SB368 (2006) Detail

Relative to life settlements.


SB 368-FN – AS INTRODUCED

2006 SESSION

06-3025

01/09

SENATE BILL 368-FN

AN ACT relative to life settlements.

SPONSORS: Sen. Flanders, Dist 7; Sen. Roberge, Dist 9; Rep. Headd, Rock 3; Rep. J. Martin, Carr 5; Rep. Kathleen Taylor, Straf 4

COMMITTEE: Banks and Insurance

ANALYSIS

This bill establishes the law governing life settlement contracts.

This bill is a result of the committee established in 2005, 44.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Explanation: Matter added to current law appears in bold italics.

Matter removed from current law appears [in brackets and struckthrough.]

Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

06-3025

01/09

STATE OF NEW HAMPSHIRE

In the Year of Our Lord Two Thousand Six

AN ACT relative to life settlements.

Be it Enacted by the Senate and House of Representatives in General Court convened:

1 New Chapter; Life Settlements Act. Amend RSA by inserting after chapter 408-C the following new chapter:

CHAPTER 408-D

LIFE SETTLEMENTS ACT

408-D:1 Short Title. This chapter may be cited as the “Life Settlements Act.”

408-D:2 Definitions. In this chapter:

I. “Advertising” means any written, electronic, or printed communications or any communication by means of recorded telephone messages or transmitted on radio, television, the Internet, or similar communications media, including film strips, motion pictures, and videos, published, disseminated, circulated, or placed directly before the public in this state, for the purpose of creating an interest in or inducing a person to sell, assign, devise, bequest, or transfer the death benefit or ownership of a policy pursuant to a life settlement contract.

II. “Business entity” means an entity as defined pursuant to RSA 293-A:1.40.

III. “Business of life settlements” means an activity involved in, but not limited to, the offering, solicitation, negotiation, procurement, effectuation, purchasing, investing, financing, monitoring, tracking, underwriting, selling, transferring, assigning, pledging or hypothecating, of life settlement contracts.

IV. “Commissioner” means the insurance commissioner.

V.(a) “Financing entity” means an underwriter, placement agent, lender, purchaser of securities, purchaser of a policy or certificate from a life settlement provider, credit enhancer, or an entity that has a direct ownership in a policy that is the subject of a life settlement contract; but:

(1) Whose principal activity related to the transaction is providing funds to effect the life settlement or purchase of one or more viaticated policies; and

(2) Who has an agreement in writing with one or more licensed life settlement providers to finance the acquisition of life settlement contracts or to provide stop loss insurance.

(b) “Financing entity” shall not include a nonaccredited investor.

VI. “Fraudulent life settlement act” includes:

(a) Acts or omissions committed by a person who, knowingly or with intent to defraud, for the purpose of depriving another of property or for pecuniary gain, commits, or permits its employees or its agents to engage in acts including:

(1) Presenting, causing to be presented, or preparing with knowledge or belief that it will be presented to or by a life settlement provider, financing entity, insurer, insurance producer, or another 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 policy;

(B) The underwriting of a life settlement contract or policy;

(C) A claim for payment or benefit pursuant to a life settlement contract or policy;

(D) Premiums paid on a policy;

(E) Payments and changes in ownership or beneficiary made in accordance with the terms of a life settlement contract or policy;

(F) The reinstatement or conversation of a policy;

(G) In the solicitation, offer, effectuation, or sale of a life settlement contract or policy;

(H) The issuance of written evidence of a life settlement contract or insurance; or

(I) A financing transaction.

(2) Employing any device, scheme, or artifice to defraud related to viaticated policies.

(b) In the furtherance of a fraud or to prevent the detection of fraud, committing or permitting its employees or its agents to:

(1) Remove, conceal, alter, destroy, or sequester from the commissioner the assets or records of a life settlement licensee or other person engaged in the business of life settlements;

(2) Misrepresent or conceal the financial condition of a life settlement licensee, financing entity, insurer, or other person;

(3) 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; or

(4) File with the commissioner or the chief insurance regulatory official of another jurisdiction a document containing false information or otherwise conceals information about a material fact from the commissioner.

(c) Embezzlement, theft, misappropriation, or conversion of moneys, funds, premiums, credits, or other property of a life settlement provider, life insurance producer, insurer, insured, viator, policyowner, or another person engaged in the business of life settlements or insurance.

(d) Recklessly entering into, negotiating, otherwise dealing in a life settlement contract, the subject of which is a policy that was obtained by presenting false information concerning a material fact to the policy, or by concealing, for the purpose of misleading another, information concerning a fact material to the policy, where the viator or the viator’s agent intended to defraud the insurance company that issued the policy. “Recklessly” means engaging in the conduct in conscious and clearly unjustifiable disregard for a substantial likelihood of the existence of the relevant facts or risks, this disregard involving a gross deviation from acceptable standards of conduct.

(e) Attempting to commit, assist, aid, or abet in the commission of, or conspiracy to commit the acts or omissions specified in this paragraph.

VII. “Life insurance producer” means a person licensed as a resident or nonresident insurance producer pursuant to RSA 402-J who has received qualification for life insurance coverage or a life line of coverage.

VIII. “Life settlement contract” means a written agreement establishing the terms under which compensation or anything of value is paid, which compensation or value is less than the expected death benefit of the policy, in return for the viator’s assignment, transfer, sale, devise, or bequest of the death benefit or ownership of any portion of the policy. A life settlement contract also includes viatical settlement agreements as defined in paragraph XVI, a contract for a loan or other financing transaction with a viator secured primarily by an individual or group life insurance policy, other than a loan by a life insurance company pursuant to the terms of the policy, or a loan secured by the cash value of a policy. A life settlement contract includes an agreement with a viator to transfer ownership or change the beneficiary designated at a later date regardless of the date that compensation is paid to the viator. A “life settlement contract” shall not mean a written agreement entered into between a viator and a person having an insurable interest in the insured’s life.

IX. “Life settlement producer” means a life insurance producer who has met all of the licensing requirements contained in RSA 402-J and RSA 408-D:3.

X. “Life settlement provider” means a person, other than a viator, who enters into or effectuates a life settlement contract. Life settlement provider does not include:

(a) A bank, savings bank, savings and loan association, credit union, or other licensed lending institution that takes an assignment of a policy as collateral for a loan;

(b) The issuer of a policy providing accelerated benefits pursuant to the policy;

(c) An authorized or eligible insurer that provides stop loss coverage to a life settlement provider, financing entity, special purpose entity, or related provider trust;

(d) A natural person who enters into or effectuates no more than one agreement in a calendar year for the transfer of policies for any value less than the expected death benefit;

(e) A financial entity;

(f) A special purpose entity;

(g) A related provider trust; or

(h) An accredited investor or qualified institution buyer as defined, respectively, in Regulation D, Rule 501 or Rule 144A of the federal Securities Act of 1933, as amended, and who purchases a viaticated policy from a life settlement provider.

XI. “Person” means a natural person or a legal entity including, but not limited to, an individual, partnership, limited liability company, association, trust, or corporation.

XII. “Policy” means an individual or group policy, group certificate, contract, or arrangement of life insurance affecting the rights of a resident of this state or bearing a reasonable relation to this state, regardless of whether delivered or issued for delivery in this state.

XIII. “Related provider trust” means a titling trust or other trust established by a licensed life settlement provider or a financing entity for the sole purpose of holding the ownership or beneficial interest in viaticated policies in connection with a financing transaction. The trust shall have a written agreement with the licensed life settlement provider under which the licensed life settlement provider is responsible for ensuring compliance with all statutory and regulatory requirements and under which the trust agrees to make all records and files related to life settlement transactions available to the commissioner as if those records and files were maintained directly by the licensed life settlement provider.

XIV. “Special purpose entity” means a corporation, partnership, trust, limited liability company, or other similar entity formed only to provide either, directly or indirectly, access to institutional capital markets for a financing entity or licensed life settlement provider.

XV. “Terminally ill” means having an illness or sickness that reasonably is expected to result in death in 24 months or less, confirmed by a licensed practicing physician.

XVI. “Viatical settlement” means an agreement entered into between a person owning a life insurance policy upon the life of a person with a terminal illness or life-threatening illness or condition that can reasonably be expected to result in death in 24 months and another person by which the policy owner receives compensation or anything of value less than the death benefits of the insurance policy in return for an assignment, transfer, sale, devise, or bequest of the death benefits or ownership of the insurance policy, but does not include an assignment of a life insurance policy to a licensed lending institution or credit union as collateral for a loan. A “viatical settlement” includes an agreement with a viator to transfer ownership or change the beneficiary designation at a later date regardless of the date that the compensation is paid to the viator.

XVII. “Viaticated policy” means a policy that has been acquired by a life settlement provider pursuant to a life settlement contract.

XVIII. “Viator” means, for the purposes of this chapter, the owner of a policy, who is a resident of this state, who enters or seeks to enter into a life settlement contract. If there is more than one owner on a single policy and the owners are residents of different states, the transaction shall be governed by the law of the state in which the owner having the largest percentage ownership resides or, if the owners hold equal ownership, the state of resident of one owner agreed upon in writing by all owners. “Viator” shall not include:

(a) A life settlement licensee as provided by this chapter, including a life insurance producer;

(b) An accredited investor or qualified institution buyer as defined, respectively, in Regulation D, Rule 501, or Rule 144A of the federal Securities Act of 1933, as amended;

(c) A financing entity;

(d) A special purpose entity; or

(e) A related provider trust.

408-D:3 Licensing.

I. Life settlement producer.

(a) No person shall negotiate, as defined in RSA 402-J:2, XI, life settlement contracts between a viator and one or more life settlement providers or otherwise act on behalf of a viator unless such person has been licensed for at least 3 years as a life insurance producer and:

(1) If the person is a newly licensed life producer he or she must pass the general life producer examination that contains a specific section covering viatical and life settlement products. The producer must pass the general examination and obtain a passing score on the viatical and life settlement product section as well.

(2) If the person is a current life producer but does not currently sell viatical or life settlement products, he or she must have either passed a life settlement examination or maintain a NASD Series 6 or Series 7 license and any applicable Securities license, for example NASD Series 63 or Series 66.

(3) If the person is a current life producer and has lawfully negotiated life settlement contracts between a viator and one or more life settlement providers for at least one year immediately prior to the effective date of this chapter, he or she may continue to negotiate life settlements in this state for a period of one year from the effective date of this chapter; provided that such person registers with the commissioner on a form that may be prescribed by the commissioner. Such registration shall occur not later than 30 days from the effective date of this chapter and shall include an acknowledgment by such person that he or she will operate in accordance with and comply with this chapter, and shall complete the licensing requirements of this chapter within one year.

(b) Notwithstanding subparagraph (a), a person licensed as an attorney, certified public accountant or financial planner accredited by a nationally recognized accreditation agency, who is retained to represent the viator, whose compensation is not paid directly or indirectly by the life settlement provider may negotiate life settlement contracts without having to obtain a license as a life settlement producer.

(c) Notwithstanding the provisions of subparagraph (a), a person shall not operate as a life settlement producer for a life settlement provider without first obtaining a life settlement producer license from the commissioner, and an appointment from a life settlement provider.

(d) Application for a life settlement producer license shall be made to the commissioner pursuant to RSA 402-J.

(e) To appoint a life settlement producer, the life settlement provider shall file, in a format approved by the commissioner, a notice of appointment within 15 days from the date the contract is executed with the life settlement producer, or the first life settlement insurance producer application is submitted.

(f) A life settlement provider shall pay an appointment fee, in the amount and method of payment set forth in RSA 400-A:29 for each life settlement producer appointed by the life settlement provider.

(g) While such life settlement producer’s appointment remains in force, a life settlement provider shall be bound by the acts of the person named therein within his or her apparent authority as its acknowledged producer.

II. Life settlement provider.

(a) The applicant for a life settlement provider license shall provide information on forms prescribed by the commissioner. The commissioner has authority, at any time, to require the applicant to fully disclose the identify of all stockholders, partners, officers, members, and employees, except stockholders owning fewer than 5 percent of the shares of an applicant whose shares are publicly traded, and the commissioner may refuse to issue a license in the name of a legal entity if not satisfied that any officer, employee, stockholder, partner, or member of it who may materially influence the applicant’s conduct meets the standards of this chapter.

(b) A license issued to a legal entity authorizes all partners, officers, members, and designated employees to act as life settlement providers, as applicable, under the license, and all those persons shall be named in the application and any supplements to the application.

(c) Upon the filing of an application and the payment of the license fee, the commissioner shall make an investigation of each applicant for a license as a life settlement provider and issue a license if the commissioner finds that the applicant:

(1) Has provided a detailed plan of operation;

(2) Is competent and trustworthy and intends to act in good faith in the capacity involved by the license;

(3) Has a good business reputation and has had experience, training, or education so as to be qualified in the business for the license;

(4) Provides a certificate of good standing from the state of its domicile;

(5) Has provided an anti-fraud plan that meets the requirements of this chapter; and

(6) Has provided a bond in an amount acceptable to the commissioner for the protection of the viator or insured, or both.

(d) The commissioner shall not issue a license to a nonresident applicant, unless a written designation of an agent for service of process is filed and maintained with the commissioner or the applicant has filed with the commissioner, the applicant’s written irrevocable consent that any action against the applicant may be commenced against the applicant by service of process on the commissioner.

(e) A life settlement provider shall provide to the commissioner new or revised information about officers, 10 percent or more stockholders, partners, directors, members, or designated employees within 30 days of the change.

(f) Notwithstanding the provisions of this chapter, a life settlement provider lawfully transacting business in this state 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 not later than 30 days after the effective date of this chapter.

(g) No life settlement provider shall enter into a life settlement contract or other evidence of settlement through an unlicensed producer or other unlicensed person. Any violation of this provision shall, after hearing, subject the insurer to an administrative fine, pursuant to RSA 400-A:15, III and, upon repeated violations, the commissioner may suspend or revoke the license of the life settlement provider.

408-D:4 Refusal to Issue, Suspension or Revocation of, or Refusal to Renew Licensure.

I. The commissioner may refuse to issue, suspend, revoke, or refuse to renew the license of a life settlement provider if the commissioner finds that:

(a) There was any material misrepresentation in the application for the license;

(b) The life settlement licensee or any officer, partner, member, or key management personnel has been convicted of fraudulent or dishonest practices, is subject to a final administrative action, or is otherwise shown to be untrustworthy or incompetent;

(c) The life settlement licensee demonstrates a pattern of unreasonable payments to viators;

(d) The life settlement licensee or any officer, partner, member, or key management personnel has been found guilty of, or has pleaded guilty or nolo contendre to, any felony, or to a misdemeanor involving fraud or moral turpitude, regardless of whether a judgment or conviction has been entered by the court;

(e) The life settlement licensee has entered into any life settlement contract that has not been approved pursuant to this chapter;

(f) The life settlement licensee has failed to honor contractual obligations set out in a life settlement contract;

(g) The life settlement licensee no longer meets the requirements for initial licensure;

(h) The life settlement licensee has assigned, transferred, or pledged a viaticated policy to a person other than a life settlement provider licensed in this state, an accredited investor or qualified institutional buyer as defined, respectively, in Regulation D, Rule 501, or Rule 144A of the federal Securities Act of 1933, as amended, a financing entity, a special purpose entity, or a related provider trust; or

(i) The applicant or life settlement licensee or any officer, partner, member, or key management personnel or any life settlement producer has violated a provision of this chapter.

II. If the commissioner denies a license application or suspends, revokes, or refuses to renew the license of a life settlement provider or suspends, revokes, or refuses to renew a license of a life settlement producer pursuant to this chapter, the commissioner shall conduct a hearing in accordance with RSA 400-A.

408-D:5 Forms Approval. A person shall not use a life settlement contract or provide to a viator a disclosure statement form, or advertise life settlement contracts in this state unless the contract, disclosure statement, and advertising material have been filed with and approved by the commissioner pursuant to rules under Ins. 400.

408-D:6 Reporting Requirements and Privacy.

I. Each life settlement provider shall file an annual report for the preceding year with the commissioner on or before March 1 of each year, or within such extension of time as the commissioner for good cause may grant. The report shall be in the form and contain such matters as the commissioner prescribes and shall be verified by at least 2 officers of the life settlement provider.

II. The annual report shall include the complete names and addresses of all of the viators with which the life settlement provider had a contractual relationship during the preceding fiscal year. The report shall also include the names of the insurers of those viaticated policies.

III. Except as otherwise allowed or required by law, a life settlement provider, life settlement producer, insurance company, insurance producer, information bureau, rating agency or company, or any other person with actual knowledge of an insured’s identity, shall not disclose that identity as an insured, or the insured’s financial or medical information to any other person unless the disclosure:

(a) Is necessary to effect a life settlement between the viator and a life settlement provider and the viator and insured have provided prior written consent to the disclosure;

(b) Is provided in response to an investigation or examination by the commissioner or any other governmental officer or agency pursuant to the requirements of RSA 408-D:7 and RSA 408-D:12;

(c) Is a term of or condition to the transfer of a policy by one life settlement provider to another life settlement provider;

(d) Is necessary to permit a financing entity, related provider trust, or special purpose entity to finance the purchase of policies by a life settlement provider and the viator and insured have provided prior written consent to the disclosure;

(e) Is necessary to allow the life settlement provider or life settlement producer or their authorized representatives to make contacts for the purpose of determining health status; or

(f) Is required to purchase stop loss coverage.

408-D:7 Examinations, Investigations, Record Retention.

I. The commissioner or any of his or her examiners may conduct an examination or an investigation under this chapter of any life settlement licensee as often as the commissioner deems appropriate.

II. Examinations and investigations shall be conducted pursuant to the provisions of RSA 400-A:37.

III. For the purposes of examinations and investigations by the commissioner, the life settlement provider shall maintain all records associated with a life settlement contract from the date of the original contact by the life settlement producer or life settlement provider with the viator to 5 years after the death of the insured.

408-D:8 Disclosure.

I. With each application for a life settlement contract, a life settlement provider or life settlement producer shall provide the viator with at least the following disclosures no later than the time the application for the life settlement contract is signed by all parties. The disclosures shall be provided in a separate document that is signed by the viator and the life settlement provider or life settlement producer, and shall provide the following information:

(a) There are possible alternatives to life settlement contracts including any accelerated death benefits or policy loans offered under the viator’s life insurance policy.

(b) Some or all of the proceeds of the life settlement may be taxable under federal income tax and state franchise and income taxes, and assistance should be sought from a professional tax advisor.

(c) Proceeds of the life settlement could be subject to the claims of creditors.

(d) Receipt of the proceeds of a life settlement may adversely affect the viator’s eligibility for Medicaid or other government benefits or entitlements, and advice should be obtained from the appropriate government agencies.

(e) The viator has the right to rescind a life settlement contract for 30 calendar days after the receipt of the life settlement proceeds by the viator, as provided in RSA 408-D:9. If the insured dies during the rescission period, the settlement contract shall be deemed to have been rescinded, subject to repayment of all life settlement proceeds and any premiums, loans, and loan interest to the life settlement provider or purchaser.

(f) Funds will be sent to the viator within 3 business days after the life settlement provider has received the insurer’s or group administrator’s acknowledgment that ownership of the policy or interest in the certificate has been transferred and the beneficiary has been designated.

(g) Entering into a life settlement contract may cause other rights or benefits, including conversion rights and waiver of premium benefits that may exist under the policy or certificate, to be forfeited by the viator. Assistance should be sought from a financial adviser.

(h) Disclosure to a viator shall include distribution of a brochure describing the process of life settlements. The National Association of Insurance Commissioner’s (NAIC’s) form for the brochure shall be used unless the commissioner develops one.

(i) The disclosure shall contain the following language:

“All medical, financial or personal information solicited or obtained by a life settlement provider or life settlement producer about an insured, including the insured’s identity or the identity of family members, a spouse, or a significant other may be disclosed as necessary to effect the life settlement between the viator and the life settlement 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 2 years.”

(j) The insured, or the insured’s authorized representative, may be contacted by either the life settlement provider or producer or its authorized representative for the purpose of determining the insured’s health status. This contact is limited to once every 3 months if the insured has a life expectancy of more than one year, and no more than once per month if the insured has a life expectancy of one year or less.

II. A life settlement provider shall provide the viator with at least the following disclosures no later than the date the life settlement contract is signed by all parties. The disclosures shall be conspicuously displayed in the life settlement contract or in a separate document signed by the viator and the life settlement provider or life settlement producer, and provide the following information:

(a) State the affiliation, if any, between the life settlement provider and the issuer of the insurance policy to be viaticated.

(b) The document shall include the name, address, and telephone number of the life settlement provider.

(c) A life settlement producer shall disclose to a prospective viator the amount and method of calculating the producer’s compensation. The term “compensation” includes anything of value paid or given to a life settlement producer for the placement of a policy.

(d) If an insurance policy to be viaticated has been issued as a joint policy or involves family riders or any coverage of a life other than the insured under the policy to be viaticated, the viator shall be informed of the possible loss of coverage on the other lives under the policy and shall be advised to consult with his or her insurance producer or the insurer issuing the policy for advice on the proposed life settlement.

(e) State the dollar amount of the current death benefit payable to the life settlement provider under the policy or certificate. If known, the life settlement provider shall also disclose the availability of any additional guaranteed insurance benefits, the dollar amount of any accidental death and dismemberment benefits under the policy or certificate and the life settlement provider’s interest in those benefits.

(f) State the name, business address, and telephone number of the independent third party escrow agent, and the fact that the viator or owner may inspect or receive copies of the relevant escrow or trust agreements or documents.

III. If the life settlement provider transfers ownership or changes the beneficiary of the insurance policy, the life settlement provider shall communicate the change in ownership or beneficiary to the insured within 20 days after the change.

408-D:9 General Rules.

I. The viatical settlement broker represents only the viator’s interests and not the insurer or life settlement providers, and owes a responsibility to act according to the viator’s best interests.

II. A life settlement provider entering into a life settlement contract shall first obtain:

(a) If the viator is the insured, a written statement from a licensed practicing physician that the viator is of sound mind and under no constraint or undue influence to enter into a life settlement contract.

(b) A document in which the insured consents to the release of his or her medical records to a life settlement provider, life settlement producer and the insurance company that issued the life insurance policy covering the life of the insured.

(c) Within 20 days after a viator executes documents necessary to transfer any rights under an insurance policy or within 20 days of entering any agreement, option, promise or any other form of understanding, expressed or implied, to viaticate the policy, the life settlement provider shall given written notice to the insurer that issued that insurance policy that the policy has or will become a viaticated policy. The notice shall be accompanied by the documents required by subparagraph (d).

(d) The life settlement provider shall deliver a copy of the medical release required under subparagraph (b), a copy of the viator’s application for the life settlement contract, the notice required under subparagraph (c), and a request for verification of coverage to the insurer that issued the life policy that is the subject of the viatical transaction. The NAIC’s form for verification shall be used unless the commissioner develops standards for verification.

(e) The insurer shall respond to a request for verification of coverage submitted on an approved form by a life settlement provider within 30 calendar days of the date the request is received and shall indicate whether, based on the medical evidence and documents provided, the insurer intends to pursue an investigation at this time regarding the validity of the insurance contract.

(f) Prior to or at the time of execution of the life settlement contract, the life settlement provider shall obtain a witnessed document in which the viator consents to the life settlement contract, represents that the viator has a full and complete understanding of the life settlement contract and that he or she has a full and complete understanding of the benefits of the life insurance policy, acknowledges that he or she is entering into the life settlement contract freely and voluntarily and, for persons with a terminal illness, acknowledges that the insured has a terminal illness and that the terminal illness was diagnosed after the life insurance policy was issued.

(g) If a life settlement producer performs any of these activities required of the life settlement provider, the provider is deemed to have fulfilled the requirements of this section.

III. All medical information solicited or obtained by any life settlement licensee shall be subject to the applicable provisions of state law relating to confidentiality of medical information.

IV. All life settlement contracts entered into in this state shall provide the viator with an unconditional right to rescind the contract for at least 30 calendar days from the receipt of the life settlement proceeds. If the insured dies during the rescission period, the life settlement contract shall be deemed to have been rescinded, subject to repayment to the life settlement provider or purchaser of all life settlement proceeds, and any premiums, loans, and loan interest that have been paid by the life settlement provider or purchaser.

V. The life settlement provider shall instruct the viator to send the executed documents required to effect the change in ownership, assignment, or change in beneficiary directly to the independent escrow agent. Within 3 business days after the date the escrow agent receives the document, or from the date the life settlement provider receives the documents, if the viator erroneously provides the documents directly to the provider, the provider shall pay or transfer the proceeds of the life settlement into an escrow or trust account maintained in a state or federally-chartered financial institution whose deposits are insured by the Federal Deposit Insurance Corporation (FDIC). Upon payment of the settlement proceeds into the escrow account, the escrow agent shall deliver the original change in ownership, assignment or change in beneficiary forms to the life settlement provider or related provider trust. Upon the escrow agent’s receipt of the acknowledgment of the properly completed transfer of ownership, assignment, or designation of beneficiary from the insurance company, the escrow agent shall pay the life settlement proceeds to the viator.

VI. Failure to tender consideration to the viator for the life settlement contract within the time disclosed pursuant to RSA 408-D:8, I(f) renders the life settlement contract voidable by the viator for lack of consideration until the time consideration is tendered to and accepted by the viator.

VII. Contracts with the insured, or the insured’s authorized representative, for the purpose of determining the health state of the insured by a life settlement provider or life settlement producer after the life settlement has occurred shall only be made by the life settlement provider or producer licensed in this state or its authorized representatives and shall be limited to once every 3 months for insureds with a life expectancy of more than one year, and to no more than once per month for insureds with a life expectancy of one year or less. The life settlement provider or producer shall explain the procedure for these contacts at the time the life settlement contract is entered into. The limitations set forth in this paragraph shall not apply to any contracts with an insured for reasons other than determining the insured’s health status. Life settlement providers and life settlement producers shall be responsible for the actions of their authorized representatives.

408-D:10 Prohibited Practices.

I. It is a violation of this chapter for a person to enter into a life settlement contract within a 2-year period commencing with the date of issuance of the policy unless the viator certifies to the life settlement provider that one or more of the following conditions have been met within the 2-year period:

(a) The policy was issued upon the viator’s exercise of conversion rights arising out of a group or individual policy, provided the total of the time covered under the conversion policy plus the time covered under the prior policy is at least 24 months. The time covered under a group policy shall be calculated without regard to change in insurance carriers, provided the coverage has been continuous and under the same group sponsorship; or

(b) The viator submits independent evidence to the life settlement provider that one or more of the following conditions have been met within the 2-year period:

(1) The viator or insured is terminally ill; or

(2) The viator or insured disposes of his or her ownership interests in a closely held business entity, pursuant to the terms of a buyout or other similar agreement in effect at the time the insurance policy was initially issued.

II. Copies of the independent evidence described in subparagraph I(b) and documents required in RSA 408-D:9, I(b) shall be submitted to the insurer when the life settlement provider submits a request to the insurer for verification of coverage. A letter of attestation shall accompany the copies from the life settlement provider that the copies are true and correct copies of the documents received by the life settlement provider.

III. If the life settlement provider submits to the insurer a copy of independent evidence provided for in subparagraph I(b) when the life settlement provider submits a request to the insurer to effect the transfer of the policy to the life settlement provider, the copy is deemed to conclusively establish that the life settlement contract satisfies the requirements of this section and the insurer shall respond timely to the request.

408-D:11 Advertising.

I. The purpose of this section is to provide a prospective viator with clear and unambiguous statements in the advertisement of a life settlement contract and to assure the clear, truthful, and adequate disclosure of the benefits, risks, limitations, and exclusions of a life settlement contract. This purpose is to be accomplished by the establishment of guidelines and standards of permissible and impermissible conduct in the advertising of a life settlement contract to assure that a product description is presented in a manner that prevents unfair, deceptive, or misleading advertising and is conducive to accurate presentation and description of a life settlement contract through the advertising media and material used by a life settlement licensee. All advertisements shall be subject to the submission and approval provisions of rules under Ins. 400.

II. This section applies to an advertising of a life settlement contract or a related product or service intended for dissemination in this state, including Internet advertising viewed by a person located in this state. Where disclosure requirements are established pursuant to federal regulation, this section shall be interpreted to minimize or eliminate conflict with federal regulation wherever possible.

III. Each life settlement provider shall establish and at all times maintain a system of control over the content, form, and method of dissemination of an advertisement of its contracts, products, and services. An advertisement, regardless of by whom written, created, designed, or presented, is the responsibility of the life settlement provider. A system of control by the life settlement provider shall include regular routine notification, at least once a year, to agents and others authorized to disseminate advertisements, of the requirements and procedures for approval before the use of an advertisement not furnished by the life settlement provider.

IV. An advertisement shall be truthful and not misleading in fact or by implication. The form and content of an advertisement of a life settlement contract shall be sufficiently complete and clear so as to avoid deception. It shall not have the capacity or tendency to mislead or deceive. Whether an advertisement has the capacity or tendency to mislead or deceive shall be determined by the commission from the overall impression that the advertisement may be reasonably expected to create upon a person of average education or intelligence within the segment of the public to which it is directed.

V. The information required to be disclosed under this section shall not be minimized, rendered obscure, or presented in an ambiguous fashion or intermingled with the text of the advertisement so as to be confusing or misleading.

(a) An advertisement shall not omit material information or use words, phrases, statements, references, or illustrations if the omissions or use has the capacity, tendency, or effect of misleading or deceiving the public as to the nature or extent of any benefit, loss covered, or state or federal tax consequence. The fact that the life settlement contract offered is made available for inspection before consummation of the sale, or an offer is made to refund the payment if the viator is not satisfied, or that the life settlement contract includes a “free look” period that satisfies or exceeds legal requirements, does not remedy misleading statements.

(b) An advertisement shall not use the name or title of a life insurance company or a life insurance policy unless the insurer has approved the advertisement.

(c) An advertisement shall not state or imply that interest charged on an accelerated death benefit or a policy loan is unfair, inequitable, or in any manner an incorrect or improper practice.

(d) The words “free,” “no cost,” “without cost,” “no additional cost,” “at no extra cost,” or words of similar import may not be used with respect to a benefit or service unless true. An advertisement may specify the charge for a benefit or service or may state that a charge is included in the payment or use other appropriate language.

(e) Any testimonial, appraisal, or analysis used in an advertisement shall:

(1) Be genuine;

(2) Represent the current opinion of the author;

(3) Be applicable to the life settlement contract, product, or service advertised, if any; and

(4) Be accurately reproduced with sufficient completeness to avoid misleading or deceiving prospective viators as to the nature or scope of any testimonial, appraisal, analysis, or endorsement.

(f) In using any testimonial, appraisal, or analysis, the life settlement provider or producer makes as its own all the statements contained in them, and the statements are subject to all the provisions of this chapter.

(g) If the individual making a testimonial, appraisal, analysis, or endorsement has a financial interest in the life settlement provider or related entity as a stockholder, director, officer, employee, or otherwise, or receives a benefit, directly or indirectly, other than required union scale wages, that fact shall be disclosed prominently in the advertisement.

(h) An advertisement shall not state or imply that a life settlement contract, benefit, or service has been approved or endorsed by a group of individuals, society, association, or other organization, unless that is the fact and unless any relationship between an organization and the life settlement licensee is disclosed. If the entity making the endorsement or testimonial is owned, controlled, or managed by the life settlement licensee or receives payment or other consideration from the life settlement licensee for making an endorsement or testimonial, that fact shall be disclosed in the advertisement.

(i) If an endorsement refers to benefits received under a life settlement contract, all pertinent information shall be retained for a period of 5 years after its use.

(j) An advertisement shall not contain statistical information unless it accurately reflects recent and relevant facts. The source of all statistics used in an advertisement shall be identified.

(k) An advertisement shall not disparage insurers, life settlement providers, insurance producers, policies, services, or methods of marketing.

(l) The name of the life settlement licensee shall be identified clearly in all advertisements about the life settlement licensee or its life settlement contract, products, or services, and if any specific life settlement contract is advertised, the life settlement contract shall be identified either by form number or some other appropriate description. If an application is part of the advertisement, the name of the life settlement provider shall be shown on the application.

(m) An advertisement shall not use a trade name, group designation, name of the parent company of a life settlement licensee, name of a particular division of the life settlement licensee, service mark, slogan, symbol, or other device or reference without disclosing the name of the life settlement licensee, if the advertisement has the capacity or tendency to mislead or deceive as to the true identify of the life settlement licensee, or to create the impression that a company other than a life settlement licensee has any responsibility for the financial obligation under the life settlement contract.

(n) An advertisement shall not use any combination of words, symbols, or physical materials that by their content, phraseology, shape, color, or other characteristics are so similar to a combination of words, symbols, or physical materials used by a government program or agency or otherwise appear to be of such a nature that they tend to mislead prospective viators into believing that the solicitation is in some manner connected with a government program or agency.

(o) An advertisement may state that a life settlement licensee is licensed in the state where the advertisement appears, provided, that it does not exaggerate the fact or suggest or imply that the competing life settlement licensee may not be so licensed. The advertisement may ask the audience to consult the life settlement licensee’s web site or contact the insurance department to find out if that state requires licensing and, if so, whether the life settlement licensee or any other company is licensed.

(p) An advertisement shall not create the impression that the life settlement provider, its financial condition or status, the payment of its claims, or the merits, desirability, or advisability of its life settlement contracts are recommended or endorsed by any government entity.

(q) The name of the actual life settlement licensee shall be stated in all of its advertisements.

(r) An advertisement shall not, directly or indirectly, create the impression that any division or agency of the state or of the United States government endorses, approves, or favors:

(1) A life settlement licensee or its business practices or methods of operation;

(2) The merits, desirability, or advisability of a life settlement contract;

(3) Any life settlement contract; or

(4) Any policy or life insurance company.

(s) If the advertiser emphasizes the speed with which the life settlement contract occurs, the advertising shall disclose the average time frame from completed application to the date of offer and from acceptance of the offer to receipt of the funds by the viator.

(t) If the advertising emphasizes the dollar amounts available to viators, the advertising shall disclose the average purchase price as a percent of face value obtained by viators contracting with the life settlement licensee during the past 6 months.

408-D:12 Fraud Prevention and Control.

I. A person shall not:

(a) Knowingly or intentionally interfere with the enforcement of the provisions of this chapter or investigations of suspected or actual violations of this chapter.

(b) If in the business of life settlements, knowingly or intentionally permit a person convicted of a felony involving dishonesty or breach of trust to participate in the business of life settlements.

II. A life settlement contract and an application for a life settlement contract, regardless of the form of transmission, shall contain a statement that clearly states in substance the following: “Any person who, with a purpose to injure, defraud or deceive, files a statement containing any false, incomplete, or misleading information is subject to prosecution and punishment for insurance fraud, as provided in RSA 638:20.” However, the lack of such a statement shall not constitute a defense against prosecution under RSA 638:20.

III. A person engaged in the business of life settlements having knowledge or a reasonable belief that a fraudulent life settlement act is being, will be, or has been committed shall provide to the commissioner the information required by, and in a manner prescribed by, the commissioner.

IV.(a) A civil liability shall not be imposed on and a cause of action shall not arise from a person’s furnishing information in good faith, concerning suspected, anticipated, or completed fraudulent life settlement acts, or suspected, or completed fraudulent insurance acts, if the information is provided to or received from:

(1) The commissioner or the commissioner’s employees, agents, or representatives;

(2) Federal, state, or local law enforcement or regulatory officials or their employees, agents, or representatives;

(3) A person involved in the prevention and detection of fraudulent life settlement acts or that person’s agents, employees, or representatives;

(4) The NAIC, National Association of Securities Dealers (NASD), the North American Securities Administrators Association (NASAA), or their employees, agents, or representatives, or other regulatory body overseeing life insurance or life settlement contracts; or

(5) The insurer that issued the policy covering the life of the insured.

(b) This section shall not abrogate or modify common law or statutory privileges or immunities enjoyed by a person described in subparagraphs (a)(1)-(5).

V. The documents and evidence provided pursuant to paragraph III of this section or obtained by the commissioner in an investigation of suspected or actual fraudulent life settlement acts shall be privileged and confidential and shall not be a public record pursuant to RSA 91-A, and shall not be subject to discovery or subpoena in a civil or criminal action.

VI. Paragraph V does not prohibit release by the commissioner of documents and evidence obtained in an investigation of suspected or actual fraudulent life settlement acts:

(a) In administrative proceedings to enforce laws administered by the commissioner;

(b) To federal, state, or local law enforcement or regulatory agencies, to an organization established for the purpose of detecting and preventing fraudulent life settlement acts or to the NAIC; or

(c) At the discretion of the commissioner, to a person in the business of life settlements or life insurance that is aggrieved by a fraudulent life settlement act.

VII. Release of documents and evidence under paragraph V does not abrogate or modify the privilege granted in paragraph V.

VIII. This chapter shall not:

(a) Preempt the authority or relieve the duty of other law enforcement or regulatory agencies to investigate, examine, and prosecute suspected violations of law;

(b) Prevent or prohibit a person from disclosing voluntarily information concerning life settlement fraud to a law enforcement or regulatory agency other than the insurance department; or

(c) Limit the powers granted elsewhere by the laws of this state to the commissioner or an insurance fraud unit to investigate and examine possible violations of law and to take appropriate action against wrongdoers.

IX. Life settlement providers shall have in place 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 life settlement provider may request and the commissioner may grant, such modifications of the following required initiatives as necessary to ensure an effective antifraud program. The modifications may be more or less restrictive than the required initiatives so long as the modifications may reasonably be expected to accomplish the purpose of this section. Antifraud initiatives shall include:

(a) Fraud investigators, who may be life settlement provider employees or independent contractors; and

(b) An antifraud plan, which shall be submitted to the commissioner. The antifraud plan shall include, but not be limited to:

(1) 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;

(2) A description of the procedures for reporting possible fraudulent life settlement acts to the commissioner;

(3) A description of the plan for antifraud education and training of underwriters and other personnel; and

(4) 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.

(c) Antifraud plans submitted to the commissioner shall be privileged and confidential and shall not be a public record and shall not be subject to discovery or subpoena in a civil or criminal action.

(d) If the commissioner finds that a life settlement provider licensed to do business in New Hampshire has failed to submit a plan, as required under subparagraph (b), reasonably calculated to detect, prosecute, and prevent fraudulent life settlement acts, or has submitted but failed to execute that plan, the commissioner may issue a fine or suspend the right of the life settlement provider to do business in this state until such time as that life settlement provider comes into compliance with the provisions of this chapter.

408-D:13 Penalties.

I. In addition to the penalties and other enforcement provisions of this chapter, if a person violates the provisions of this chapter or any rule implementing this chapter, the commissioner may seek an injunction in a court of competent jurisdiction and may apply for temporary and permanent orders as the commissioner determines are necessary to restrain the person from committing the violation.

II. A person damaged by the acts of a person in violation of this chapter may bring a civil action against the person committing the violation in a court of competent jurisdiction.

III. When the commissioner finds that an activity in violation of this chapter presents an immediate danger to the public that requires an immediate final order, the commissioner may issue an emergency cease and desist order reciting with particularity the facts underlying the findings. The emergency cease and desist order is effective immediately upon service of a copy of the order on the respondent and remains effective for 90 days. If the commissioner begins non-emergency cease and desist proceedings, the emergency cease and desist order remains effective, absent an order by the commissioner pursuant to RSA 541-A.

IV. In addition to the penalties and other enforcement provisions of this chapter, a person who violates this chapter shall be subject to civil penalties of up to $25,000 for each violation. Imposition of civil penalties shall be pursuant to an order of the commissioner issued under RSA 400-A. The commissioner’s order may require a person found to be in violation of this chapter to make restitution to a person aggrieved by violations of this chapter.

408-D:14 Unfair Trade Practices. A violation of this chapter shall be considered an unfair trade practice under RSA 417, subject to the penalties contained in that chapter.

408-D:15 Rulemaking. The commissioner may adopt rules pursuant to RSA 541-A, as necessary, to implement the provisions of this chapter.

408-D:16 Authority of the Secretary of State. Nothing in this chapter preempts or otherwise limits the provisions of the Uniform Securities Act, RSA 421-B, or any rule, orders, policy, statements, notices, bulletins, or other interpretations issued by or through the secretary of state, or designee acting pursuant to the Uniform Securities Act. Compliance with this part does not constitute compliance with any applicable provision of the Uniform Securities Act and any amendments thereto or any rules, orders, policy statements, notices, bulletins, or other interpretations issued by of through the secretary of state or designee acting pursuant to the Uniform Securities Act.

408-D:17 Severability. If any provision of this chapter or the application thereof to any persons or circumstance is held invalid, the invalidity does not affect other provisions or applications of the chapter which can be given effect without the invalid provisions or applications, and to this end the provisions of this chapter are severable.

2 New Paragraphs; Insurance; Fees. Amend RSA 400-A:29 by inserting after paragraph XXI the following new paragraphs:

XXII. Life Settlement Providers

(a) Application fee $ 50

(b) Original license $ 350

(c) Renewal license $ 250

XXIII. Life Settlement Producers

(a) Producer; amendment to life license $ 50

(b) Certificates $ 5

(c) Lifetime appointment fee $ 25

(d) Lifetime appointment discharge fee $ 25

3 Securities; Definition of “Security.” Amend RSA 421-B:2, XX(a) to read as follows:

XX.(a) “Security” means any note; stock; treasury stock; bond; debenture; evidence of indebtedness; certificate of interest or participation in any profit sharing agreement; membership interest in a limited liability company; partnership interest in a registered limited liability partnership; partnership interest in a limited partnership; collateral trust certificate; preorganization certificate or subscription; transferable shares; investment contract; life settlement investment; investment metal contract or investment gem contract; voting trust certificate; certificate of deposit for a security; certificate of interest or participation in an oil, gas or mining right, title or lease or in payments out of production under such a right, title or lease; or, in general, any interest or instrument commonly known as a security, or any certificate of interest or participation in, temporary or interim certificate for, receipt for guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. “Security” does not include any insurance or endowment policy or annuity contract under which an insurance company promises to pay money either in a lump sum or periodically for life or for some other specified period.

4 New Paragraph; Securities; Definition Added. Amend RSA 421-B:2 by inserting after paragraph XIII-b the following new paragraph:

XIII-c. “Life settlement investment” means the contractual right to receive any portion of the death benefit or ownership of a life insurance policy or certificate, for consideration that is less than the expected death benefit of the life insurance policy or certificate. “Life investment” shall not include:

(a) Any transaction between a viator and a life settlement provider pursuant to RSA 408-D.

(b) Any transfer of ownership or beneficial interest in a life insurance policy from a life settlement provider to another life settlement provider pursuant to RSA 408-D, or to any legal entity formed solely for the purpose of holding ownership or beneficial interest in a life insurance policy or policies.

(c) The bona fide assignment of a life insurance policy to a bank, savings bank, savings and loan association, credit union, or other licensed lending institution as collateral for a loan.

(d) The exercise of accelerated benefits pursuant to the terms of a life insurance policy issued in accordance with title XXXVII.

5 Effective Date. This act shall take effect 60 days after its passage.

LBAO

06-3025

Revised 1/9/06

SB 368 FISCAL NOTE

AN ACT relative to life settlements.

FISCAL IMPACT:

The Insurance Department has determined this bill will increase state general fund revenue by $1,425 in FY 2006, $12,350 in FY 2007, $15,600 in FY 2008, $15,600 in FY 2009, and $15,600 in FY 2010. There will be no fiscal impact on county and local revenue or state, county, and local expenditures.

METHODOLOGY:

The Insurance Department states this bill establishes a law governing life settlement contracts and as such contains licensing components for life settlement providers and life settlement producers. A life settlement provider would be subject to initial licensing of $400 and yearly renewal licensing of $250. A life settlement producer may either be an existing life insurance agent subject to a one-time life license amendment fee of $50 and a one-time appointment fee of $25, or a new licensee subject to an initial licensing fee of $210, a one-time appointment fee of $25, and a biennial renewal fee of $150. The Department calculated the following estimate of revenue it anticipates under this bill:

FY 2006

3 providers licensed (3 x $400) = $1,200

3 producer appointments (3 x ($50 +$25)) = $225

Total = $1,425

FY 2007

5 providers licensed (5 x $400) = $2,000

100 producer appointments (100 x ($50 + $25)) = $7,500

3 provider renewals (3 x $250) = $750

10 new producers (10 x $210) = $2,100

Total = $12,350

FY 2008

10 providers licensed (10 x $400) = $4,000

100 producer appointments (100 x ($50 + $25)) = $7,500

8 provider renewals (8 x $250) = $2,000

10 new producers (10 x $210) = $2,100

Total = $15,600

FY 2009 & FY 2010

100 producer appointments (100 x ($50 + $25)) = $7,500

18 provider renewals (18 x $250) = $4,500

10 new producers (10 x $210) = $2,100

10 new producer renewals (10 x $150) = $1,500

Total = $15,600

The Insurance Department further states if all eligible life producers amended their licenses (13,891 eligible x $50 = $694,550) and all existing life producers received appointments (18,521 appointments x $25 = $463,025) by one company ($400), there could be one-time income to the general fund of $1,157,975. The Department states this scenario is unlikely to happen.

The Insurance Department also states its costs to process the licenses and to follow-up on enforcement will be absorbed without additional funding due to technological advances available at the Department.