohibit a person from disclosing | ||
voluntarily information concerning life settlement fraud to a law | ||
enforcement or regulatory agency other than the department; or | ||
(4) limit the powers granted by the laws of this state | ||
to the commissioner or an insurance fraud unit to investigate and | ||
examine a possible violation of law and to take appropriate action | ||
against wrongdoers. | ||
Sec. 1111A.022. LIFE SETTLEMENT ANTIFRAUD INITIATIVES. | ||
(a) A provider or broker shall implement antifraud initiatives | ||
reasonably calculated to detect, prosecute, and prevent fraudulent | ||
life settlement acts. At the discretion of the commissioner, the | ||
commissioner may order, or a license holder may request and the | ||
commissioner may grant, a modification of the following required | ||
initiatives as necessary to ensure an effective antifraud program. | ||
A modification granted under this section may be more or less | ||
restrictive than the required initiatives so long as the | ||
modification may reasonably be expected to accomplish the purpose | ||
of this section. Antifraud initiatives must include: | ||
(1) fraud investigators, who may be provider or broker | ||
employees or independent contractors; and | ||
(2) an antifraud plan, which must be submitted to the | ||
commissioner and must include: | ||
(A) a description of the procedures for detecting | ||
and investigating possible fraudulent life settlement acts and | ||
procedures for resolving material inconsistencies between medical | ||
records and insurance applications; | ||
(B) a description of the procedures for reporting | ||
possible fraudulent life settlement acts to the commissioner; | ||
(C) a description of the plan for antifraud | ||
education and training of underwriters and other personnel; and | ||
(D) a description or chart outlining the | ||
organizational arrangement of the antifraud personnel who are | ||
responsible for the investigation and reporting of possible | ||
fraudulent life settlement acts and investigating unresolved | ||
material inconsistencies between medical records and insurance | ||
applications. | ||
(b) An antifraud plan submitted to the commissioner is | ||
privileged and confidential, is not subject to disclosure under | ||
Chapter 552, Government Code, and is not subject to discovery or | ||
subpoena in a civil action. | ||
Sec. 1111A.023. INJUNCTION; CIVIL REMEDIES; CEASE AND | ||
DESIST ORDERS. (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 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) The commissioner may issue a cease and desist order | ||
against 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 82. | ||
(c) If the commissioner finds that an action in violation of | ||
this chapter presents an immediate danger to the public and | ||
requires an immediate final order, the commissioner may issue an | ||
emergency cease and desist order under Chapter 83. | ||
(d) The provisions of this chapter may not be waived by | ||
agreement. No choice of law provision may prevent the application | ||
of this chapter to any settlement. | ||
Sec. 1111A.024. PENALTIES. (a) 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. | ||
(b) A person who knowingly, recklessly, or intentionally | ||
commits a fraudulent life settlement act commits a criminal offense | ||
and is subject to penalties under Chapter 35, Penal Code. | ||
(c) Subtitle B, Title 2, applies to a violation of this | ||
chapter. | ||
Sec. 1111A.025. APPLICABILITY OF OTHER INSURANCE LAWS. The | ||
following laws apply to a person engaged in the business of life | ||
settlements: | ||
(1) Chapters 82, 83, 84, 101, 481, 541, and 701; | ||
(2) Sections 31.002, 32.021, 32.023, 32.041, 38.001, | ||
81.004, 86.001, 86.051, 86.052, 201.004, 401.051, 401.054, | ||
401.151(a), 521.003, 521.004, 543.001(c), 801.056, and 862.052; | ||
(3) Subchapter A, Chapter 32; | ||
(4) Subchapter C, Chapter 36; | ||
(5) Subchapter B, Chapter 404; and | ||
(6) Subchapter B, Chapter 491. | ||
SECTION 1.02. (a) A provider lawfully transacting | ||
business in this state before the effective date of this Act may | ||
continue to do so pending approval or disapproval of the person's | ||
application for a license as long as the application is filed with | ||
the commissioner of insurance not later than 30 days after the date | ||
of the publication by the commissioner of an application form and | ||
instructions for licensure of providers. If the publication of the | ||
application form and instructions is before the effective date of | ||
this Act, then the filing of the application may not be later than | ||
30 days after the effective date of this Act and the applicant may | ||
use any form of life settlement contract that has been filed with | ||
the commissioner pending approval, provided that the form is | ||
otherwise in compliance with the provisions of this Act. A person | ||
transacting business in this state under this provision shall | ||
comply with all other requirements of this Act. | ||
(b) A person who has lawfully negotiated a life settlement | ||
contract between an owner residing in this state and one or more | ||
providers for at least one year immediately before the effective | ||
date of this Act may continue to do so pending approval or | ||
disapproval of the person's application for a license provided that | ||
the application is filed with the commissioner of insurance not | ||
later than the 30th day after the date of publication by the | ||
commissioner of an application form and instructions for licensure | ||
of brokers. If the publication of the application form and | ||
instructions is before the effective date of this Act, then the | ||
filing of the application may not be later than the 30th day after | ||
the effective date of this Act. Any person transacting business in | ||
this state under this provision shall comply with all other | ||
requirements of this Act. | ||
ARTICLE 2. CONFORMING AMENDMENTS | ||
SECTION 2.01. The heading to Chapter 1111, Insurance Code, | ||
is amended to read as follows: | ||
CHAPTER 1111. [ |
||
TERM LIFE INSURANCE BENEFITS | ||
SECTION 2.02. Subsection (a), Section 1551.255, Insurance | ||
Code, is amended to read as follows: | ||
(a) In this section, "viatical settlement" has the meaning | ||
assigned to "life settlement contract" by Section 1111A.002 | ||
[ |
||
SECTION 2.03. Subchapter A, Chapter 1111, Insurance Code, | ||
is repealed. | ||
ARTICLE 3. EFFECTIVE DATE | ||
SECTION 3.01. This Act takes effect September 1, 2011. |