Texas 2009 - 81st Regular

Texas House Bill HB2739 Compare Versions

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1	1	81R9239 PB-F
2	2	By: Eiland H.B. No. 2739
3	3
4	4
5	5	A BILL TO BE ENTITLED
6	6	AN ACT
7	7	relating to the regulation of certain life settlement contracts;
8	8	providing penalties.
9	9	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
10	10	SECTION 1. The heading to Chapter 1111, Insurance Code, is
11	11	amended to read as follows:
12	12	CHAPTER 1111. LIFE SETTLEMENT CONTRACTS, [AND] VIATICAL
13	13	SETTLEMENTS, AND CERTAIN RELATED PRACTICES; ACCELERATED TERM LIFE
14	14	INSURANCE BENEFITS
15	15	SECTION 2. The heading to Subchapter A, Chapter 1111,
16	16	Insurance Code, is amended to read as follows:
17	17	SUBCHAPTER A. LIFE SETTLEMENT CONTRACTS AND VIATICAL SETTLEMENTS
18	18	SECTION 3. Section 1111.001, Insurance Code, is amended by
19	19	adding Subsections (2-a), (2-b), (2-c), (2-d), and (2-e) to read as
20	20	follows:
21	21	(2-a) "Premium finance loan" means a loan, made
22	22	primarily for the purpose of making premium payments on a life
23	23	insurance policy, that is secured by an interest in the life
24	24	insurance policy.
25	25	(2-b) "Provider" means a person, other than an owner,
26	26	who enters into or effectuates a life settlement contract with an
27	27	owner. The term does not include:
28	28	(A) a bank, savings bank, savings and loan
29	29	association, or credit union;
30	30	(B) a licensed lending institution, creditor, or
31	31	secured party under a premium finance loan agreement that takes an
32	32	assignment of a policy or certificate as collateral for a loan;
33	33	(C) the insurer of a policy or rider to the extent
34	34	of providing accelerated death benefits, riders, or cash surrender
35	35	value;
36	36	(D) any individual who enters into or effectuates
37	37	not more than one agreement in a calendar year for the transfer of
38	38	an insurance policy or certificate for compensation or anything of
39	39	value less than the expected death benefit payable under the
40	40	policy;
41	41	(E) a purchaser;
42	42	(F) an authorized or eligible insurer that
43	43	provides stop loss coverage to a provider, purchaser, financing
44	44	entity, special purpose entity, or related provider trust;
45	45	(G) a financing entity;
46	46	(H) a special purpose entity;
47	47	(I) a related provider trust;
48	48	(J) a broker; or
49	49	(K) an accredited investor or qualified
50	50	institutional buyer, as defined respectively by Securities and
51	51	Exchange Commission Regulation D (17 C.F.R. Section 230.501 et
52	52	seq.) and Securities and Exchange Commission Rule 144A (17 C.F.R.
53	53	Section 230.144A), who purchases a life settlement contract from a
54	54	provider.
55	55	(2-c) "Purchaser" means a person who pays compensation
56	56	or anything of value as consideration for a beneficial interest in a
57	57	trust that is vested with, or for the assignment, transfer, or sale
58	58	of, an ownership or other interest in an insurance policy or a
59	59	certificate that has been the subject of a life settlement
60	60	contract.
61	61	(2-d) "Related provider trust" means a titling trust
62	62	or other trust established by a registered provider or a financing
63	63	entity for the sole purpose of holding the ownership or beneficial
64	64	interest in purchased policies in connection with a financing
65	65	transaction, that includes a written agreement with the registered
66	66	provider under which:
67	67	(A) the registered provider is responsible for
68	68	ensuring compliance with all statutory and regulatory
69	69	requirements; and
70	70	(B) the trust agrees to make all records and
71	71	files relating to life settlement transactions available to the
72	72	department as if those records and files were maintained directly
73	73	by the provider.
74	74	(2-e) "Special purpose entity" means a corporation,
75	75	partnership, trust, limited liability company, or other legal
76	76	entity formed solely to provide, either directly or indirectly,
77	77	access to institutional capital markets for a financing entity or
78	78	provider in connection with a transaction in which the securities
79	79	in the special purpose entity:
80	80	(A) are acquired by the owner or by a "qualified
81	81	institutional buyer," as defined by Securities and Exchange
82	82	Commission Rule 144A (17 C.F.R. Section 230.144A); or
83	83	(B) pay a fixed rate of return commensurate with
84	84	established asset-backed institutional capital markets.
85	85	SECTION 4. Subchapter A, Chapter 1111, Insurance Code, is
86	86	amended by adding Sections 1111.0011, 1111.0012, and 1111.0013 to
87	87	read as follows:
88	88	Sec. 1111.0011. LIFE SETTLEMENT CONTRACT. (a) For
89	89	purposes of this subchapter, a "life settlement contract" means a
90	90	written agreement, entered into between a provider and an owner,
91	91	that establishes the terms under which:
92	92	(1) compensation or any thing of value that is less
93	93	than the expected death benefit of an insurance policy or
94	94	certificate of insurance will be paid in return for the owner's
95	95	assignment, transfer, sale, devise, or bequest, for compensation,
96	96	of the death benefit or any portion of the insurance policy or
97	97	certificate of insurance for compensation; and
98	98	(2) the minimum contract value is greater than any
99	99	cash surrender value or accelerated death benefit available on the
100	100	date of the application for the contract.
101	101	(b) The term includes:
102	102	(1) the transfer for compensation or value of
103	103	ownership or a beneficial interest in a trust or other entity that
104	104	owns the policy if the trust or other entity was formed or availed
105	105	of for the principal purpose of acquiring one or more life insurance
106	106	contracts owned by a person residing in this state; and
107	107	(2) a premium finance loan made for a policy on or
108	108	before the date of issuance of the policy if:
109	109	(A) the loan proceeds are not used solely to pay:
110	110	(i) policy premiums; and
111	111	(ii) any costs or expenses incurred by the
112	112	lender or the borrower in connection with the financing;
113	113	(B) the owner receives on the date of the premium
114	114	finance loan a guarantee of the future life settlement value of the
115	115	policy; or
116	116	(C) the owner agrees on the date of the premium
117	117	finance loan to sell the policy or any portion of the death benefit
118	118	of the policy on any date following the issuance of the policy.
119	119	(c) The term does not include:
120	120	(1) a policy loan made by a life insurer under the
121	121	terms of a life insurance policy or accelerated death provisions
122	122	contained in the life insurance policy, whether issued with the
123	123	original policy or as a rider;
124	124	(2) a premium finance loan, or any loan made by a bank
125	125	or other licensed financial institution, if default on the loan or
126	126	the transfer of the policy in connection with such a default is not
127	127	in accordance with an agreement or understanding with any other
128	128	person entered into for the purpose of evading regulation under
129	129	this subchapter;
130	130	(3) a collateral assignment of a life insurance policy
131	131	made by an owner;
132	132	(4) a loan made by a lender that does not violate
133	133	Chapter 651, if the loan does not qualify as a life settlement
134	134	contract under Subsection (a) or (b);
135	135	(5) an agreement:
136	136	(A) in which each of the parties:
137	137	(i) is closely related to the insured by
138	138	consanguinity or affinity; or
139	139	(ii) otherwise has a lawful substantial
140	140	economic interest in the continued life, health, and bodily safety
141	141	of the insured; or
142	142	(B) that is a trust established primarily for the
143	143	benefit of a party described by Paragraph (A);
144	144	(6) any designation, consent, or agreement by an
145	145	insured who is an employee of an employer in connection with the
146	146	purchase by the employer, or a trust established by the employer, of
147	147	life insurance on the life of the employee;
148	148	(7) a bona fide business succession planning
149	149	arrangement:
150	150	(A) between one or more shareholders in a
151	151	corporation or between a corporation and one or more of its
152	152	shareholders or one or more trusts established by its shareholders;
153	153	(B) between one or more partners in a partnership
154	154	or between a partnership and one or more of its partners or one or
155	155	more trusts established by its partners; or
156	156	(C) between one or more members in a limited
157	157	liability company or between a limited liability company and one or
158	158	more of its members or one or more trusts established by its
159	159	members;
160	160	(8) an agreement entered into by a service recipient,
161	161	or a trust established by the service recipient, and a service
162	162	provider, or a trust established by the service provider, who
163	163	performs significant services for the service recipient's trade or
164	164	business; or
165	165	(9) any other contract, transaction, or arrangement
166	166	that the commissioner determines is not of the type intended to be
167	167	regulated by this subchapter.
168	168	Sec. 1111.0012. OWNER. (a) In this subchapter, "owner"
169	169	means the owner of a life insurance policy or a certificate holder
170	170	under a group policy who is a resident of this state who enters or
171	171	seeks to enter into a life settlement contract. The term includes a
172	172	viator. Except as otherwise provided by this subchapter, the term
173	173	is not limited to an owner of a life insurance policy or a
174	174	certificate holder under a group policy that insures the life of an
175	175	individual with a terminal or chronic illness or condition.
176	176	(b) The term does not include:
177	177	(1) a registered provider or any other person licensed
178	178	under this code while operating under this subchapter;
179	179	(2) a qualified institutional buyer, as defined by
180	180	Securities and Exchange Commission Rule 144A (17 C.F.R. Section
181	181	230.144A) under the Securities Act of 1933 (15 U.S.C. Section 77a et
182	182	seq.);
183	183	(3) a financing entity;
184	184	(4) a special purpose entity; or
185	185	(5) a related provider trust.
186	186	Sec. 1111.0013. STRANGER-ORIGINATED LIFE INSURANCE. (a) A
187	187	person may not procure a new insurance policy covering the life of
188	188	an insured if the person:
189	189	(1) lacks an insurable interest in the insured; and
190	190	(2) at the inception of the policy, owns or controls
191	191	the policy or the majority of the policy's death benefits.
192	192	(b) This section does not apply to the lawful assignment of
193	193	a life insurance policy, including a life settlement contract or a
194	194	viatical settlement, or a practice described by Section
195	195	1111.0011(c).
196	196	(c) For purposes of Chapter 701, an act that violates this
197	197	section constitutes a fraudulent insurance act.
198	198	SECTION 5. Section 1111.002, Insurance Code, is amended to
199	199	read as follows:
200	200	Sec. 1111.002. PURPOSE. The purpose of this subchapter is
201	201	to:
202	202	(1) provide for registration of persons engaged in the
203	203	business of life settlement contracts or viatical settlements; and
204	204	(2) provide consumer protection for a person who may
205	205	sell or otherwise transfer the person's life insurance policy.
206	206	SECTION 6. Section 1111.003, Insurance Code, is amended to
207	207	read as follows:
208	208	Sec. 1111.003. RULES; REGISTRATION AND REGULATION. (a) To
209	209	implement this subchapter, the commissioner shall adopt reasonable
210	210	rules relating to life settlement contracts [settlements] and
211	211	relating to viatical settlements.
212	212	(b) The rules adopted by the commissioner under this section
213	213	must include rules governing:
214	214	(1) registration of providers [a person engaged in the
215	215	business of life settlements];
216	216	(2) registration of persons [a person] engaged in the
217	217	business of viatical settlements;
218	218	(3) approval of contract forms;
219	219	(4) disclosure requirements;
220	220	(5) prohibited practices relating to:
221	221	(A) unfair discrimination regarding [in the
222	222	provision of] life settlement contracts or in the provision of
223	223	viatical settlements; and
224	224	(B) referral fees paid by providers and persons
225	225	engaged in the business of [life or] viatical settlements;
226	226	(6) assignment or resale of life insurance policies;
227	227	(7) maintenance of appropriate confidentiality of
228	228	personal and medical information; and
229	229	(8) the responsibility of a registrant to ensure
230	230	compliance with this subchapter and rules relating to life
231	231	settlement contracts or viatical settlements after the
232	232	registration is revoked, suspended, or otherwise lapses.
233	233	(c) The commissioner may not adopt a rule establishing a
234	234	price or fee for the sale or purchase of a life settlement under a
235	235	life settlement contract. This subsection does not prohibit the
236	236	commissioner from adopting a rule relating to an unjust price or fee
237	237	for the sale or purchase of a life settlement.
238	238	(d) The commissioner may not adopt a rule that regulates the
239	239	actions of an investor providing money to a provider [life] or a
240	240	viatical settlement company.
241	241	SECTION 7. Section 1111.005(a), Insurance Code, is amended
242	242	to read as follows:
243	243	(a) The commissioner may suspend or revoke a registration or
244	244	deny an application for registration if the commissioner determines
245	245	that the registrant or applicant, individually or through any
246	246	officer, director, or shareholder of the registrant or applicant:
247	247	(1) wilfully violated:
248	248	(A) this subchapter;
249	249	(B) an applicable provision of this code or
250	250	another insurance law of this state; or
251	251	(C) a rule adopted under a law described by
252	252	Paragraph (A) or (B);
253	253	(2) intentionally made a material misstatement in the
254	254	application for registration;
255	255	(3) obtained or attempted to obtain registration by
256	256	fraud or misrepresentation;
257	257	(4) misappropriated, converted to the registrant's or
258	258	applicant's own use, or illegally withheld money belonging to a
259	259	party to a life settlement contract or viatical settlement;
260	260	(5) was guilty of fraudulent or dishonest practices;
261	261	(6) materially misrepresented the terms of business
262	262	conducted under this subchapter or any other provision of this code
263	263	or another insurance law of this state;
264	264	(7) made or issued, or caused to be made or issued, a
265	265	statement materially misrepresenting or making incomplete
266	266	comparisons regarding the material terms of any business conducted
267	267	under this subchapter; or
268	268	(8) was convicted of a felony or was convicted of a
269	269	misdemeanor involving moral turpitude or fraud.
270	270	SECTION 8. Section 1111.006, Insurance Code, as effective
271	271	April 1, 2009, is amended to read as follows:
272	272	Sec. 1111.006. APPLICABILITY OF OTHER INSURANCE LAWS. The
273	273	following laws apply to a provider or a person engaged in the
274	274	business of [life or] viatical settlements:
275	275	(1) Chapters 82, 83, 84, 481, 541, and 701;
276	276	(2) Sections 31.002, 32.021, 32.023, 32.041, 38.001,
277	277	81.004, 86.001, 86.051, 86.052, 201.004, 401.051, 401.054,
278	278	401.151(a), 521.003, 521.004, 543.001(c), 801.056, and 862.052;
279	279	(3) Subchapter A, Chapter 32;
280	280	(4) Subchapter C, Chapter 36;
281	281	(5) Subchapter B, Chapter 404; and
282	282	(6) Subchapter B, Chapter 491.
283	283	SECTION 9. Subchapter A, Chapter 1111, Insurance Code, is
284	284	amended by adding Sections 1111.007, 1111.008, and 1111.009 to read
285	285	as follows:
286	286	Sec. 1111.007. DISCLOSURE TO INSURER. (a) In addition to
287	287	other questions an insurer may lawfully pose to an applicant for
288	288	life insurance, an insurer may inquire in the application for
289	289	insurance whether the proposed owner intends to pay premiums with
290	290	the assistance of financing from a lender who will use the policy as
291	291	collateral for a premium finance loan used to support the
292	292	financing.
293	293	(b) If the premium finance loan provides funds that can be
294	294	used for a purpose other than paying for the premiums, costs, and
295	295	expenses associated with obtaining and maintaining the life
296	296	insurance policy and loan, the application may be rejected as a
297	297	prohibited practice.
298	298	(c) If the financing does not violate Subsection (b) or the
299	299	insurer's lawful underwriting guidelines, the insurer may not
300	300	reject the application solely because the premiums will be
301	301	financed. The insurer may make disclosures to the applicant, on
302	302	either the application or an amendment to the application, to be
303	303	completed not later than the date the policy is delivered, that
304	304	include the following:
305	305	"If you have entered into a loan arrangement under which the
306	306	policy is used as collateral, and the policy changes ownership at
307	307	some point in the future in satisfaction of the loan, the following
308	308	may be true:
309	309	(A) a change of ownership could lead to a stranger
310	310	owning an interest in the insured's life; and
311	311	(B) a change of ownership could in the future limit
312	312	your ability to purchase insurance on the insured's life because
313	313	there is a limit to how much coverage insurers will issue on one
314	314	life.
315	315	You should consult a professional adviser, since a change in
316	316	ownership in satisfaction of the loan may result in tax
317	317	consequences to the owner, depending on the structure of the loan."
318	318	(d) The insurer may also require certifications from the
319	319	applicant for insurance coverage or the insured, such as the
320	320	following:
321	321	"(A) I have not entered into any agreement or
322	322	arrangement under which I have agreed to make a future sale of this
323	323	life insurance policy.";
324	324	"(B) My loan arrangement for this policy provides
325	325	funds sufficient to pay for some or all of the premiums, costs, and
326	326	expenses associated with obtaining and maintaining my life
327	327	insurance policy, but I have not entered into any agreement under
328	328	which I am to receive consideration in exchange for procuring this
329	329	policy."; and
330	330	"(C) The borrower has an insurable interest in the
331	331	insured."
332	332	Sec. 1111.008. GENERAL REQUIREMENTS REGARDING LIFE
333	333	SETTLEMENT CONTRACTS. (a) Effective September 1, 2009, a person
334	334	may not enter into a life settlement contract during any period
335	335	before or on the date of the application for or the issuance of an
336	336	insurance policy, or during a period before the second anniversary
337	337	of issuance of the policy, regardless of the date:
338	338	(1) the compensation is to be provided; or
339	339	(2) the assignment, transfer, sale, devise, bequest,
340	340	or surrender of the policy is to occur.
341	341	(b) The prohibition under Subsection (a) does not apply if
342	342	the owner certifies to the provider that:
343	343	(1) the policy was issued on the owner's exercise of
344	344	conversion rights arising out of a group or individual policy, if
345	345	the total time covered under the conversion policy plus the time
346	346	covered under the prior policy is at least 24 months, and the time
347	347	covered under a group policy is computed without regard to a change
348	348	in insurers if the coverage has been continuous and under the same
349	349	group sponsorship; or
350	350	(2) the owner submits independent evidence to the
351	351	provider that one or more of the following conditions have been met
352	352	within the 24-month period:
353	353	(A) the owner or insured is terminally or
354	354	chronically ill;
355	355	(B) the owner or insured disposes of the
356	356	ownership interests in a closely held corporation under the terms
357	357	of a buyout or other similar agreement in effect at the time the
358	358	insurance policy was initially issued;
359	359	(C) the owner's spouse dies;
360	360	(D) the owner divorces his or her spouse;
361	361	(E) the owner retires from full-time employment;
362	362	(F) the owner becomes physically or mentally
363	363	disabled and a physician determines that the disability prevents
364	364	the owner from maintaining full-time employment; or
365	365	(G) on the application of a creditor of the
366	366	owner, a final order, judgment, or decree is entered by a court of
367	367	competent jurisdiction:
368	368	(i) adjudicating the owner bankrupt or
369	369	insolvent;
370	370	(ii) approving a petition seeking
371	371	reorganization of the owner; or
372	372	(iii) appointing a receiver, trustee, or
373	373	liquidator to all or a substantial part of the owner's assets.
374	374	(c) Copies of the independent evidence required by
375	375	Subsection (b)(2) must be submitted to the insurer when the
376	376	provider submits a request to the insurer for verification of
377	377	coverage. The copies must be accompanied by a letter from the
378	378	provider attesting that the copies are true and correct copies of
379	379	the documents received by the provider. Nothing in this subsection
380	380	affects the right of an insurer to contest the validity of any
381	381	insurance policy.
382	382	(d) If the provider submits to the insurer a copy of
383	383	independent evidence under Subsection (b)(2) on submission of a
384	384	request to the insurer to effect the transfer of the policy to the
385	385	provider, the copy is deemed to establish that the life settlement
386	386	contract satisfies the requirements of this section.
387	387	Sec. 1111.009. REPORTING REQUIREMENTS AND PRIVACY. (a)
388	388	Each registered provider shall file with the commissioner on or
389	389	before March 1 of each year an annual statement containing the
390	390	information the commissioner prescribes by rule.
391	391	(b) In addition to any other information required by
392	392	commissioner rule, the annual statement required under Subsection
393	393	(a) must specify:
394	394	(1) the total number, aggregate face amount, and life
395	395	settlement proceeds of insurance policies settled during the
396	396	immediately preceding calendar year; and
397	397	(2) a breakdown of the information described by
398	398	Subdivision (1) by policy issue year.
399	399	(c) The information required under Subsection (b) is
400	400	limited to transactions in which the owner is a resident of this
401	401	state and does not include:
402	402	(1) individual transaction information regarding the
403	403	business of life settlements; or
404	404	(2) information that reasonably could be used to
405	405	identify the owner or the insured.
406	406	(d) Each provider who wilfully fails to file the annual
407	407	statement required by this section, or who wilfully fails to reply
408	408	not later than the 30th day after the date of a written inquiry by
409	409	the department in connection with the annual statement, is subject,
410	410	after notice and an opportunity for a hearing, to an administrative
411	411	penalty of up to $250 per day of delay, not to exceed $25,000 in the
412	412	aggregate, for each failure. A penalty imposed under this
413	413	subsection is in addition to other penalties provided by this
414	414	chapter.
415	415	(e) Except as otherwise allowed or required by law, a
416	416	provider, broker, insurer, agent, information bureau, or rating
417	417	agency or company, or any other person with actual knowledge of an
418	418	insured's identity, may not disclose the identity of an insured, or
419	419	information that reasonably could be used to identify the insured
420	420	or the insured's financial or medical information, to any other
421	421	person unless the disclosure:
422	422	(1) is necessary to effect a life settlement contract
423	423	between the owner and a provider and the owner and insured have
424	424	provided prior written consent to the disclosure;
425	425	(2) is necessary to effect the sale of life settlement
426	426	contracts, or interests in those contracts, as investments, if:
427	427	(A) the sale is conducted in accordance with
428	428	applicable state and federal securities laws; and
429	429	(B) the owner and the insured have both provided
430	430	prior written consent to the disclosure;
431	431	(3) is provided:
432	432	(A) in response to an investigation or
433	433	examination by the commissioner or any other governmental officer
434	434	or agency; or
435	435	(B) under the investigation of fraud
436	436	requirements of Subtitle F, Title 5;
437	437	(4) is a term or condition to the transfer of a policy
438	438	by one provider to another provider, in which case the receiving
439	439	provider is required to comply with the confidentiality
440	440	requirements of this section;
441	441	(5) is necessary to allow the provider or broker or
442	442	their authorized representatives to make contacts for the purpose
443	443	of determining health status; or
444	444	(6) is required to purchase stop loss coverage.
445	445	(f) For the purposes of Subsection (e)(5), the term
446	446	"authorized representative" does not include a person who has or
447	447	may have any financial interest in the life settlement contract
448	448	other than a provider, licensed broker, financing entity, related
449	449	provider trust, or special purpose entity. A provider or broker
450	450	must require its authorized representative to agree in writing to
451	451	adhere to the privacy provisions of this subchapter.
452	452	(g) Nonpublic personal information solicited or obtained in
453	453	connection with a proposed or actual life settlement contract is
454	454	subject to the provisions applicable to financial institutions
455	455	under 15 U.S.C. Section 6801 et seq. and all other state and federal
456	456	laws relating to confidentiality of nonpublic personal
457	457	information.
458	458	SECTION 10. Section 1111.001(1), Insurance Code, is
459	459	repealed.
460	460	SECTION 11. The commissioner of insurance shall adopt all
461	461	rules necessary to implement Chapter 1111, Insurance Code, as
462	462	amended by this Act, not later than March 1, 2010.
463	463	SECTION 12. This Act applies only to a life settlement
464	464	contract entered into or renewed on or after January 1, 2010. A
465	465	life settlement contract entered into or renewed before January 1,
466	466	2010, is governed by the law as it existed immediately before the
467	467	effective date of this Act, and that law is continued in effect for
468	468	that purpose.
469	469	SECTION 13. This Act takes effect September 1, 2009.