84R6810 PMO-D
By: Workman H.B. No. 3723
A BILL TO BE ENTITLED
AN ACT
relating to the regulation of secondary market transactions related
to the business of life settlements; providing penalties;
authorizing fees.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 1111A.002, Insurance Code, is amended by
amending Subdivisions (1), (2), (3), (7), (8), (9), (13), (18), and
(20) and adding Subdivisions (1-A), (8-A), (25), (26), and (27) to
read as follows:
(1) "Accredited investor" has the meaning assigned by
17 C.F.R. Section 230.501.
(1-A) "Advertisement" means a written, electronic, or
printed communication or a communication by means of a recorded
telephone message or transmitted on radio, television, the
Internet, or similar communications media, including film strips,
motion pictures, and videos, published, disseminated, circulated,
or placed directly before the public for the purpose of creating an
interest in or inducing a person to:
(A) purchase or sell, assign, devise, bequest, or
transfer the death benefit or ownership of a life insurance policy
or an interest in a life insurance policy under a life settlement
contract; or
(B) enter into a secondary market transaction.
(2) "Broker" means a person who, on behalf of an owner
and for a fee, commission, or other valuable consideration, offers
or attempts to negotiate a life settlement contract between an
owner and a provider or estimates life expectancies on behalf of an
owner for a life settlement contract. A broker who offers or
attempts to negotiate a life settlement contract represents only
the owner and owes a fiduciary duty to the owner to act according to
the owner's instructions, and in the best interest of the owner,
notwithstanding the manner in which the broker is compensated. A
broker does not include an attorney, certified public accountant,
or financial planner retained in the type of practice customarily
performed in a professional capacity to represent the owner whose
compensation is not paid directly or indirectly by the provider or
any other person, except the owner.
(3) "Business of life settlements" means an activity
involved in, but not limited to, offering to enter into,
soliciting, negotiating, procuring, effectuating, monitoring, or
tracking, of:
(A) life settlement contracts; or
(B) secondary market transactions.
(7) "Fraudulent life settlement act" includes:
(A) an act or omission committed by a person who,
knowingly and with intent to defraud, for the purpose of depriving
another of property or for pecuniary gain, commits, or permits an
employee or an agent to engage in, acts including:
(i) presenting, causing to be presented, or
preparing with knowledge and belief that it will be presented to or
by a provider, premium finance lender, broker, insurer, insurance
agent, secondary provider, investor, or any other person, false
material information, or concealing material information, as part
of, in support of, or concerning a fact material to one or more of
the following:
(a) an application for the issuance of
a life settlement contract or an insurance policy;
(b) the underwriting of a life
settlement contract or an insurance policy;
(c) a claim for payment or benefit
pursuant to a life settlement contract or an insurance policy;
(d) premium paid on an insurance
policy;
(e) payment for and changes in
ownership or beneficiary made in accordance with the terms of a life
settlement contract or an insurance policy;
(f) the reinstatement or conversion
of an insurance policy;
(g) in the solicitation, offer to
enter into, or effectuation of a life settlement contract, [or] an
insurance policy, or a secondary market transaction;
(h) the issuance of written evidence
of an insurance policy, a life settlement contract, [contracts] or
a secondary market transaction [insurance]; or
(i) an application for or the
existence of or any payment related to a loan secured directly or
indirectly by an interest in a life insurance policy;
(ii) failing to disclose to the insurer, if
the insurer has requested the disclosure, that the prospective
insured has undergone a life expectancy evaluation by any person or
entity other than the insurer or its authorized representatives in
connection with the issuance of the policy; or
(iii) employing a device, scheme, or
artifice to defraud in the business of life settlements; and
(B) acts or omissions in the furtherance of a
fraud or to prevent the detection of a fraud, or acts or omissions
that permit an employee or an agent to:
(i) remove, conceal, alter, destroy, or
sequester from the commissioner the assets or records of a license
holder or another person engaged in the business of life
settlements;
(ii) misrepresent or conceal the financial
condition of a license holder, financing entity, insurer, investor,
or other person;
(iii) transact the business of life
settlements in violation of laws requiring a license, certificate
of authority, or other legal authority for the transaction of the
business of life settlements;
(iv) file with the commissioner or the
chief insurance regulatory official of another jurisdiction a
document containing false information or concealing information
about a material fact;
(v) engage in embezzlement, theft,
misappropriation, or conversion of monies, funds, premiums,
credits, or other property of a provider, insurer, insured, owner,
insurance policy owner, secondary provider, investor, or any other
person engaged in the business of life settlements or insurance;
(vi) knowingly and with intent to defraud,
enter into, broker, or otherwise deal in a life settlement
contract, the subject of which is a life insurance policy, or in a
secondary market transaction related to a life insurance policy, if
the policy [that] was obtained by presenting false information
concerning any fact material to the policy or by concealing that
fact, for the purpose of misleading another, or providing
information concerning any fact material to the policy, if the
owner or the owner's agent intended to defraud the policy's issuer;
(vii) attempt to commit, assist, aid or
abet in the commission of, or engage in conspiracy to commit the
acts or omissions specified in this paragraph; or
(viii) misrepresent the state of residence
of an owner, secondary provider, or investor to be a state or
jurisdiction that does not have a law substantially similar to this
chapter with respect to the interest of the owner, secondary
provider, or investor, as applicable, for the purpose of evading or
avoiding the provisions of this chapter.
(8) "Insured" means a person covered under the policy
being considered for sale in a life settlement contract or related
to a secondary market transaction.
(8-A) "Investor" means, except to the extent otherwise
clear from context, a person who is offered or obtains an interest
in a life settlement contract from a secondary provider in a
secondary market transaction.
(9) "Life expectancy" means the arithmetic mean of the
number of months the insured under the life insurance policy to be
settled or related to a secondary market transaction can be
expected to live [as determined by a life expectancy company or
provider] considering medical records and appropriate experiential
data.
(13) "Owner" means the owner of a life insurance
policy or a certificate holder under a group policy, with or without
a terminal illness, who enters or seeks to enter into a life
settlement contract. In this chapter, the term "owner" is not
limited to an owner of a life insurance policy or a certificate
holder under a group policy that insures the life of an individual
with a terminal or chronic illness or condition except as
specifically provided. The term does not include:
(A) a provider or other license holder under this
chapter;
(B) a qualified institutional buyer as defined by
17 C.F.R. Section 230.144A, as amended;
(C) a financing entity;
(D) a special purpose entity; [or]
(E) a related provider trust; or
(F) any person who holds an interest in a life
settlement contract as a result of a secondary market transaction.
(18) "Provider" means a person, other than an owner,
who enters into or effectuates a life settlement contract with an
owner. The term does not include:
(A) a bank, savings bank, savings and loan
association, or credit union;
(B) a licensed lending institution or creditor or
secured party pursuant to a premium finance loan agreement that
takes an assignment of a life insurance policy or certificate
issued pursuant to a group life insurance policy as collateral for a
loan;
(C) the insurer of a life insurance policy or
rider to the extent of providing accelerated death benefits or
riders under Subchapter B, Chapter 1111, or cash surrender value;
(D) an individual who enters into or effectuates
not more than one agreement in a calendar year for the transfer of a
life insurance policy or certificate issued pursuant to a group
life insurance policy, for compensation or anything of value less
than the expected death benefit payable under the policy;
(E) a purchaser;
(F) any authorized or eligible insurer that
provides stop loss coverage to a provider, purchaser, financing
entity, special purpose entity, or related provider trust;
(G) a financing entity;
(H) a special purpose entity;
(I) a related provider trust;
(J) a broker; [or]
(K) an accredited investor or qualified
institutional buyer as those terms are defined by 17 C.F.R.
Sections 230.501 and 230.144A, respectively, as amended, who
purchases a life insurance [settlement] policy or a certificate
issued pursuant to a life insurance policy from a provider or a
secondary provider; or
(L) a secondary provider.
(20) "Purchaser" means a person who, in a transaction
other than a secondary market transaction, pays compensation or
anything of value as consideration for a beneficial interest in a
trust that is vested with, or for the assignment, transfer, or sale
of, an ownership or other interest in a life insurance policy or a
certificate issued pursuant to a group life insurance policy that
has been the subject of a life settlement contract.
(25) "Prospectus" means a written, electronic, or
printed communication or a communication by other means published,
disseminated, circulated, or placed before an investor for the
purpose of creating an interest in or inducing an investor to
purchase, sell, or assign an ownership interest in a life
settlement contract.
(26) "Secondary market transaction" means to offer to
sell an interest in a life settlement contract or to solicit,
negotiate, procure, effectuate, monitor, track the sale of, or sell
an interest in a life settlement contract.
(27) "Secondary provider" means a person, other than
an investor, offering to enter into a secondary market transaction
whether for a fee, commission, or other valuable consideration or
otherwise.
SECTION 2. Section 1111A.003, Insurance Code, is amended by
adding Subsections (a-1), (a-2), (a-3), (a-4), and (e-1) and
amending Subsections (b), (c), (g), (j), (m), (n), and (o) to read
as follows:
(a-1) A person, wherever located, may not act as a secondary
provider in a transaction involving an investor who is a resident of
this state unless the person holds a license from the department
under this chapter.
(a-2) A person may not act as a secondary provider in this
state unless the person holds a license from the department under
this chapter.
(a-3) Except as provided by Subsection (a-4), a person may
not provide a life expectancy estimate in connection with a life
settlement or secondary market transaction in which a party is a
resident of this state unless the person holds a license as a life
expectancy estimator from the department under this chapter.
(a-4) Subsection (a-3) does not require additional
licensing of a licensed broker acting as a life expectancy
estimator only on behalf of an owner.
(b) An application for a provider, [or] broker, secondary
provider, or life expectancy estimator license must be made to the
department by the applicant on a form prescribed by the
commissioner. The application must be accompanied by a fee in an
amount established by the commissioner by rule. The license and
renewal fees for a provider, secondary provider, or life expectancy
estimator license must be reasonable and the license and renewal
fees for a broker license may not exceed those established for an
insurance agent, as otherwise provided by this chapter.
(c) A person who has been licensed as a life insurance agent
in this state or the person's home state for at least one year and is
licensed as a nonresident agent in this state meets the licensing
requirements of this section and may operate as a broker, but may
not act as a provider or secondary provider without holding a
license under this chapter.
(e-1) An insurer that issued a policy related to a secondary
market transaction is not responsible for any act or omission of a
secondary provider arising out of or in connection with the
transaction, unless the insurer receives compensation from the
secondary provider in connection with the transaction.
(g) A license expires on the second anniversary of the date
of issuance. A license holder may renew the license on payment of a
renewal fee. As specified by Subsection (b), the renewal fee for a
provider, secondary provider, or life expectancy estimator license
may not exceed a reasonable fee.
(j) After the filing of an application and the payment of
the license fee, the commissioner shall investigate each applicant
and may issue a license if the commissioner finds that the
applicant:
(1) if a provider or secondary provider, has provided
a detailed plan of operation;
(2) is competent and trustworthy and intends to
transact business in good faith;
(3) has a good business reputation and has had
experience, training, or education to qualify in the business for
which the license is applied;
(4) if the applicant is a legal entity, is formed or
organized under the laws of this state or is a foreign legal entity
authorized to transact business in this state, or provides a
certificate of good standing from the state of its domicile; and
(5) if a broker, provider, or secondary provider, has
provided to the commissioner an antifraud plan that meets the
requirements of Section 1111A.022 and includes:
(A) a description of the procedures for detecting
and investigating possible fraudulent acts and procedures for
resolving material inconsistencies between medical records and
insurance applications or information provided by a provider,
secondary provider, life expectancy estimator, or other person in
connection with a secondary market transaction;
(B) a description of the procedures for reporting
fraudulent insurance or life settlement acts to the commissioner;
(C) a description of the plan for antifraud
education and training of its underwriters and other personnel; and
(D) a written description or chart outlining the
arrangement of the antifraud personnel who are responsible for the
investigation and reporting of possible fraudulent insurance or
life settlement acts and the investigation of unresolved material
inconsistencies between medical records and insurance applications
or information provided by a provider, secondary provider, life
expectancy estimator, or other person in connection with a
secondary market transaction.
(m) A provider or secondary provider may not allow any other
person to perform the functions of a broker, secondary provider, or
life expectancy estimator unless the person holds a current, valid
license as a broker, secondary provider, or life expectancy
estimator, as applicable, and as provided in this section.
(n) A broker may not allow any person to perform the
functions of a provider, secondary provider, or life expectancy
estimator unless the person holds a current, valid license as a
provider, secondary provider, or life expectancy estimator, as
applicable, and as provided in this section.
(o) A provider, [or] broker, secondary provider, or life
expectancy estimator shall provide to the commissioner new or
revised information about officers, stockholders described by
Subsection (h), partners, directors, members, or designated
employees within 30 days of the change.
SECTION 3. Section 1111A.004(a), Insurance Code, is amended
to read as follows:
(a) The commissioner may suspend, revoke, or refuse to renew
the license of a license holder if the commissioner finds that:
(1) there was a material misrepresentation in the
application for the license;
(2) the license holder or an officer, partner, member,
or director of the license holder has been guilty of fraudulent or
dishonest practices, is subject to a final administrative action,
or is otherwise shown to be untrustworthy or incompetent to act as a
license holder;
(3) the license holder is a provider or secondary
provider and demonstrates a pattern of unreasonably withholding
payments to policy owners or investors, as applicable;
(4) the license holder no longer meets the
requirements for initial licensure;
(5) the license holder or any officer, partner,
member, or director of the license holder has been convicted of a
felony, or of any misdemeanor with respect to which criminal fraud
is an element, or has pleaded guilty or nolo contendere with respect
to a felony or a misdemeanor with respect to which criminal fraud or
moral turpitude is an element, regardless of whether a judgment of
conviction has been entered by the court;
(6) the license holder is a provider and has entered
into a life settlement contract using a form that has not been
approved under this chapter;
(7) the license holder is a secondary provider and has
entered into a secondary market transaction using a form or
prospectus that has not been approved under this chapter;
(8) the license holder is a provider and has failed to
honor contractual obligations in a life settlement contract;
(9) [(8)] the license holder is a provider and has
assigned, transferred, or pledged a settled policy to a person
other than a provider or secondary provider licensed in this state,
a purchaser, an accredited investor or qualified institutional
buyer as defined respectively in 17 C.F.R. Sections 230.501 and
[Section] 230.144A, as amended, a financing entity, a special
purpose entity, or a related provider trust; [or]
(10) [(9)] the license holder or any officer, partner,
member, or key management personnel of the license holder has
violated this chapter; or
(11) the license holder is a secondary provider and
has entered into a secondary market transaction with a person who is
not an accredited investor.
SECTION 4. The heading to Section 1111A.005, Insurance
Code, is amended to read as follows:
Sec. 1111A.005. REQUIREMENTS FOR CONTRACT FORMS,
DISCLOSURE AND PROSPECTUS FORMS, AND ADVERTISEMENTS.
SECTION 5. Section 1111A.005, Insurance Code, is amended by
amending Subsection (b) and adding Subsection (e) to read as
follows:
(b) An insurer may not, as a condition of responding to a
request for verification of coverage or in connection with the
transfer of a policy pursuant to a life settlement contract or
secondary market transaction, require that the owner, insured,
provider, [or] broker, secondary provider, or investor sign any
form, disclosure, consent, waiver, or acknowledgment that has not
been expressly approved by the commissioner for use in connection
with life settlement contracts or secondary market transactions, as
applicable.
(e) A person may not use a prospectus or any other form in
connection with a secondary market transaction before the 31st day
after the date the form is filed with the commissioner. The
commissioner shall disapprove a form filed under this subsection
if, in the commissioner's opinion, the form fails to meet the
applicable requirements of Sections 1111A.011, 1111A.012,
1111A.014, and 1111A.023(d) or is unreasonable, contrary to the
interests of the public, or otherwise misleading or unfair. A form
filed under this subsection that is not affirmatively approved or
disapproved in a written order of the commissioner on or before the
30th day the form is filed is considered approved.
SECTION 6. Section 1111A.006, Insurance Code, is amended by
adding Subsections (a-1), (a-2), and (b-1) and amending Subsections
(c), (d), and (e) to read as follows:
(a-1) Each secondary provider shall file with the
commissioner not later than March 1 of each year an annual statement
containing the information that the commissioner prescribes by
rule. In addition to any other requirements, the annual statement
must specify for life settlement contracts involved in secondary
market transactions occurring during the preceding calendar year:
(1) the total number of related purchased policies;
(2) the aggregate face amount of the policies;
(3) the aggregate premium amount of the policies;
(4) the premium payment periods for the policies; and
(5) the aggregate life proceeds paid to the secondary
provider.
(a-2) An annual statement under Subsection (a-1) must also
include the names of each life expectancy estimator and escrow
agent, if any, employed by the secondary provider with respect to a
secondary market transaction.
(b-1) The information required under Subsections (a-1) and
(a-2) is limited to only those secondary market transactions in
which the secondary provider or the investor is a resident of this
state and may not include individual transaction data regarding the
business of life settlements or information if there is a
reasonable basis to find that the information could be used to
identify the owner or the insured.
(c) A provider or secondary provider that wilfully fails to
file an annual statement as required in this section, or wilfully
fails to reply not later than the 30th day after the date the
provider or secondary provider receives a written inquiry from the
department about the filing of the annual statement, shall, in
addition to other penalties provided by this chapter, after notice
and opportunity for hearing be subject to a penalty of up to $250
for each day of delay, not to exceed $25,000 in the aggregate, for
the failure to file or respond.
(d) Except as otherwise allowed or required by law, a
provider, broker, insurance company, insurance agent, information
bureau, rating agency or company, secondary provider, investor, or
any other person with actual knowledge of an insured's identity,
may not disclose the identity of an insured or information that
there is a reasonable basis to believe could be used to identify the
insured or the insured's financial or medical information to any
other person unless the disclosure is:
(1) necessary to effect a life settlement contract
between the owner and a provider or a secondary market transaction
and the owner and insured have provided prior written consent to the
disclosure;
(2) necessary to effectuate the sale of a life
settlement contract, or interests in the contract, including a
secondary market transaction, as an investment, provided the sale
is conducted in accordance with this chapter and applicable state
and federal securities law and provided further that the owner and
the insured have both provided prior written consent to the
disclosure;
(3) provided in response to an investigation or
examination by the commissioner or another governmental officer or
agency or under Section 1111A.018;
(4) a term or condition of the transfer of a policy by
one provider to another licensed provider, in which case the
receiving provider shall comply with the confidentiality
requirements of this subsection;
(5) necessary to allow the provider, [or] broker, or
secondary provider or the provider's, [or] broker's, or secondary
provider's authorized representative to make contact for the
purpose of determining health status provided that in this
subdivision, authorized representative does not include a person
who has or may have a financial interest in the settlement contract
or secondary market transaction other than a provider, secondary
provider, licensed broker, financing entity, related provider
trust, or special purpose entity and that the provider, [or]
broker, or secondary provider requires the authorized
representative to agree in writing to adhere to the privacy
provisions of this chapter; or
(6) required to purchase stop loss coverage.
(e) Nonpublic personal information solicited or obtained in
connection with a proposed or actual life settlement contract or
secondary market transaction is subject to the provisions
applicable to financial institutions under the federal
Gramm-Leach-Bliley Act (Pub. L. No. 106-102), and any other state
and federal laws relating to confidentiality of nonpublic personal
information.
SECTION 7. The heading to Section 1111A.011, Insurance
Code, is amended to read as follows:
Sec. 1111A.011. ADVERTISING AND PROSPECTUSES.
SECTION 8. Section 1111A.011, Insurance Code, is amended by
adding Subsection (a-1) and amending Subsection (b) to read as
follows:
(a-1) A secondary provider licensed under this chapter may
conduct or participate in an advertisement or deliver a prospectus
in this state. The advertisement or prospectus must comply with
all advertising and marketing laws under Chapter 541 and rules
adopted by the commissioner that are applicable to life insurers or
to license holders under this chapter.
(b) Advertisements and prospectuses shall be accurate,
truthful, and not misleading in fact or by implication.
SECTION 9. Section 1111A.012(a), Insurance Code, is amended
to read as follows:
(a) The broker, or the provider if no broker is involved in
the application, shall provide in writing, in a separate document
that is signed by the owner, the following information to the owner
not later than the date of application for a life settlement
contract:
(1) the fact that possible alternatives to life
settlement contracts exist, including accelerated benefits offered
by the issuer of the life insurance policy;
(2) the fact that some or all of the proceeds of a life
settlement contract may be taxable and that assistance should be
sought from a professional tax advisor;
(3) the fact that the proceeds from a life settlement
contract could be subject to the claims of creditors;
(4) the fact that receipt of proceeds from a life
settlement contract may adversely affect the recipients'
eligibility for public assistance or other government benefits or
entitlements and that advice should be obtained from the
appropriate agency;
(5) the fact that the owner has a right to terminate a
life settlement contract within 15 days of the date the contract is
executed by all parties and the owner has received the disclosures
described in this section, that rescission, if exercised by the
owner, is effective only if both notice of the rescission is given
and the owner repays all proceeds and any premiums, loans, and loan
interest paid on account of the provider during the rescission
period, and that if the insured dies during the rescission period,
the contract is considered rescinded subject to repayment by the
owner or the owner's estate of all proceeds and any premiums, loans,
and loan interest to the provider;
(6) the fact that proceeds will be sent to the owner
within three business days after the provider has received the
insurer or group administrator's acknowledgement that ownership of
the policy or interest in the certificate has been transferred and
the beneficiary has been designated in accordance with the terms of
the life settlement contract;
(7) the fact that entering into a life settlement
contract may cause the owner to forfeit other rights or benefits,
including conversion rights and waiver of premium benefits that may
exist under the policy or certificate of a group policy, and that
assistance should be sought from a professional financial advisor;
(8) the amount and method of calculating the
compensation, including anything of value, paid or given, or to be
paid or given, to the broker, or any other person acting for the
owner in connection with the transaction;
(9) the date by which the funds will be available to
the owner and the identity of the transmitter of the funds;
(10) the fact that the commissioner requires delivery
of a buyer's guide or a similar consumer advisory package in the
form prescribed by the commissioner to owners during the
solicitation process;
(11) the following language: "All medical,
financial, or personal information solicited or obtained by a
provider or broker about an insured, including the insured's
identity or the identity of family members or a spouse or a
significant other, may be disclosed as necessary to effect the life
settlement contract between the owner and provider. If you are
asked to provide this information, you will be asked to consent to
the disclosure. The information may be provided to someone who
buys the policy or provides funds for the purchase. You may be
asked to renew your permission to share information every two
years.";
(12) the fact that the commissioner requires providers
and brokers to print separate signed fraud warnings on the
applications and on the life settlement contracts as follows: "Any
person who knowingly presents false information in an application
for insurance or a life settlement contract is guilty of a crime and
may be subject to fines and confinement in prison.";
(13) the fact that the insured may be contacted by
either the provider or broker or an authorized representative of
the provider or broker for the purpose of determining the insured's
health status or to verify the insured's address and that this
contact is limited to once every three months if the insured has a
life expectancy of more than one year, and not more than once per
month if the insured has a life expectancy of one year or less;
(14) the affiliation, if any, between the provider and
the issuer of the insurance policy to be settled;
(15) that a broker represents exclusively the owner,
and not the insurer or the provider or any other person, and owes a
fiduciary duty to the owner, including a duty to act according to
the owner's instructions and in the best interest of the owner;
(16) the name, address, and telephone number of the
provider;
(17) the name, business address, and telephone number
of the independent third party escrow agent, and the fact that the
owner may inspect or receive copies of the relevant escrow or trust
agreements or documents; [and]
(18) the fact that a change of ownership could in the
future limit the insured's ability to purchase future insurance on
the insured's life because there is a limit to how much coverage
insurers will issue on one life; and
(19) the fact that the purchased policy or life
settlement contract may be the subject of a secondary market
transaction.
SECTION 10. Chapter 1111A, Insurance Code, is amended by
adding Sections 1111A.0135 and 1111A.0136 to read as follows:
Sec. 1111A.0135. DISCLOSURES TO INVESTORS. (a) A
secondary provider shall provide to investors, in a separate
document that is signed by the investors, written disclosures as
required by rule adopted by the commissioner.
(b) The disclosures described by Subsection (a) must be
provided to the investor not less than seven days before the date
the secondary market transaction closes.
(c) The failure to provide the written disclosures
described by Subsection (a) is an unfair method of competition or an
unfair or deceptive act or practice.
Sec. 1111A.0136. LIMITATION ON SECONDARY MARKET
TRANSACTIONS. A secondary provider may enter into a secondary
market transaction only with an accredited investor.
SECTION 11. Section 1111A.014, Insurance Code, is amended
by amending Subsections (a), (b), (c), and (d) and adding
Subsection (g-1) to read as follows:
(a) Before entering into a life settlement contract with an
owner of a policy with respect to which the insured is terminally or
chronically ill, the provider must obtain:
(1) if the owner is the insured, a written statement
from a licensed attending physician that the owner is of sound mind
and under no constraint or undue influence to enter into a
settlement contract; and
(2) a document in which the insured consents to the
release of medical records to a provider, settlement broker, [or]
insurance agent, secondary provider, or investor and, if the policy
was issued less than two years after the date of application for a
settlement contract, to the insurance company that issued the
policy.
(b) An insurer shall respond to a request for verification
of coverage submitted by a provider, settlement broker, [or] life
insurance agent, secondary provider, or investor not later than the
30th calendar day after the date the request is received. The
request for verification of coverage must be made on a form approved
by the commissioner. The insurer shall complete and issue the
verification of coverage or indicate in which respects the insurer
is unable to respond. In the response, the insurer shall indicate
whether at the time of the response, based on the medical evidence
and documents provided, the insurer intends to pursue an
investigation about the validity of the insurance contract.
(c) On or before the date of execution of the life
settlement contract, the provider shall obtain a witnessed document
in which the owner consents to the settlement contract, represents
that the owner has a full and complete understanding of the
settlement contract and of the benefits of the policy, acknowledges
that the owner is entering into the settlement contract freely and
voluntarily, acknowledges that the purchased policy or contract may
be the subject of a secondary market transaction, and, for persons
with a terminal or chronic illness or condition, acknowledges that
the insured has a terminal or chronic illness and that the terminal
or chronic illness or condition was diagnosed after the policy was
issued.
(d) The insurer may not unreasonably delay effecting change
of ownership or beneficiary with any life settlement contract or
secondary market transaction lawfully entered into in this state or
with a resident of this state.
(g-1) Not later than the 20th day after the date that a
secondary market transaction closes, the secondary provider shall
give written notice to the insurer that issued the purchased policy
that is subject to a life settlement contract that the contract has
become subject to a secondary market transaction. The notice shall
be accompanied by the documents required by Section 1111A.0135.
SECTION 12. Sections 1111A.015(a) and (b), Insurance Code,
are amended to read as follows:
(a) The commissioner may adopt rules implementing this
chapter and regulating the activities and relationships of
providers, brokers, insurers, secondary providers, investors, and
their authorized representatives.
(b) The commissioner may not adopt a rule establishing a
price or fee for the sale or purchase of a life settlement contract
or for a secondary market transaction. This subsection does not
prohibit the commissioner from adopting a rule relating to an
unjust price or fee for the sale or purchase of a life settlement
contract or for a secondary market transaction.
SECTION 13. Section 1111A.016, Insurance Code, is amended
by adding Subsection (d) to read as follows:
(d) A secondary provider licensed in this state who enters
into a secondary market transaction with an investor who is a
resident of another state that has enacted statutes or adopted
rules governing secondary market transactions is governed with
respect to that secondary market transaction by the statutes and
rules of the investor's state of residence. If the state in which
the investor is a resident has not enacted statutes or adopted rules
governing secondary market transactions, the secondary provider
shall give the investor notice that the secondary provider:
(1) is governed by the statutes and rules of this
state; and
(2) must maintain all records required by this
chapter.
SECTION 14. Section 1111A.017(a), Insurance Code, is
amended to read as follows:
(a) A person may not:
(1) enter into a life settlement contract or a
secondary market transaction if the person knows or reasonably
should have known that:
(A) the life insurance policy was obtained by
means of a false, deceptive, or misleading application for the life
insurance policy; or
(B) the purchased policy or life settlement
contract was obtained by means of a false, deceptive, or misleading
act or practice;
(2) engage in a transaction, practice, or course of
business if the person knows or reasonably should have known that
the intent of engaging in the transaction, practice, or course of
business is to avoid the notice requirements of this chapter;
(3) engage in a fraudulent act or practice in
connection with:
(A) a transaction relating to any settlement
involving an owner who is a resident of this state; or
(B) a secondary market transaction involving a
secondary provider or investor who is a resident of this state;
(4) issue, solicit, market, or otherwise promote the
purchase of an insurance policy for the purpose of, or with an
emphasis on, settling the policy;
(5) if providing premium financing, receive any
proceeds, fee, or other consideration from the policy or owner in
addition to the amounts required to pay principal, interest, and
any reasonable costs or expenses incurred by the lender or borrower
in connection with the premium finance agreement, except in event
of a default, unless either the default on the loan or transfer of
the policy occurs pursuant to an agreement or understanding with
any other person for the purpose of evading regulation under this
chapter;
(6) with respect to any settlement contract or
insurance policy and to a broker, knowingly solicit an offer from,
effectuate a life settlement contract with, or make a sale to any
provider, financing entity, or related provider trust that is
controlling, controlled by, or under common control with the broker
unless the relationship is fully disclosed to the owner;
(7) with respect to any life settlement contract or
insurance policy and a provider, knowingly enter into a life
settlement contract with an owner if, in connection with the life
settlement contract, anything of value will be paid to a broker that
is controlling, controlled by, or under common control with the
provider or the financing entity or related provider trust that is
involved in such settlement contract, unless the relationship is
fully disclosed to the owner;
(8) with respect to a provider, enter into a life
settlement contract unless the life settlement promotional,
advertising, and marketing materials, as may be prescribed by rule,
have been filed with the commissioner, provided that in no event may
any marketing materials expressly reference that the insurance is
free for any period of time; [or]
(9) with respect to any life insurance agent,
insurance company, broker, or provider, make any statement or
representation to the applicant or policyholder in connection with
the sale or financing of a life insurance policy to the effect that
the insurance is free or without cost to the policyholder for any
period of time unless provided in the policy; or
(10) with respect to a secondary provider:
(A) enter into a secondary market transaction
unless the prospectus and forms, as required by statute or may be
prescribed by rule, have been filed with or approved by the
commissioner, as applicable; or
(B) make any statement or representation to an
investor in connection with a secondary market transaction that is
false, misleading, or deceptive.
SECTION 15. Section 1111A.018(d), Insurance Code, is
amended to read as follows:
(d) A life settlement contract, [and] an application for a
life settlement contract, a purchased policy, a prospectus, and a
contract in a secondary market transaction, regardless of the form
of transmission, must contain the following, or a substantially
similar, statement: "Any person who knowingly presents false
information in an application for insurance, [or] a life settlement
contract, a purchased policy, a prospectus, or a contract in a
secondary market transaction is guilty of a crime and may be subject
to fines and confinement in prison."
SECTION 16. Section 1111A.021, Insurance Code, is amended
to read as follows:
Sec. 1111A.021. OTHER LAW ENFORCEMENT OR REGULATORY
AUTHORITY. (a) This chapter does not:
(1) except as provided by Subsection (b) preempt the
authority or relieve the duty of another law enforcement or
regulatory agency to investigate, examine, and prosecute a
suspected violation of law;
(2) except as provided by Subsection (b) preempt,
supersede, or limit any provision of any state securities law or any
rule, order, or notice issued under the law;
(3) prevent or prohibit a person from disclosing
voluntarily information concerning life settlement fraud or fraud
in a secondary market transaction to a law enforcement or
regulatory agency other than the department; or
(4) limit the powers granted by the laws of this state
to the commissioner or an insurance fraud unit to investigate and
examine a possible violation of law and to take appropriate action
against wrongdoers.
(b) A secondary market transaction deemed not to involve a
public offering under 17 C.F.R. Section 230.506 under the
Securities Act of 1933 (15 U.S.C. Section 77a et seq.) may not be
considered a security under The Securities Act (Article 581-1 et
seq., Vernon's Texas Civil Statutes).
SECTION 17. Section 1111A.022(a), Insurance Code, is
amended to read as follows:
(a) A provider, [or] broker, or secondary provider shall
implement antifraud initiatives reasonably calculated to detect,
prosecute, and prevent fraudulent life settlement acts. At the
discretion of the commissioner, the commissioner may order, or a
license holder may request and the commissioner may grant, a
modification of the following required initiatives as necessary to
ensure an effective antifraud program. A modification granted
under this section may be more or less restrictive than the required
initiatives so long as the modification may reasonably be expected
to accomplish the purpose of this section. Antifraud initiatives
must include:
(1) fraud investigators, who may be provider,
secondary provider, or broker employees or independent
contractors; and
(2) an antifraud plan, which must be submitted to the
commissioner and must include:
(A) a description of the procedures for detecting
and investigating possible fraudulent life settlement acts and
procedures for resolving material inconsistencies between medical
records and insurance applications or information provided by a
provider, secondary provider, life expectancy estimator, or other
person in connection with a secondary market transaction;
(B) a description of the procedures for reporting
possible fraudulent life settlement acts to the commissioner;
(C) a description of the plan for antifraud
education and training of underwriters and other personnel; and
(D) a description or chart outlining the
organizational arrangement of the antifraud personnel who are
responsible for the investigation and reporting of possible
fraudulent life settlement acts and investigating unresolved
material inconsistencies between medical records and insurance
applications.
SECTION 18. Section 1111A.023(d), Insurance Code, is
amended to read as follows:
(d) The provisions of this chapter may not be waived by
agreement. No choice of law provision may prevent the application
of this chapter to any life settlement or secondary market
transaction.
SECTION 19. Section 1111A.024(a), Insurance Code, is
amended to read as follows:
(a) It is a violation of this chapter for any person,
provider, broker, secondary provider, or any other party related to
the business of life settlements to commit a fraudulent life
settlement act.
SECTION 20. Section 1111A.026, Insurance Code, is amended
to read as follows:
Sec. 1111A.026. APPLICABILITY OF CERTAIN PROVISIONS TO
CERTAIN LIFE EXPECTANCY ESTIMATORS. (a) The following provisions
do not apply to a broker who acts solely as a life expectancy
estimator on behalf of an owner:
(1) Section 1111A.003(p);
(2) Section 1111A.012; and
(3) Sections 1111A.014(l) and (m).
(b) The commissioner may exempt a broker who acts only as a
life expectancy estimator on behalf of an owner from other
provisions of this chapter if the commissioner finds that the
application of those provisions to the broker is not necessary for
the public welfare.
SECTION 21. A secondary provider or life expectancy
estimator other than a broker lawfully transacting business in this
state before the effective date of this Act may continue to do so
pending approval or disapproval of the person's application for a
license as long as the application is filed with the commissioner of
insurance not later than the 30th day after the date of the
publication by the commissioner of an application form and
instructions for licensure of secondary providers and life
expectancy estimators. If the publication of the application form
and instructions is before the effective date of this Act, then the
application must be filed not later than the 30th day after the
effective date of this Act and the applicant may use in connection
with a secondary market transaction any form or prospectus that has
been filed with the commissioner pending approval or disapproval,
provided that the form and prospectus are otherwise in compliance
with the provisions of this Act. A person transacting business in
this state under this provision shall comply with all other
requirements of this Act.
SECTION 22. This Act takes effect September 1, 2015.