Texas 2011 - 82nd Regular

Texas Senate Bill SB1213 Compare Versions

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1	1	By: Carona S.B. No. 1213
2	2	(Eiland)
3	3
4	4
5	5	A BILL TO BE ENTITLED
6	6	AN ACT
7	7	relating to consumer protections in the purchase of life settlement
8	8	contracts; imposing penalties.
9	9	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
10	10	ARTICLE 1. LIFE SETTLEMENT CONTRACTS
11	11	SECTION 1.01. Subtitle A, Title 7, Insurance Code, is
12	12	amended by adding Chapter 1111A to read as follows:
13	13	CHAPTER 1111A. LIFE SETTLEMENT CONTRACTS
14	14	Sec. 1111A.001. SHORT TITLE. This Act may be cited as the
15	15	Life Settlements Act.
16	16	Sec. 1111A.002. DEFINITIONS. In this chapter:
17	17	(1) "Advertisement" means a written, electronic, or
18	18	printed communication or a communication by means of a recorded
19	19	telephone message or transmitted on radio, television, the
20	20	Internet, or similar communications media, including film strips,
21	21	motion pictures, and videos, published, disseminated, circulated,
22	22	or placed directly before the public for the purpose of creating an
23	23	interest in or inducing a person to purchase or sell, assign,
24	24	devise, bequest, or transfer the death benefit or ownership of a
25	25	life insurance policy or an interest in a life insurance policy
26	26	under a life settlement contract.
27	27	(2) "Broker" means a person who, on behalf of an owner
28	28	and for a fee, commission, or other valuable consideration, offers
29	29	or attempts to negotiate a life settlement contract between an
30	30	owner and a provider or estimates life expectancies for a life
31	31	settlement contract. A broker who offers or attempts to negotiate a
32	32	life settlement contract represents only the owner and owes a
33	33	fiduciary duty to the owner to act according to the owner's
34	34	instructions, and in the best interest of the owner,
35	35	notwithstanding the manner in which the broker is compensated. A
36	36	broker does not include an attorney, certified public accountant,
37	37	or financial planner retained in the type of practice customarily
38	38	performed in a professional capacity to represent the owner whose
39	39	compensation is not paid directly or indirectly by the provider or
40	40	any other person, except the owner.
41	41	(3) "Business of life settlements" means an activity
42	42	involved in, but not limited to, offering to enter into,
43	43	soliciting, negotiating, procuring, effectuating, monitoring, or
44	44	tracking, of life settlement contracts.
45	45	(4) "Chronically ill" means:
46	46	(A) being unable to perform at least two
47	47	activities of daily living such as eating, toileting, transferring,
48	48	bathing, dressing, or continence;
49	49	(B) requiring substantial supervision to protect
50	50	the individual from threats to health and safety due to severe
51	51	cognitive impairment; or
52	52	(C) having a level of disability similar to that
53	53	described in Paragraph (A) as determined under rules adopted by the
54	54	commissioner after consideration of any applicable regulation,
55	55	guideline, or determination of the United States Secretary of
56	56	Health and Human Services.
57	57	(5) "Financing entity" means an underwriter,
58	58	placement agent, lender, purchaser of securities, purchaser of a
59	59	policy or certificate from a provider, credit enhancer, or any
60	60	entity that has a direct ownership in a policy or certificate that
61	61	is the subject of a life settlement contract whose principal
62	62	activity related to the transaction is providing funds to effect
63	63	the life settlement contract or purchase of a policy, and who has an
64	64	agreement in writing with a provider to finance the acquisition of a
65	65	life settlement contract. The term does not include a
66	66	non-accredited investor or purchaser.
67	67	(6) "Financing transaction" means a transaction in
68	68	which a licensed provider obtains financing from a financing entity
69	69	including secured or unsecured financing, a securitization
70	70	transaction, or a securities offering that is either registered or
71	71	exempt from registration under federal and state securities law.
72	72	(7) "Fraudulent life settlement act" includes:
73	73	(A) an act or omission committed by a person who,
74	74	knowingly and with intent to defraud, for the purpose of depriving
75	75	another of property or for pecuniary gain, commits, or permits an
76	76	employee or an agent to engage in, acts including:
77	77	(i) presenting, causing to be presented, or
78	78	preparing with knowledge and belief that it will be presented to or
79	79	by a provider, premium finance lender, broker, insurer, insurance
80	80	agent, or any other person, false material information, or
81	81	concealing material information, as part of, in support of, or
82	82	concerning a fact material to one or more of the following:
83	83	(a) an application for the issuance of
84	84	a life settlement contract or an insurance policy;
85	85	(b) the underwriting of a life
86	86	settlement contract or an insurance policy;
87	87	(c) a claim for payment or benefit
88	88	pursuant to a life settlement contract or an insurance policy;
89	89	(d) premium paid on an insurance
90	90	policy;
91	91	(e) payment for and changes in
92	92	ownership or beneficiary made in accordance with the terms of a life
93	93	settlement contract or an insurance policy;
94	94	(f) the reinstatement or conversion
95	95	of an insurance policy;
96	96	(g) in the solicitation, offer to
97	97	enter into, or effectuation of a life settlement contract, or an
98	98	insurance policy;
99	99	(h) the issuance of written evidence
100	100	of life settlement contracts or insurance; or
101	101	(i) an application for or the
102	102	existence of or any payment related to a loan secured directly or
103	103	indirectly by an interest in a life insurance policy;
104	104	(ii) failing to disclose to the insurer, if
105	105	the insurer has requested the disclosure, that the prospective
106	106	insured has undergone a life expectancy evaluation by any person or
107	107	entity other than the insurer or its authorized representatives in
108	108	connection with the issuance of the policy; or
109	109	(iii) employing a device, scheme, or
110	110	artifice to defraud in the business of life settlements; and
111	111	(B) acts or omissions in the furtherance of a
112	112	fraud or to prevent the detection of a fraud, or acts or omissions
113	113	that permit an employee or an agent to:
114	114	(i) remove, conceal, alter, destroy, or
115	115	sequester from the commissioner the assets or records of a license
116	116	holder or another person engaged in the business of life
117	117	settlements;
118	118	(ii) misrepresent or conceal the financial
119	119	condition of a license holder, financing entity, insurer, or other
120	120	person;
121	121	(iii) transact the business of life
122	122	settlements in violation of laws requiring a license, certificate
123	123	of authority, or other legal authority for the transaction of the
124	124	business of life settlements;
125	125	(iv) file with the commissioner or the
126	126	chief insurance regulatory official of another jurisdiction a
127	127	document containing false information or concealing information
128	128	about a material fact;
129	129	(v) engage in embezzlement, theft,
130	130	misappropriation, or conversion of monies, funds, premiums,
131	131	credits, or other property of a provider, insurer, insured, owner,
132	132	insurance policy owner, or any other person engaged in the business
133	133	of life settlements or insurance;
134	134	(vi) knowingly and with intent to defraud,
135	135	enter into, broker, or otherwise deal in a life settlement
136	136	contract, the subject of which is a life insurance policy that was
137	137	obtained by presenting false information concerning any fact
138	138	material to the policy or by concealing that fact, for the purpose
139	139	of misleading another, or providing information concerning any fact
140	140	material to the policy, if the owner or the owner's agent intended
141	141	to defraud the policy's issuer;
142	142	(vii) attempt to commit, assist, aid or
143	143	abet in the commission of, or engage in conspiracy to commit the
144	144	acts or omissions specified in this paragraph; or
145	145	(viii) misrepresent the state of residence
146	146	of an owner to be a state or jurisdiction that does not have a law
147	147	substantially similar to this chapter for the purpose of evading or
148	148	avoiding the provisions of this chapter.
149	149	(8) "Insured" means a person covered under the policy
150	150	being considered for sale in a life settlement contract.
151	151	(9) "Life expectancy" means the arithmetic mean of the
152	152	number of months the insured under the life insurance policy to be
153	153	settled can be expected to live as determined by a life expectancy
154	154	company or provider considering medical records and appropriate
155	155	experiential data.
156	156	(10) "Life insurance agent" means a person licensed in
157	157	this state as a resident or nonresident insurance agent who has
158	158	received qualification or authority to write life insurance
159	159	coverage under this code.
160	160	(11) "Life settlement contract" means a written
161	161	agreement entered into between a provider and an owner establishing
162	162	the terms under which compensation or anything of value will be paid
163	163	and is less than the expected death benefit of the insurance policy
164	164	or certificate, in return for the owner's assignment, transfer,
165	165	sale, devise, or bequest of the death benefit or a portion of an
166	166	insurance policy or certificate of insurance for compensation;
167	167	provided, however, that the minimum value for a life settlement
168	168	contract must be greater than a cash surrender value or accelerated
169	169	death benefit available at the time of an application for a life
170	170	settlement contract. The term also includes the transfer for
171	171	compensation or value of ownership or beneficial interest in a
172	172	trust or other entity that owns the policy if the trust or other
173	173	entity was formed or used for the principal purpose of acquiring one
174	174	or more life insurance contracts that insure the life of an
175	175	individual residing in this state. The term also includes:
176	176	(A) a written agreement for a loan or other
177	177	lending transaction, secured primarily by an individual or group
178	178	life insurance policy; and
179	179	(B) a premium finance loan made for a policy on or
180	180	before the date of issuance of the policy if:
181	181	(i) the loan proceeds are not used solely to
182	182	pay premiums for the policy and any costs or expenses incurred by
183	183	the lender or the borrower in connection with the financing;
184	184	(ii) the owner receives on the date of the
185	185	premium finance loan a guarantee of the future life settlement
186	186	value of the policy; or
187	187	(iii) the owner agrees on the date of the
188	188	premium finance loan to sell the policy or any portion of its death
189	189	benefit on a date following the issuance of the policy.
190	190	(11-A) "Life settlement contract" does not include:
191	191	(A) a policy loan by a life insurance company
192	192	under the terms of a life insurance policy or accelerated death
193	193	provision contained in the life insurance policy, whether issued
194	194	with the original policy or as a rider;
195	195	(B) a premium finance loan or any loan made by a
196	196	bank or other licensed financial institution, provided that neither
197	197	default on the loan nor the transfer of the policy in connection
198	198	with the default is under an agreement or understanding with any
199	199	other person for the purpose of evading regulation under this
200	200	chapter;
201	201	(C) a collateral assignment of a life insurance
202	202	policy by an owner;
203	203	(D) a loan made by a lender that does not violate
204	204	Chapter 651, provided that the loan is not described in Subdivision
205	205	(11) and is not otherwise within the definition of life settlement
206	206	contract;
207	207	(E) an agreement with respect to which all the
208	208	parties are closely related to the insured by blood or law or have a
209	209	lawful substantial economic interest in the continued life, health,
210	210	and bodily safety of the person insured, or are trusts established
211	211	primarily for the benefit of the parties;
212	212	(F) a designation, consent, or agreement by an
213	213	insured who is an employee of an employer in connection with the
214	214	purchase by the employer, or trust established by the employer, of
215	215	life insurance on the life of the employee;
216	216	(G) a bona fide business succession planning
217	217	arrangement:
218	218	(i) between one or more shareholders in a
219	219	corporation or between a corporation and one or more of its
220	220	shareholders or one or more trusts established by its shareholders;
221	221	(ii) between one or more partners in a
222	222	partnership or between a partnership and one or more of its partners
223	223	or one or more trusts established by its partners; or
224	224	(iii) between one or more members in a
225	225	limited liability company or between a limited liability company
226	226	and one or more of its members or one or more trusts established by
227	227	its members;
228	228	(H) an agreement entered into by a service
229	229	recipient, or a trust established by the service recipient, and a
230	230	service provider, or a trust established by the service provider,
231	231	who performs significant services for the service recipient's trade
232	232	or business; or
233	233	(I) any other contract, transaction, or
234	234	arrangement from the definition of life settlement contract that
235	235	the commissioner determines is not of the type intended to be
236	236	regulated by this chapter.
237	237	(12) "Net death benefit" means the amount of the life
238	238	insurance policy or certificate to be settled less any outstanding
239	239	debts or liens.
240	240	(13) "Owner" means the owner of a life insurance
241	241	policy or a certificate holder under a group policy, with or without
242	242	a terminal illness, who enters or seeks to enter into a life
243	243	settlement contract. In this chapter, the term "owner" is not
244	244	limited to an owner of a life insurance policy or a certificate
245	245	holder under a group policy that insures the life of an individual
246	246	with a terminal or chronic illness or condition except as
247	247	specifically provided. The term does not include:
248	248	(A) a provider or other license holder under this
249	249	chapter;
250	250	(B) a qualified institutional buyer as defined by
251	251	17 C.F.R. Section 230.144A, as amended;
252	252	(C) a financing entity;
253	253	(D) a special purpose entity; or
254	254	(E) a related provider trust.
255	255	(14) "Patient identifying information" means an
256	256	insured's address, telephone number, facsimile number, e-mail
257	257	address, photograph or likeness, employer, employment status,
258	258	social security number, or any other information that is likely to
259	259	lead to the identification of the insured.
260	260	(15) "Policy" means an individual or group policy,
261	261	group certificate, contract, or arrangement of life insurance owned
262	262	by a resident of this state, regardless of whether delivered or
263	263	issued for delivery in this state.
264	264	(16) "Premium finance loan" is a loan made primarily
265	265	for the purposes of making premium payments on a life insurance
266	266	policy that is secured by an interest in the life insurance policy.
267	267	(17) "Person" means an individual or legal entity,
268	268	including a partnership, limited liability company, association,
269	269	trust, or corporation.
270	270	(18) "Provider" means a person, other than an owner,
271	271	who enters into or effectuates a life settlement contract with an
272	272	owner. The term does not include:
273	273	(A) a bank, savings bank, savings and loan
274	274	association, or credit union;
275	275	(B) a licensed lending institution or creditor or
276	276	secured party pursuant to a premium finance loan agreement that
277	277	takes an assignment of a life insurance policy or certificate
278	278	issued pursuant to a group life insurance policy as collateral for a
279	279	loan;
280	280	(C) the insurer of a life insurance policy or
281	281	rider to the extent of providing accelerated death benefits or
282	282	riders under Subchapter B, Chapter 1111, or cash surrender value;
283	283	(D) an individual who enters into or effectuates
284	284	not more than one agreement in a calendar year for the transfer of a
285	285	life insurance policy or certificate issued pursuant to a group
286	286	life insurance policy, for compensation or anything of value less
287	287	than the expected death benefit payable under the policy;
288	288	(E) a purchaser;
289	289	(F) any authorized or eligible insurer that
290	290	provides stop loss coverage to a provider, purchaser, financing
291	291	entity, special purpose entity, or related provider trust;
292	292	(G) a financing entity;
293	293	(H) a special purpose entity;
294	294	(I) a related provider trust;
295	295	(J) a broker; or
296	296	(K) an accredited investor or qualified
297	297	institutional buyer as those terms are defined by 17 C.F.R. Section
298	298	230.144A, as amended, who purchases a life settlement policy from a
299	299	provider.
300	300	(19) "Purchased policy" means a policy or group
301	301	certificate that has been acquired by a provider pursuant to a life
302	302	settlement contract.
303	303	(20) "Purchaser" means a person who pays compensation
304	304	or anything of value as consideration for a beneficial interest in a
305	305	trust that is vested with, or for the assignment, transfer, or sale
306	306	of, an ownership or other interest in a life insurance policy or a
307	307	certificate issued pursuant to a group life insurance policy that
308	308	has been the subject of a life settlement contract.
309	309	(21) "Related provider trust" means a titling trust or
310	310	other trust established by a licensed provider or a financing
311	311	entity for the sole purpose of holding the ownership or beneficial
312	312	interest in purchased policies in connection with a financing
313	313	transaction. In order to qualify as a related provider trust, the
314	314	trust must have a written agreement with the licensed provider
315	315	under which the licensed provider is responsible for ensuring
316	316	compliance with all statutory and regulatory requirements and under
317	317	which the trust agrees to make all records and files relating to
318	318	life settlement transactions available to the department as if
319	319	those records and files were maintained directly by the licensed
320	320	provider.
321	321	(22) "Settled policy" means a life insurance policy or
322	322	certificate that has been acquired by a provider pursuant to a life
323	323	settlement contract.
324	324	(23) "Special purpose entity" means a corporation,
325	325	partnership, trust, limited liability company, or other legal
326	326	entity formed solely to provide either directly or indirectly
327	327	access to institutional capital markets:
328	328	(A) for a financing entity or provider; or
329	329	(B) in connection with a transaction in which:
330	330	(i) the securities in the special purpose
331	331	entity are acquired by the owner or by a qualified institutional
332	332	buyer as defined by 17 C.F.R. Section 230.144A, as amended; or
333	333	(ii) the securities pay a fixed rate of
334	334	return commensurate with established asset-backed institutional
335	335	capital markets.
336	336	(24) "Terminally ill" means having an illness or
337	337	sickness that can reasonably be expected to result in death not
338	338	later than 24 months after the date of diagnosis.
339	339	Sec. 1111A.003. LICENSING REQUIREMENTS; EXEMPTION. (a) A
340	340	person, wherever located, may not act as a provider or broker with
341	341	an owner who is a resident of this state, unless the person holds a
342	342	license from the department.
343	343	(b) An application for a provider or broker license must be
344	344	made to the department by the applicant on a form prescribed by the
345	345	commissioner. The application must be accompanied by a fee in an
346	346	amount established by the commissioner by rule. The license and
347	347	renewal fees for a provider license must be reasonable and the
348	348	license and renewal fees for a broker license may not exceed those
349	349	established for an insurance agent, as otherwise provided by this
350	350	chapter.
351	351	(c) A person who has been licensed as a life insurance agent
352	352	in this state or the person's home state for at least one year and is
353	353	licensed as a nonresident agent in this state meets the licensing
354	354	requirements of this section and may operate as a broker.
355	355	(d) Not later than the 30th day after the first date of
356	356	operating as a broker, a life insurance agent shall notify the
357	357	commissioner on a form prescribed by the commissioner that the
358	358	agent is acting as a broker and shall pay any applicable fee to be
359	359	determined by the commissioner by rule. Notification must include
360	360	an acknowledgement by the life insurance agent that the agent will
361	361	operate as a broker in accordance with this chapter.
362	362	(e) An insurer that issued a policy that is the subject of a
363	363	life settlement contract is not responsible for any act or omission
364	364	of a broker or provider or purchaser arising out of or in connection
365	365	with the life settlement transaction, unless the insurer receives
366	366	compensation for the placement of a life settlement contract from
367	367	the provider, purchaser, or broker in connection with the life
368	368	settlement contract.
369	369	(f) A person licensed as an attorney, certified public
370	370	accountant, or financial planner accredited by a nationally
371	371	recognized accreditation agency, who is retained to represent the
372	372	owner and whose compensation is not paid directly or indirectly by
373	373	the provider or purchaser, may negotiate life settlement contracts
374	374	for the owner without having to obtain a license as a broker.
375	375	(g) A license expires on the second anniversary of the date
376	376	of issuance. A license holder may renew the license on payment of a
377	377	renewal fee. As specified by Subsection (b), the renewal fee for a
378	378	provider license may not exceed a reasonable fee.
379	379	(h) An applicant shall provide the information that the
380	380	commissioner requires on forms adopted by the commissioner. The
381	381	commissioner may, at any time, require an applicant to fully
382	382	disclose the identity of the applicant's stockholders that own at
383	383	least 10 percent of the shares of an applicant the shares of which
384	384	are publicly traded, partners, officers and employees, and the
385	385	commissioner may, in the exercise of the commissioner's sole
386	386	discretion, refuse to issue a license in the name of any person if
387	387	the commissioner is not satisfied that an officer, an employee, a
388	388	stockholder, or a partner of the applicant who may materially
389	389	influence the applicant's conduct meets the standards of Sections
390	390	1111A.001 to 1111A.018.
391	391	(i) A license issued to a partnership, corporation, or other
392	392	entity authorizes each member, officer, and designated employee
393	393	named in the application and any supplement to the application to
394	394	act as a license holder under the license.
395	395	(j) After the filing of an application and the payment of
396	396	the license fee, the commissioner shall investigate each applicant
397	397	and may issue a license if the commissioner finds that the
398	398	applicant:
399	399	(1) if a provider, has provided a detailed plan of
400	400	operation;
401	401	(2) is competent and trustworthy and intends to
402	402	transact business in good faith;
403	403	(3) has a good business reputation and has had
404	404	experience, training, or education to qualify in the business for
405	405	which the license is applied;
406	406	(4) if the applicant is a legal entity, is formed or
407	407	organized under the laws of this state or is a foreign legal entity
408	408	authorized to transact business in this state, or provides a
409	409	certificate of good standing from the state of its domicile; and
410	410	(5) has provided to the commissioner an antifraud plan
411	411	that meets the requirements of Section 1111A.022 and includes:
412	412	(A) a description of the procedures for detecting
413	413	and investigating possible fraudulent acts and procedures for
414	414	resolving material inconsistencies between medical records and
415	415	insurance applications;
416	416	(B) a description of the procedures for reporting
417	417	fraudulent insurance acts to the commissioner;
418	418	(C) a description of the plan for antifraud
419	419	education and training of its underwriters and other personnel; and
420	420	(D) a written description or chart outlining the
421	421	arrangement of the antifraud personnel who are responsible for the
422	422	investigation and reporting of possible fraudulent insurance acts
423	423	and the investigation of unresolved material inconsistencies
424	424	between medical records and insurance applications.
425	425	(k) The commissioner may not issue a license to a
426	426	nonresident applicant unless a written designation of an agent for
427	427	service of process is filed and maintained with the department or
428	428	unless the applicant has filed with the department the applicant's
429	429	written irrevocable consent that any action against the applicant
430	430	may be commenced by service of process on the commissioner.
431	431	(l) A license holder shall file with the department not
432	432	later than March 1 of each year an annual statement containing the
433	433	information as the commissioner by rule prescribes.
434	434	(m) A provider may not allow any person to perform the
435	435	functions of a broker unless the person holds a current, valid
436	436	license as a broker, and as provided in this section.
437	437	(n) A broker may not allow any person to perform the
438	438	functions of a provider unless the person holds a current, valid
439	439	license as a provider, and as provided in this section.
440	440	(o) A provider or broker shall provide to the commissioner
441	441	new or revised information about officers, stockholders described
442	442	by Subsection (h), partners, directors, members, or designated
443	443	employees within 30 days of the change.
444	444	(p) An individual licensed as a broker shall complete on a
445	445	biennial basis 15 hours of training related to life settlements and
446	446	life settlement transactions, as required by the commissioner. A
447	447	life insurance agent who is operating as a broker under this section
448	448	is not subject to the requirements of this subsection.
449	449	(q) The business of life settlements constitutes the
450	450	business of insurance.
451	451	Sec. 1111A.004. LICENSE SUSPENSION, REVOCATION, OR REFUSAL
452	452	TO RENEW. (a) The commissioner may suspend, revoke, or refuse to
453	453	renew the license of a license holder if the commissioner finds
454	454	that:
455	455	(1) there was a material misrepresentation in the
456	456	application for the license;
457	457	(2) the license holder or an officer, partner, member,
458	458	or director of the license holder has been guilty of fraudulent or
459	459	dishonest practices, is subject to a final administrative action,
460	460	or is otherwise shown to be untrustworthy or incompetent to act as a
461	461	license holder;
462	462	(3) the license holder is a provider and demonstrates
463	463	a pattern of unreasonably withholding payments to policy owners;
464	464	(4) the license holder no longer meets the
465	465	requirements for initial licensure;
466	466	(5) the license holder or any officer, partner,
467	467	member, or director of the license holder has been convicted of a
468	468	felony, or of any misdemeanor with respect to which criminal fraud
469	469	is an element, or has pleaded guilty or nolo contendere with respect
470	470	to a felony or a misdemeanor with respect to which criminal fraud or
471	471	moral turpitude is an element, regardless of whether a judgment of
472	472	conviction has been entered by the court;
473	473	(6) the license holder is a provider and has entered
474	474	into a life settlement contract using a form that has not been
475	475	approved under this chapter;
476	476	(7) the license holder is a provider and has failed to
477	477	honor contractual obligations in a life settlement contract;
478	478	(8) the license holder is a provider and has assigned,
479	479	transferred, or pledged a settled policy to a person other than a
480	480	provider licensed in this state, a purchaser, an accredited
481	481	investor or qualified institutional buyer as defined respectively
482	482	in 17 C.F.R. Section 230.144A, as amended, a financing entity, a
483	483	special purpose entity, or a related provider trust; or
484	484	(9) the license holder or any officer, partner,
485	485	member, or key management personnel of the license holder has
486	486	violated this chapter.
487	487	(b) The commissioner may deny a license application or
488	488	suspend, revoke, or refuse to renew the license of a license holder
489	489	in accordance with Chapter 2001, Government Code.
490	490	Sec. 1111A.005. REQUIREMENTS FOR CONTRACT FORMS,
491	491	DISCLOSURE FORMS, AND ADVERTISEMENTS. (a) A person may not use
492	492	any form of life settlement contract in this state unless the form
493	493	has been filed with and approved, if required, by the commissioner
494	494	in a manner that conforms with the filing procedures and any time
495	495	restrictions or deeming provisions for life insurance forms,
496	496	policies, and contracts.
497	497	(b) An insurer may not, as a condition of responding to a
498	498	request for verification of coverage or in connection with the
499	499	transfer of a policy pursuant to a life settlement contract,
500	500	require that the owner, insured, provider, or broker sign any form,
501	501	disclosure, consent, waiver, or acknowledgment that has not been
502	502	expressly approved by the commissioner for use in connection with
503	503	life settlement contracts.
504	504	(c) A person may not use a life settlement contract form or
505	505	provide to an owner a disclosure statement form unless the form is
506	506	first filed with and approved by the commissioner. The
507	507	commissioner shall disapprove a life settlement contract form or
508	508	disclosure statement form if, in the commissioner's opinion, the
509	509	contract or contract provisions fail to meet the requirements of
510	510	Sections 1111A.011, 1111A.012, 1111A.014, and 1111A.023(b), or are
511	511	unreasonable, contrary to the interests of the public, or otherwise
512	512	misleading or unfair to the owner.
513	513	(d) At the commissioner's discretion, the commissioner may
514	514	require the submission of advertisements.
515	515	Sec. 1111A.006. REPORTING REQUIREMENTS AND PRIVACY.
516	516	(a) For a policy settled not later than the fifth anniversary of
517	517	the date of policy issuance, each provider shall file with the
518	518	commissioner not later than March 1 of each year an annual statement
519	519	containing the information that the commissioner prescribes by
520	520	rule. In addition to any other requirements, the annual statement
521	521	must specify the total number, aggregate face amount, and life
522	522	settlement proceeds of policies settled during the immediately
523	523	preceding calendar year, together with a breakdown of the
524	524	information by policy issue year. The annual statement must also
525	525	include the names of each insurance company whose policies have
526	526	been settled and the brokers that have settled the policies.
527	527	(b) The information required under Subsection (a) is
528	528	limited to only those transactions in which the insured is a
529	529	resident of this state and may not include individual transaction
530	530	data regarding the business of life settlements or information if
531	531	there is a reasonable basis to find that the information could be
532	532	used to identify the owner or the insured.
533	533	(c) A provider that wilfully fails to file an annual
534	534	statement as required in this section, or wilfully fails to reply
535	535	not later than the 30th day after the date the provider receives a
536	536	written inquiry from the department about the filing of the annual
537	537	statement, shall, in addition to other penalties provided by this
538	538	chapter, after notice and opportunity for hearing be subject to a
539	539	penalty of up to $250 for each day of delay, not to exceed $25,000 in
540	540	the aggregate, for the failure to file or respond.
541	541	(d) Except as otherwise allowed or required by law, a
542	542	provider, broker, insurance company, insurance agent, information
543	543	bureau, rating agency or company, or any other person with actual
544	544	knowledge of an insured's identity, may not disclose the identity
545	545	of an insured or information that there is a reasonable basis to
546	546	believe could be used to identify the insured or the insured's
547	547	financial or medical information to any other person unless the
548	548	disclosure is:
549	549	(1) necessary to effect a life settlement contract
550	550	between the owner and a provider and the owner and insured have
551	551	provided prior written consent to the disclosure;
552	552	(2) necessary to effectuate the sale of a life
553	553	settlement contract, or interests in the contract, as an
554	554	investment, provided the sale is conducted in accordance with
555	555	applicable state and federal securities law and provided further
556	556	that the owner and the insured have both provided prior written
557	557	consent to the disclosure;
558	558	(3) provided in response to an investigation or
559	559	examination by the commissioner or another governmental officer or
560	560	agency or under Section 1111A.018;
561	561	(4) a term or condition of the transfer of a policy by
562	562	one provider to another licensed provider, in which case the
563	563	receiving provider shall comply with the confidentiality
564	564	requirements of this subsection;
565	565	(5) necessary to allow the provider or broker or the
566	566	provider's or broker's authorized representative to make contact
567	567	for the purpose of determining health status provided that in this
568	568	subdivision, authorized representative does not include a person
569	569	who has or may have a financial interest in the settlement contract
570	570	other than a provider, licensed broker, financing entity, related
571	571	provider trust, or special purpose entity and that the provider or
572	572	broker requires the authorized representative to agree in writing
573	573	to adhere to the privacy provisions of this chapter; or
574	574	(6) required to purchase stop loss coverage.
575	575	(e) Nonpublic personal information solicited or obtained in
576	576	connection with a proposed or actual life settlement contract is
577	577	subject to the provisions applicable to financial institutions
578	578	under the federal Gramm-Leach-Bliley Act (Pub. L. No. 106-102), and
579	579	any other state and federal laws relating to confidentiality of
580	580	nonpublic personal information.
581	581	Sec. 1111A.007. EXAMINATION. Subchapter B, Chapter 401,
582	582	applies to a person engaged in the business of life settlements.
583	583	Sec. 1111A.008. IMMUNITY FROM LIABILITY. (a) No cause of
584	584	action shall arise nor shall any liability be imposed against the
585	585	commissioner, the commissioner's authorized representatives, or
586	586	any examiner appointed by the commissioner for a statement made or
587	587	conduct performed in good faith while carrying out this chapter.
588	588	(b) No cause of action shall arise, nor shall any liability
589	589	be imposed against any person for the act of communicating or
590	590	delivering information to the commissioner or the commissioner's
591	591	authorized representative or examiner pursuant to an examination
592	592	made under this chapter, if the act of communication or delivery was
593	593	performed in good faith and without fraudulent intent or the intent
594	594	to deceive. This subsection does not abrogate or modify in any way
595	595	any common law or statutory privilege or immunity enjoyed by any
596	596	person identified in Subsection (a).
597	597	Sec. 1111A.009. INVESTIGATIVE AUTHORITY OF THE
598	598	COMMISSIONER. The commissioner may investigate a suspected
599	599	fraudulent life settlement act and a person engaged in the business
600	600	of life settlements.
601	601	Sec. 1111A.010. COST OF EXAMINATIONS. The reasonable and
602	602	necessary cost of an examination under this chapter is to be
603	603	assessed against the person being examined in accordance with
604	604	Section 751.208.
605	605	Sec. 1111A.011. ADVERTISING. (a) A broker or provider
606	606	licensed pursuant to this chapter may conduct or participate in an
607	607	advertisement in this state. The advertisement must comply with
608	608	all advertising and marketing laws under Chapter 541 and rules
609	609	adopted by the commissioner that are applicable to life insurers or
610	610	to license holders under this chapter.
611	611	(b) Advertisements shall be accurate, truthful, and not
612	612	misleading in fact or by implication.
613	613	(c) A person may not:
614	614	(1) market, advertise, solicit, or otherwise promote
615	615	the purchase of a policy for the sole purpose of or with an emphasis
616	616	on settling the policy; or
617	617	(2) use the words "free," "no cost," or words of
618	618	similar import in the marketing, advertising, or soliciting of, or
619	619	otherwise promoting, the purchase of a policy.
620	620	Sec. 1111A.012. DISCLOSURES TO OWNERS. (a) Not later than
621	621	the fifth day after the date a provider receives the application for
622	622	a life settlement contract, the provider shall provide, in a
623	623	separate written document, the following information to the owner:
624	624	(1) the fact that possible alternatives to life
625	625	settlement contracts exist, including accelerated benefits offered
626	626	by the issuer of the life insurance policy;
627	627	(2) the fact that some or all of the proceeds of a life
628	628	settlement contract may be taxable and that assistance should be
629	629	sought from a professional tax advisor;
630	630	(3) the fact that the proceeds from a life settlement
631	631	contract could be subject to the claims of creditors;
632	632	(4) the fact that receipt of proceeds from a life
633	633	settlement contract may adversely affect the recipients'
634	634	eligibility for public assistance or other government benefits or
635	635	entitlements and that advice should be obtained from the
636	636	appropriate agency;
637	637	(5) the fact that the owner has a right to terminate a
638	638	life settlement contract within 15 days of the date the contract is
639	639	executed by all parties and the owner has received the disclosures
640	640	described in this section, that rescission, if exercised by the
641	641	owner, is effective only if both notice of the rescission is given
642	642	and the owner repays all proceeds and any premiums, loans, and loan
643	643	interest paid on account of the provider during the rescission
644	644	period, and that if the insured dies during the rescission period,
645	645	the contract is considered rescinded subject to repayment by the
646	646	owner or the owner's estate of all proceeds and any premiums, loans,
647	647	and loan interest to the provider;
648	648	(6) the fact that proceeds will be sent to the owner
649	649	within three business days after the provider has received the
650	650	insurer or group administrator's acknowledgement that ownership of
651	651	the policy or interest in the certificate has been transferred and
652	652	the beneficiary has been designated in accordance with the terms of
653	653	the life settlement contract;
654	654	(7) the fact that entering into a life settlement
655	655	contract may cause the owner to forfeit other rights or benefits,
656	656	including conversion rights and waiver of premium benefits that may
657	657	exist under the policy or certificate of a group policy, and that
658	658	assistance should be sought from a professional financial advisor;
659	659	(8) the amount and method of calculating the
660	660	compensation, including anything of value, paid or given, or to be
661	661	paid or given, to the broker, or any other person acting for the
662	662	owner in connection with the transaction;
663	663	(9) the date by which the funds will be available to
664	664	the owner and the identity of the transmitter of the funds;
665	665	(10) the fact that the commissioner requires delivery
666	666	of a buyer's guide or a similar consumer advisory package in the
667	667	form prescribed by the commissioner to owners during the
668	668	solicitation process;
669	669	(11) the following language: "All medical, financial,
670	670	or personal information solicited or obtained by a provider or
671	671	broker about an insured, including the insured's identity or the
672	672	identity of family members or a spouse or a significant other, may
673	673	be disclosed as necessary to effect the life settlement contract
674	674	between the owner and provider. If you are asked to provide this
675	675	information, you will be asked to consent to the disclosure. The
676	676	information may be provided to someone who buys the policy or
677	677	provides funds for the purchase. You may be asked to renew your
678	678	permission to share information every two years.";
679	679	(12) the fact that the commissioner requires providers
680	680	and brokers to print separate signed fraud warnings on the
681	681	applications and on the life settlement contracts as follows: "Any
682	682	person who knowingly presents false information in an application
683	683	for insurance or a life settlement contract is guilty of a crime and
684	684	may be subject to fines and confinement in prison.";
685	685	(13) the fact that the insured may be contacted by
686	686	either the provider or broker or an authorized representative of
687	687	the provider or broker for the purpose of determining the insured's
688	688	health status or to verify the insured's address and that this
689	689	contact is limited to once every three months if the insured has a
690	690	life expectancy of more than one year, and not more than once per
691	691	month if the insured has a life expectancy of one year or less;
692	692	(14) the affiliation, if any, between the provider and
693	693	the issuer of the insurance policy to be settled;
694	694	(15) that a broker represents exclusively the owner,
695	695	and not the insurer or the provider or any other person, and owes a
696	696	fiduciary duty to the owner, including a duty to act according to
697	697	the owner's instructions and in the best interest of the owner;
698	698	(16) the name, address, and telephone number of the
699	699	provider;
700	700	(17) the name, business address, and telephone number
701	701	of the independent third party escrow agent, and the fact that the
702	702	owner may inspect or receive copies of the relevant escrow or trust
703	703	agreements or documents; and
704	704	(18) the fact that a change of ownership could in the
705	705	future limit the insured's ability to purchase future insurance on
706	706	the insured's life because there is a limit to how much coverage
707	707	insurers will issue on one life.
708	708	(b) The written disclosures described by Subsection (a)
709	709	must be conspicuously displayed in a life settlement contract
710	710	furnished to the owner by a provider, including any affiliations or
711	711	contractual arrangements between the provider and the broker.
712	712	(c) A broker shall provide the owner and the provider with
713	713	at least the following disclosures not later than the date on which
714	714	the life settlement contract is signed by all parties and which must
715	715	be conspicuously displayed in the life settlement contract or in a
716	716	separate document signed by the owner:
717	717	(1) the name, business address, and telephone number
718	718	of the broker;
719	719	(2) a full, complete, and accurate description of all
720	720	the offers, counter-offers, acceptances, and rejections relating
721	721	to the proposed life settlement contract;
722	722	(3) a written disclosure of any affiliations or
723	723	contractual arrangements between the broker and any person making
724	724	an offer in connection with the proposed life settlement contract;
725	725	(4) the name of each broker who receives compensation
726	726	and the amount of compensation, including anything of value, paid
727	727	or given to the broker in connection with the life settlement
728	728	contract; and
729	729	(5) a complete reconciliation of the gross offer or
730	730	bid by the provider to the net amount of proceeds or value to be
731	731	received by the owner.
732	732	(d) For the purpose of this section, "gross offer or bid"
733	733	means the total amount or value offered by the provider for the
734	734	purchase of one or more life insurance policies, inclusive of
735	735	commissions and fees.
736	736	(e) The failure to provide the disclosures or rights
737	737	described in this section is an unfair method of competition or an
738	738	unfair or deceptive act or practice.
739	739	Sec. 1111A.013. DISCLOSURE TO INSURER. (a) Without
740	740	limiting the ability of an insurer to assess the insurability of a
741	741	policy applicant and to determine whether to issue the policy, and
742	742	in addition to other questions an insurance carrier may lawfully
743	743	pose to a life insurance applicant, an insurer may inquire in the
744	744	application for insurance whether the proposed owner intends to pay
745	745	premiums with the assistance of financing from a lender that will
746	746	use the policy as collateral to support the financing.
747	747	(b) If, as described in Sections 1111A.002(11) and (11-A),
748	748	the loan provides funds that can be used for a purpose other than
749	749	paying for the premiums, costs, and expenses associated with
750	750	obtaining and maintaining the life insurance policy and loan, and
751	751	notwithstanding any other law, the application must be rejected as
752	752	a violation of Section 1111A.017.
753	753	(c) If the financing does not violate Section 1111A.017, the
754	754	insurance carrier:
755	755	(1) may make disclosures, not later than the date of
756	756	the delivery of the policy, to the applicant and the insured, either
757	757	on the application or on an amendment to the application that
758	758	include the following or substantially similar statements:
759	759	"If you have entered into a loan arrangement in which the policy is
760	760	used as collateral, and the policy does change ownership at some
761	761	point in the future in satisfaction of the loan, the following may
762	762	be true:
763	763	(A) a change of ownership could lead to a
764	764	stranger owning an interest in the insured's life;
765	765	(B) a change of ownership could in the future
766	766	limit your ability to purchase future insurance on the insured's
767	767	life because there is a limit to how much coverage insurers will
768	768	issue on one life;
769	769	(C) should there be a change of ownership and you
770	770	wish to obtain more insurance coverage on the insured's life in the
771	771	future, the insured's higher issue age, a change in health status,
772	772	or other factors may reduce the ability to obtain coverage or may
773	773	result in significantly higher premiums; and
774	774	(D) you should consult a professional advisor,
775	775	since a change in ownership in satisfaction of the loan may result
776	776	in tax consequences to the owner, depending on the structure of the
777	777	loan.";
778	778	(2) may require certifications, such as the following,
779	779	from the applicant or the insured:
780	780	(A) "I have not entered into any agreement or
781	781	arrangement providing for the future sale of this life insurance
782	782	policy";
783	783	(B) "My loan arrangement for this policy provides
784	784	funds sufficient to pay for some or all of the premiums, costs, and
785	785	expenses associated with obtaining and maintaining my life
786	786	insurance policy, but I have not entered into any agreement by which
787	787	I am to receive consideration in exchange for procuring this
788	788	policy"; and
789	789	(C) "The borrower has an insurable interest in
790	790	the insured."
791	791	Sec. 1111A.014. GENERAL RULES. (a) Before entering into a
792	792	life settlement contract with an owner of a policy with respect to
793	793	which the insured is terminally or chronically ill, the provider
794	794	must obtain:
795	795	(1) if the owner is the insured, a written statement
796	796	from a licensed attending physician that the owner is of sound mind
797	797	and under no constraint or undue influence to enter into a
798	798	settlement contract; and
799	799	(2) a document in which the insured consents to the
800	800	release of medical records to a provider, settlement broker, or
801	801	insurance agent and, if the policy was issued less than two years
802	802	after the date of application for a settlement contract, to the
803	803	insurance company that issued the policy.
804	804	(b) An insurer shall respond to a request for verification
805	805	of coverage submitted by a provider, settlement broker, or life
806	806	insurance agent not later than the 30th calendar day after the date
807	807	the request is received. The request for verification of coverage
808	808	must be made on a form approved by the commissioner. The insurer
809	809	shall complete and issue the verification of coverage or indicate
810	810	in which respects the insurer is unable to respond. In the
811	811	response, the insurer shall indicate whether at the time of the
812	812	response, based on the medical evidence and documents provided, the
813	813	insurer intends to pursue an investigation about the validity of
814	814	the insurance contract.
815	815	(c) On or before the date of execution of the life
816	816	settlement contract, the provider shall obtain a witnessed document
817	817	in which the owner consents to the settlement contract, represents
818	818	that the owner has a full and complete understanding of the
819	819	settlement contract and of the benefits of the policy, acknowledges
820	820	that the owner is entering into the settlement contract freely and
821	821	voluntarily, and, for persons with a terminal or chronic illness or
822	822	condition, acknowledges that the insured has a terminal or chronic
823	823	illness and that the terminal or chronic illness or condition was
824	824	diagnosed after the policy was issued.
825	825	(d) The insurer may not unreasonably delay effecting change
826	826	of ownership or beneficiary with any life settlement contract
827	827	lawfully entered into in this state or with a resident of this
828	828	state.
829	829	(e) If a settlement broker or life insurance agent performs
830	830	any of these activities required of the provider, the provider is
831	831	deemed to have fulfilled the requirements of this section.
832	832	(f) If a broker performs the verification of coverage
833	833	activities required of the provider, the provider is deemed to have
834	834	fulfilled the requirements of Section 1111A.012.
835	835	(g) Not later than the 20th day after the date that an owner
836	836	executes the life settlement contract, the provider shall give
837	837	written notice to the insurer that issued that insurance policy
838	838	that the policy has become subject to a life settlement contract.
839	839	The notice shall be accompanied by the documents required by
840	840	Section 1111A.013(c).
841	841	(h) Medical information solicited or obtained by a license
842	842	holder is subject to the applicable provision of state law relating
843	843	to confidentiality of medical information, if not otherwise
844	844	provided in this chapter.
845	845	(i) A life settlement contract entered into in this state
846	846	must provide that the owner may rescind the contract on or before 15
847	847	days after the date the contract is executed by all parties to the
848	848	contract. Rescission, if exercised by the owner, is effective only
849	849	if notice of the rescission is given and the owner repays all
850	850	proceeds and any premiums, loans, and loan interest paid on account
851	851	of the provider within the rescission period. If the insured dies
852	852	during the rescission period, the contract is rescinded subject to
853	853	repayment by the owner or the owner's estate of all proceeds and any
854	854	premiums, loans, and loan interest to the provider.
855	855	(j) Not later than the third business day after the date the
856	856	provider receives from the owner the documents to effect the
857	857	transfer of the insurance policy, the provider shall pay the
858	858	proceeds of the settlement into an escrow or trust account managed
859	859	by a trustee or escrow agent in a state or federally chartered
860	860	financial institution pending acknowledgement of the transfer by
861	861	the issuer of the policy. The trustee or escrow agent shall
862	862	transfer to the owner the proceeds due to the owner not later than
863	863	the third business day after the date the trustee or escrow officer
864	864	receives from the insurer acknowledgment of the transfer of the
865	865	insurance policy.
866	866	(k) Failure to tender the life settlement contract proceeds
867	867	to the owner on or before the date disclosed to the owner renders
868	868	the contract voidable by the owner for lack of consideration until
869	869	the time the proceeds are tendered to and accepted by the owner. A
870	870	failure to give written notice of the right of rescission under this
871	871	subsection tolls the right of rescission for 30 days after the date
872	872	the written notice of the right of rescission has been given.
873	873	(l) A fee paid by a provider, an owner, or other person to a
874	874	broker in exchange for services provided to the owner pertaining to
875	875	a life settlement contract must be computed as a percentage of the
876	876	offer obtained, not the face value of the policy. Nothing in this
877	877	section prohibits a broker from voluntarily reducing the broker's
878	878	fee to less than a percentage of the offer obtained.
879	879	(m) A broker shall disclose to the owner anything of value
880	880	paid or given to a broker that relates to a life settlement
881	881	contract.
882	882	(n) A person, at any time prior to or at the time of the
883	883	application for, or issuance of, a policy, or during a two-year
884	884	period beginning on the date of issuance of the policy, may not
885	885	enter into a life settlement contract regardless of the date the
886	886	compensation is to be provided and regardless of the date the
887	887	assignment, transfer, sale, devise, bequest, or surrender of the
888	888	policy is to occur. This prohibition does not apply if:
889	889	(1) the owner certifies to the provider that the
890	890	policy was issued on the owner's exercise of conversion rights
891	891	arising out of a group or individual policy, provided the total of
892	892	the time covered under the conversion policy plus the time covered
893	893	under the prior policy is at least 24 months; or
894	894	(2) the owner submits independent evidence to the
895	895	provider that one or more of the following conditions have been met
896	896	during the two-year period described by this subsection:
897	897	(A) the owner or insured is terminally or
898	898	chronically ill;
899	899	(B) the owner or insured disposes of the owner's
900	900	or insured's ownership interests in a closely held corporation,
901	901	pursuant to the terms of a buyout or other similar agreement in
902	902	effect at the time the insurance policy was initially issued;
903	903	(C) the owner's spouse dies;
904	904	(D) the owner divorces the owner's spouse;
905	905	(E) the owner retires from full-time employment;
906	906	(F) the owner becomes physically or mentally
907	907	disabled and a physician determines that the disability prevents
908	908	the owner from maintaining full-time employment; or
909	909	(G) a final order, judgment, or decree is entered
910	910	by a court of competent jurisdiction, on the application of a
911	911	creditor of the owner, adjudicating the owner bankrupt or
912	912	insolvent, or approving a petition seeking reorganization of the
913	913	owner or appointing a receiver, trustee, or liquidator to all or a
914	914	substantial part of the owner's assets.
915	915	(o) For the purposes of Subsection (n)(1), time covered
916	916	under a group policy must be calculated without regard to a change
917	917	in insurance carriers, provided the coverage has been continuous
918	918	and under the same group sponsorship.
919	919	(p) Copies of the independent evidence described by
920	920	Subsection (n)(2) must be submitted to the insurer at the time the
921	921	provider submits a request to the insurer for verification of
922	922	coverage. The copies must be accompanied by a letter of attestation
923	923	from the provider that the copies are true and correct copies of the
924	924	documents received by the provider. This section does not prohibit
925	925	an insurer from exercising its right to contest the validity of a
926	926	policy.
927	927	(q) If the provider submits to the insurer a copy of
928	928	independent evidence provided for Subsection (n)(2)(A) at the time
929	929	the provider submits a request to the insurer to effect the transfer
930	930	of the policy to the provider, the copy is deemed to establish that
931	931	the settlement contract satisfies the requirements of this section.
932	932	Sec. 1111A.015. AUTHORITY TO ADOPT RULES. (a) The
933	933	commissioner may adopt rules implementing this chapter and
934	934	regulating the activities and relationships of providers, brokers,
935	935	insurers, and their authorized representatives.
936	936	(b) The commissioner may not adopt a rule establishing a
937	937	price or fee for the sale or purchase of a life settlement contract.
938	938	This subsection does not prohibit the commissioner from adopting a
939	939	rule relating to an unjust price or fee for the sale or purchase of a
940	940	life settlement contract.
941	941	(c) The commissioner may not adopt a rule that regulates the
942	942	actions of an investor providing money to a life or viatical
943	943	settlement company.
944	944	Sec. 1111A.016. CONFLICT OF LAWS. (a) If there is more
945	945	than one owner on a single policy, and the owners are residents of
946	946	different states, the life settlement contract is governed by the
947	947	law of the state in which the owner having the largest percentage
948	948	ownership resides or, if the owners hold equal ownership, the state
949	949	of residence of one owner agreed on in writing by all of the owners.
950	950	The law of the state of the insured shall govern in the event that
951	951	equal owners fail to agree in writing on a state of residence for
952	952	jurisdictional purposes.
953	953	(b) A provider licensed in this state who enters into a life
954	954	settlement contract with an owner who is a resident of another state
955	955	that has enacted statutes or adopted rules governing life
956	956	settlement contracts is governed in the effectuation of that life
957	957	settlement contract by the statutes and rules of the owner's state
958	958	of residence. If the state in which the owner is a resident has not
959	959	enacted statutes or adopted rules governing life settlement
960	960	contracts, the provider shall give the owner notice that neither
961	961	state regulates the transaction on which the owner is entering. For
962	962	transactions in those states, however, the provider shall maintain
963	963	all records required by this chapter if the transactions were
964	964	executed in this state. The forms used in those states need not be
965	965	approved by the department.
966	966	(c) If there is a conflict in the laws that apply to an owner
967	967	and a purchaser in any individual transaction, the laws of the state
968	968	that apply to the owner shall take precedence and the provider shall
969	969	comply with those laws.
970	970	Sec. 1111A.017. PROHIBITED PRACTICES. (a) A person may
971	971	not:
972	972	(1) enter into a life settlement contract if the
973	973	person knows or reasonably should have known that the life
974	974	insurance policy was obtained by means of a false, deceptive, or
975	975	misleading application for the policy;
976	976	(2) engage in a transaction, practice, or course of
977	977	business if the person knows or reasonably should have known that
978	978	the intent of engaging in the transaction, practice, or course of
979	979	business is to avoid the notice requirements of this chapter;
980	980	(3) engage in a fraudulent act or practice in
981	981	connection with a transaction relating to any settlement involving
982	982	an owner who is a resident of this state;
983	983	(4) issue, solicit, market, or otherwise promote the
984	984	purchase of an insurance policy for the purpose of, or with an
985	985	emphasis on, settling the policy;
986	986	(5) if providing premium financing, receive any
987	987	proceeds, fee, or other consideration from the policy or owner in
988	988	addition to the amounts required to pay principal, interest, and
989	989	any reasonable costs or expenses incurred by the lender or borrower
990	990	in connection with the premium finance agreement, except in event
991	991	of a default, unless either the default on the loan or transfer of
992	992	the policy occurs pursuant to an agreement or understanding with
993	993	any other person for the purpose of evading regulation under this
994	994	chapter;
995	995	(6) with respect to any settlement contract or
996	996	insurance policy and to a broker, knowingly solicit an offer from,
997	997	effectuate a life settlement contract with, or make a sale to any
998	998	provider, financing entity, or related provider trust that is
999	999	controlling, controlled by, or under common control with the broker
1000	1000	unless the relationship is fully disclosed to the owner;
1001	1001	(7) with respect to any life settlement contract or
1002	1002	insurance policy and a provider, knowingly enter into a life
1003	1003	settlement contract with an owner if, in connection with the life
1004	1004	settlement contract, anything of value will be paid to a broker that
1005	1005	is controlling, controlled by, or under common control with the
1006	1006	provider or the financing entity or related provider trust that is
1007	1007	involved in such settlement contract, unless the relationship is
1008	1008	fully disclosed to the owner;
1009	1009	(8) with respect to a provider, enter into a life
1010	1010	settlement contract unless the life settlement promotional,
1011	1011	advertising, and marketing materials, as may be prescribed by rule,
1012	1012	have been filed with the commissioner, provided that in no event may
1013	1013	any marketing materials expressly reference that the insurance is
1014	1014	free for any period of time; or
1015	1015	(9) with respect to any life insurance agent,
1016	1016	insurance company, broker, or provider, make any statement or
1017	1017	representation to the applicant or policyholder in connection with
1018	1018	the sale or financing of a life insurance policy to the effect that
1019	1019	the insurance is free or without cost to the policyholder for any
1020	1020	period of time unless provided in the policy.
1021	1021	(b) A violation of this section is a fraudulent life
1022	1022	settlement act.
1023	1023	Sec. 1111A.018. FRAUD PREVENTION AND CONTROL. (a) A
1024	1024	person may not commit a fraudulent life settlement act.
1025	1025	(b) A person may not interfere with the enforcement of this
1026	1026	chapter or an investigation of a suspected or actual violation of
1027	1027	this chapter.
1028	1028	(c) A person in the business of life settlements may not
1029	1029	knowingly or intentionally permit a person convicted of a felony
1030	1030	involving dishonesty or breach of trust to participate in the
1031	1031	business of life settlements.
1032	1032	(d) A life settlement contract and an application for a life
1033	1033	settlement contract, regardless of the form of transmission, must
1034	1034	contain the following, or a substantially similar, statement: "Any
1035	1035	person who knowingly presents false information in an application
1036	1036	for insurance or a life settlement contract is guilty of a crime and
1037	1037	may be subject to fines and confinement in prison."
1038	1038	(e) The failure to include a statement as required in
1039	1039	Subsection (d) is not a defense in any prosecution for a fraudulent
1040	1040	life settlement act.
1041	1041	Sec. 1111A.019. MANDATORY REPORTING OF FRAUDULENT LIFE
1042	1042	SETTLEMENT ACTS. A person engaged in the business of life
1043	1043	settlements has a duty under Section 701.051 to report a fraudulent
1044	1044	life settlement act.
1045	1045	Sec. 1111A.020. CONFIDENTIALITY. (a) The documents and
1046	1046	evidence obtained by the commissioner in an investigation of a
1047	1047	suspected or an actual fraudulent life settlement act are
1048	1048	privileged and confidential, are not a public record, and are not
1049	1049	subject to discovery or subpoena in a civil or criminal action.
1050	1050	(b) Subsection (a) does not prohibit release by the
1051	1051	commissioner of documents and evidence obtained in an investigation
1052	1052	of a suspected or an actual fraudulent life settlement act:
1053	1053	(1) in an administrative or judicial proceeding to
1054	1054	enforce a provision of this code or another insurance law of this
1055	1055	state;
1056	1056	(2) to a federal, state, or local law enforcement or
1057	1057	regulatory agency, to an organization established for the purpose
1058	1058	of detecting and preventing a fraudulent life settlement act, or to
1059	1059	the National Association of Insurance Commissioners; or
1060	1060	(3) at the discretion of the commissioner, to a person
1061	1061	in the business of life settlements that is aggrieved by a
1062	1062	fraudulent life settlement act.
1063	1063	(c) Release of documents and evidence under Subsection (b)
1064	1064	does not abrogate or modify the privilege granted in Subsection
1065	1065	(a).
1066	1066	Sec. 1111A.021. OTHER LAW ENFORCEMENT OR REGULATORY
1067	1067	AUTHORITY. This chapter does not:
1068	1068	(1) preempt the authority or relieve the duty of
1069	1069	another law enforcement or regulatory agency to investigate,
1070	1070	examine, and prosecute a suspected violation of law;
1071	1071	(2) preempt, supersede, or limit any provision of any
1072	1072	state securities law or any rule, order, or notice issued under the
1073	1073	law;
1074	1074	(3) prevent or prohibit a person from disclosing
1075	1075	voluntarily information concerning life settlement fraud to a law
1076	1076	enforcement or regulatory agency other than the department; or
1077	1077	(4) limit the powers granted by the laws of this state
1078	1078	to the commissioner or an insurance fraud unit to investigate and
1079	1079	examine a possible violation of law and to take appropriate action
1080	1080	against wrongdoers.
1081	1081	Sec. 1111A.022. LIFE SETTLEMENT ANTIFRAUD INITIATIVES.
1082	1082	(a) A provider or broker shall implement antifraud initiatives
1083	1083	reasonably calculated to detect, prosecute, and prevent fraudulent
1084	1084	life settlement acts. At the discretion of the commissioner, the
1085	1085	commissioner may order, or a license holder may request and the
1086	1086	commissioner may grant, a modification of the following required
1087	1087	initiatives as necessary to ensure an effective antifraud program.
1088	1088	A modification granted under this section may be more or less
1089	1089	restrictive than the required initiatives so long as the
1090	1090	modification may reasonably be expected to accomplish the purpose
1091	1091	of this section. Antifraud initiatives must include:
1092	1092	(1) fraud investigators, who may be provider or broker
1093	1093	employees or independent contractors; and
1094	1094	(2) an antifraud plan, which must be submitted to the
1095	1095	commissioner and must include:
1096	1096	(A) a description of the procedures for detecting
1097	1097	and investigating possible fraudulent life settlement acts and
1098	1098	procedures for resolving material inconsistencies between medical
1099	1099	records and insurance applications;
1100	1100	(B) a description of the procedures for reporting
1101	1101	possible fraudulent life settlement acts to the commissioner;
1102	1102	(C) a description of the plan for antifraud
1103	1103	education and training of underwriters and other personnel; and
1104	1104	(D) a description or chart outlining the
1105	1105	organizational arrangement of the antifraud personnel who are
1106	1106	responsible for the investigation and reporting of possible
1107	1107	fraudulent life settlement acts and investigating unresolved
1108	1108	material inconsistencies between medical records and insurance
1109	1109	applications.
1110	1110	(b) An antifraud plan submitted to the commissioner is
1111	1111	privileged and confidential, is not subject to disclosure under
1112	1112	Chapter 552, Government Code, and is not subject to discovery or
1113	1113	subpoena in a civil action.
1114	1114	Sec. 1111A.023. INJUNCTION; CIVIL REMEDIES; CEASE AND
1115	1115	DESIST ORDERS. (a) In addition to the penalties and other
1116	1116	enforcement provisions of this chapter, if any person violates this
1117	1117	chapter or any rule implementing this chapter, the commissioner may
1118	1118	seek an injunction in a court in the county where the person resides
1119	1119	or has a principal place of business and may apply for temporary and
1120	1120	permanent orders that the commissioner determines necessary to
1121	1121	restrain the person from further committing the violation.
1122	1122	(b) The commissioner may issue a cease and desist order
1123	1123	against a person who violates any provision of this chapter, any
1124	1124	rule or order adopted by the commissioner, or any written agreement
1125	1125	entered into with the commissioner, in accordance with Chapter 82.
1126	1126	(c) If the commissioner finds that an action in violation of
1127	1127	this chapter presents an immediate danger to the public and
1128	1128	requires an immediate final order, the commissioner may issue an
1129	1129	emergency cease and desist order under Chapter 83.
1130	1130	(d) The provisions of this chapter may not be waived by
1131	1131	agreement. No choice of law provision may prevent the application
1132	1132	of this chapter to any settlement.
1133	1133	Sec. 1111A.024. PENALTIES. (a) It is a violation of this
1134	1134	chapter for any person, provider, broker, or any other party
1135	1135	related to the business of life settlements to commit a fraudulent
1136	1136	life settlement act.
1137	1137	(b) A person who knowingly, recklessly, or intentionally
1138	1138	commits a fraudulent life settlement act commits a criminal offense
1139	1139	and is subject to penalties under Chapter 35, Penal Code.
1140	1140	(c) Subtitle B, Title 2, applies to a violation of this
1141	1141	chapter.
1142	1142	Sec. 1111A.025. APPLICABILITY OF OTHER INSURANCE LAWS. The
1143	1143	following laws apply to a person engaged in the business of life
1144	1144	settlements:
1145	1145	(1) Chapters 82, 83, 84, 101, 481, 541, and 701;
1146	1146	(2) Sections 31.002, 32.021, 32.023, 32.041, 38.001,
1147	1147	81.004, 86.001, 86.051, 86.052, 201.004, 401.051, 401.054,
1148	1148	401.151(a), 521.003, 521.004, 543.001(c), 801.056, and 862.052;
1149	1149	(3) Subchapter A, Chapter 32;
1150	1150	(4) Subchapter C, Chapter 36;
1151	1151	(5) Subchapter B, Chapter 404; and
1152	1152	(6) Subchapter B, Chapter 491.
1153	1153	SECTION 1.02. (a) A provider lawfully transacting
1154	1154	business in this state before the effective date of this Act may
1155	1155	continue to do so pending approval or disapproval of the person's
1156	1156	application for a license as long as the application is filed with
1157	1157	the commissioner of insurance not later than 30 days after the date
1158	1158	of the publication by the commissioner of an application form and
1159	1159	instructions for licensure of providers. If the publication of the
1160	1160	application form and instructions is before the effective date of
1161	1161	this Act, then the filing of the application may not be later than
1162	1162	30 days after the effective date of this Act and the applicant may
1163	1163	use any form of life settlement contract that has been filed with
1164	1164	the commissioner pending approval, provided that the form is
1165	1165	otherwise in compliance with the provisions of this Act. A person
1166	1166	transacting business in this state under this provision shall
1167	1167	comply with all other requirements of this Act.
1168	1168	(b) A person who has lawfully negotiated a life settlement
1169	1169	contract between an owner residing in this state and one or more
1170	1170	providers for at least one year immediately before the effective
1171	1171	date of this Act may continue to do so pending approval or
1172	1172	disapproval of the person's application for a license provided that
1173	1173	the application is filed with the commissioner of insurance not
1174	1174	later than the 30th day after the date of publication by the
1175	1175	commissioner of an application form and instructions for licensure
1176	1176	of brokers. If the publication of the application form and
1177	1177	instructions is before the effective date of this Act, then the
1178	1178	filing of the application may not be later than the 30th day after
1179	1179	the effective date of this Act. Any person transacting business in
1180	1180	this state under this provision shall comply with all other
1181	1181	requirements of this Act.
1182	1182	ARTICLE 2. CONFORMING AMENDMENTS
1183	1183	SECTION 2.01. The heading to Chapter 1111, Insurance Code,
1184	1184	is amended to read as follows:
1185	1185	CHAPTER 1111. [LIFE AND VIATICAL SETTLEMENTS AND] ACCELERATED
1186	1186	TERM LIFE INSURANCE BENEFITS
1187	1187	SECTION 2.02. Subsection (a), Section 1551.255, Insurance
1188	1188	Code, is amended to read as follows:
1189	1189	(a) In this section, "viatical settlement" has the meaning
1190	1190	assigned to "life settlement contract" by Section 1111A.002
1191	1191	[1111.001].
1192	1192	SECTION 2.03. Subchapter A, Chapter 1111, Insurance Code,
1193	1193	is repealed.
1194	1194	ARTICLE 3. EFFECTIVE DATE
1195	1195	SECTION 3.01. This Act takes effect September 1, 2011.