§ 27-72-2 — § 27-72-2. Definitions.

§ 27-72-2. Definitions.

As used in this chapter:

(1) "Advertisement� means any written, electronic, or printed communication 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 before the public, directly or indirectly, for the purpose of creating an interest in or inducing a person to purchase or sell, assign, devise, bequest, or transfer the death benefit or ownership of a life insurance policy or an interest in a life insurance policy pursuant to a life settlement contract.

(2) "Broker� means a person who, on behalf of an owner and for a fee, commission or other valuable consideration, offers or attempts to negotiate life settlement contracts between an owner and provider. A broker 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 their professional capacity to represent the owner whose compensation is not paid directly or indirectly by the provider or any other person, except the owner.

(3) "Business of life settlements� means an activity involved in, but not limited to, offering to enter into, soliciting, negotiating, procuring, effectuating, monitoring, or tracking, of life settlement contracts.

(4) "Chronically ill� means:

(i) Being unable to perform at least two (2) activities of daily living (i.e., eating, toileting, transferring, bathing, dressing, or continence);

(ii) Requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment; or

(iii) Having a level of disability similar to that described in subsection (4)(i) of this section as determined by the United States Secretary of Health and Human Services.

(5) "Commissioner� means the director of the department of business regulation or his or her designee.

(6) "Federally regulated entityâ€� means a national bank, thrift, credit union, or any entity registered or exempt from registration under 15 U.S.C. §â€‚80a-1 et seq., 15 U.S.C. §â€‚80b-1 et seq., 15 U.S.C. §â€‚77a et seq., and 15 U.S.C. §â€‚78a et seq., or any affiliate thereof.

(7) "Financing entity� means an underwriter, placement agent, lender, purchaser of securities, purchaser of a policy or certificate from a provider, credit enhancer, or any entity that has a direct ownership in a policy or certificate that is the subject of a life settlement contract, but:

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

(ii) Who has an agreement in writing with one or more providers to finance the acquisition of life settlement contracts.

"Financing entity� does not include a non-accredited investor or purchaser.

(8) "Financing transaction� means a transaction in which a licensed provider obtains financing from a financing entity including, without limitation, any secured or unsecured financing, any securitization transaction, or any securities offering which either is registered or exempt from registration under federal and state securities law.

(9) "Fraudulent life settlement act� includes:

(i) Acts or omissions committed by any person who, knowingly and 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, but not limited to:

(A) 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 producer, 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:

(I) An application for the issuance of a life settlement contract or insurance policy;

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

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

(IV) Premiums paid on an insurance policy;

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

(VI) The reinstatement or conversion of an insurance policy;

(VII) In the solicitation, offer to enter into, or effectuation of a life settlement contract, or insurance policy;

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

(IX) Any application for or the existence of or any payments related to a loan secured directly or indirectly by any interest in a life insurance policy; or

(X) Entering into any practice or plan that involves stranger originated life insurance (STOLI).

(B) Failing to disclose to the insurer where the request for such disclosure has been asked for by the insurer 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.

(C) Employing any device, scheme, or artifice to defraud in the business of life settlements.

(D) In the solicitation, application, or issuance of a life insurance policy, employing any device, scheme, or artifice in violation of state insurable interest laws.

(ii) In the furtherance of a fraud or to prevent the detection of a fraud any person commits or permits its employees or its agents to:

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

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

(C) 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;

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

(E) Engage in embezzlement, theft, misappropriation, or conversion of monies, funds, premiums, credits, or other property of a provider, insurer, insured, owner, insurance policy owner, or any other person engaged in the business of life settlements or insurance;

(F) Knowingly and with intent to defraud, enter into, broker, or otherwise deal in a life settlement contract, the subject of which is a life insurance policy that was obtained by presenting false information concerning any fact material to the policy or by concealing, for the purpose of misleading another, information concerning any fact material to the policy, where the owner or the owner's agent intended to defraud the policy's issuer;

(G) Attempt to commit, assist, aid, or abet in the commission of, or conspiracy to commit, the acts or omissions specified in this subsection; or

(H) Misrepresent the state of residence of an owner to be a state or jurisdiction that does not have a law substantially similar to this chapter for the purpose of evading or avoiding the provisions of this chapter.

(10) "Insured� means the person covered under the policy being considered for sale in a life settlement contract.

(11) "Life expectancy� means the arithmetic mean of the number of months the insured under the life insurance policy to be settled can be expected to live as determined by a life expectancy company provider, broker, or financing entity considering medical records and appropriate experiential data.

(12) "Life insurance producer� means any person licensed in this state as a resident or nonresident insurance producer who has received qualification or authority for life insurance coverage or a life line of coverage pursuant to chapter 2.4 of this title.

(13) "Life settlement contract� means a written agreement entered into between a provider and an owner, establishing the terms under which compensation or any thing of value will be paid, which compensation or thing of value is less than the expected death benefit of the insurance policy or certificate, in return for the owner's assignment, transfer, sale, devise, or bequest of the death benefit or any portion of an insurance policy or certificate of insurance for compensation; provided, however, that the minimum value for a life settlement contract shall be greater than a cash surrender value or accelerated death benefit available at the time of an application for a life settlement contract. "Life settlement contract� also includes the transfer for compensation or value of ownership or beneficial interest in a trust or other entity that owns such policy if the trust or other entity was formed or availed of for the principal purpose of acquiring one or more life insurance contracts, which life insurance contract insures the life of a person residing in this state.

(i) "Life settlement contract� also includes a premium finance loan made for a policy on or before the date of issuance where:

(A) The loan proceeds are not used solely to pay premiums for the policy and any costs or expenses incurred by the lender or the borrower in connection with the financing; or

(B) The owner receives on the date of the premium finance loan a guarantee of the future life settlement value of the policy; or

(C) The owner agrees on the date of the premium finance loan to sell the policy or any portion of its death benefit on any date following the issuance of the policy.

(ii) "Life settlement contract� does not include:

(A) A policy loan by a life insurance company pursuant to the terms of the life insurance policy or accelerated death provisions contained in the life insurance policy, whether issued with the original policy or as a rider;

(B) A premium finance loan, as defined herein, or any loan made to an insured, a trust established by an insured, or an entity established by the insured by a bank, federally regulated entity, or other licensed financial institution or any transfer, foreclosure, option to transfer, sale of any interest in collateral of such loan subsequent thereto for the purpose of evading regulation under this chapter;

(C) A collateral assignment of a life insurance policy by an owner;

(D) A loan made by a lender that does not violate chapter 14.6 of title 19, provided such loan is not described in subsection (13)(i) above, and is not otherwise within the definition of a life settlement contract;

(E) An agreement where all the parties:

(I) Are closely related to the insured by blood or law; or

(II) Have a lawful substantial economic interest in the continued life, health, and bodily safety of the person insured, or are trusts established primarily for the benefit of such parties;

(F) Any designation, consent, or agreement by an insured who is an employee of an employer in connection with the purchase by the employer, or trust established by the employer, of life insurance on the life of the employee;

(G) A bona fide business succession planning arrangement:

(I) Between one or more shareholders in a corporation or between a corporation and one or more of its shareholders or one or more trust established by its shareholders;

(II) Between one or more partners in a partnership or between a partnership and one or more of its partners or one or more trust established by its partners; or

(III) Between one or more members in a limited liability company or between a limited liability company and one or more of its members or one or more trust established by its members;

(H) An agreement entered into by a service recipient, or a trust established by the service recipient, and a service provider, or a trust established by the service provider, who performs significant services for the service recipient's trade or business; or

(I) Any other contract, transaction, or arrangement from the definition of life settlement contract that the commissioner determines is not of the type intended to be regulated by this chapter.

(14) "Net death benefit� means the amount of the life insurance policy or certificate to be settled less any outstanding debts or liens.

(15) "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. For the purposes of this article, an owner shall not be 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 where specifically addressed. The term "owner� does not include:

(i) Any provider or other licensee under this chapter;

(ii) A qualified institutional buyer as defined in Rule 144A of the Federal Securities Act of 1933, as amended, 17 C.F.R. § 230.144A;

(iii) A financing entity;

(iv) A special purpose entity; or

(v) A related provider trust.

(16) "Patient identifying information� means an insured's address, telephone number, facsimile number, electronic mail address, photograph or likeness, employer, employment status, social security number, or any other information that is likely to lead to the identification of the insured.

(17) "Person� means any natural person or legal entity including, but not limited to, a partnership, limited liability company, association, trust, or corporation.

(18) "Policy� means an individual or group policy, group certificate, contract, or arrangement of life insurance owned by a resident of this state, regardless of whether delivered or issued for delivery in this state.

(19) "Premium finance loan� is a loan made primarily for the purposes of making premium payments on a life insurance policy, which loan is secured by an interest in such life insurance policy.

(20) "Provider� means a person, other than an owner, who enters into or effectuates a life settlement contract with an owner. A provider does not include:

(i) Any bank, savings bank, savings and loan association, credit union;

(ii) 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;

(iii) The insurer of a life insurance policy or rider to the extent of providing accelerated death benefits or riders or cash surrender value;

(iv) Any natural person who enters into or effectuates no 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;

(v) A purchaser;

(vi) Any authorized or eligible insurer that provides stop loss coverage to a provider; purchaser, financing entity, special purpose entity, or related provider trust;

(vii) A financing entity;

(viii) A special purpose entity;

(ix) A related provider trust;

(x) A broker; or

(xi) An accredited investor or qualified institutional buyer as defined, respectively, in Regulation D, Rule 501, 17 C.F.R. § 230.501, or Rule 144A of the Federal Securities Act of 1933, as amended, 17 C.F.R. § 230.144A, who purchases a life settlement policy from a provider.

(21) "Purchased policy� means a policy or group certificate that has been acquired by a provider pursuant to a life settlement contract.

(22) "Purchaser� means a person who pays compensation or anything of value as consideration for a beneficial interest in a trust which 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.

(23) "Related provider trust� means a titling trust or other trust established by a licensed provider or a financing entity for the sole purpose of holding the ownership or beneficial interest in purchased policies in connection with a financing transaction. In order to qualify as a related provider trust, the trust must have a written agreement with the licensed provider under which the licensed provider is responsible for ensuring compliance with all statutory and regulatory requirements and under which the trust agrees to make all records and files relating to life settlement transactions available to the commissioner as if those records and files were maintained directly by the licensed provider.

(24) "Settled policy� means a life insurance policy or certificate that has been acquired by a provider pursuant to a life settlement contract.

(25) "Special purpose entity� means a corporation, partnership, trust, limited liability company, or other legal entity formed solely to provide either directly or indirectly access to institutional capital markets:

(i) For a financing entity or provider; or

(ii) In connection with a transaction in which the securities in the special purpose entity are acquired by the owner or by a "qualified institutional buyer� as defined in Rule 144 promulgated under the Federal Securities Act of 1933, as amended; or

(iii) The securities pay a fixed rate of return commensurate with established asset-backed institutional capital markets.

(26) "Stranger-originated life insurance� or "STOLI� is a practice or plan to initiate a life insurance policy for the benefit of a third-party investor who, at the time of policy origination, has no insurable interest in the insured. STOLI practices include, but are not limited to, cases in which life insurance is purchased with resources or guarantees from or through a person, or entity, who, at the time of policy inception, could not lawfully initiate the policy himself, herself, or itself, and where, at the time of inception, there is an arrangement or agreement, whether verbal or written, to directly or indirectly transfer the ownership of the policy and/or the policy benefits to a third party. Trusts that are created to give the appearance of insurable interest, and are used to initiate policies for investors, violate insurable interest laws and the prohibition against wagering on life. STOLI arrangements do not include those practices set forth in this chapter.

(27) "Terminally ill� means having an illness or sickness that can reasonably be expected to result in death in twenty-four (24) months or less.

Legislative History

P.L. 2009, ch. 195, § 1; P.L. 2009, ch. 262, § 1.