The office of General Counsel issued the following informal opinion on February 19, 2002, representing the position of the New York State Insurance Department.
Re: Viatical Settlement, Definition of "Viator"
Question Presented:
Does a viator, as defined in New York Insurance Law § 7801(b) (McKinney 2000), have to be the insured?
Conclusion:
Yes, that was the Legislative intent.
Facts:
In comparing New York Insurance Law Article 78 with Regulation 148, N.Y. Comp. R. & Regs. tit. 11, Part 380 (2001), the inquirer discovered what he believes are inconsistencies between the Regulation and the statutory definitions as to whether the viator has to be the insured.
Analysis:
New York Insurance Law § 7801(a) (McKinney 2000) defines "viatical settlement company":
Viatical settlement company means an individual, partnership, corporation or other entity not prohibited from acting as a viatical settlement company . . . that enters into an agreement with a person owning a life insurance policy insuring the life of a person who has a catastrophic or life threatening illness or condition, under the terms of which the viatical settlement company pays compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy, in return for the policyowner's assignment, transfer, sale, devise or bequest of the death benefit or ownership of the insurance policy to the viatical settlement company. . . .
New York Insurance Law § 7801(b) defines "viator":
Viator means the owner of a life insurance policy insuring the life of a person who has a catastrophic or life threatening illness or condition, who enters into an agreement under which the viatical settlement company will pay compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy, in return for the viator's assignment, transfer, sale, devise or bequest of the death benefit or ownership of the insurance policy to the viatical settlement company. Viator may also include a person insured under a group life insurance policy who is not prohibited from assigning his or her rights or benefits and who assigns those rights or benefits by a viatical settlement.
When this Department commented to the Governor concerning the bill, Senate Bill 5303-A (Sen. Velella), that enacted New York Insurance Law Article 78, 1993 N.Y. Laws 638, it noted with respect to New York Insurance Law §7801 that: "Many of these definitions will need to be clarified by interpretation by the Department." It is axiomatic that an administrative agency, such as this Department, is expected to fill in the interstices left by the Legislature. Dorst v. Pataki, 90 N.Y.2d 296, 665 N.Y.S. 2d 65 (1997). The Legislature contemplated this eventuality when it authorized the Superintendent of Insurance to promulgate regulations with respect to viatical settlements. New York Insurance Law § 7810 (McKinney 2000).
There is no definition of viator in Regulation 148. The Regulation, however, provides, N.Y. Comp. R. & Regs. tit. 11, § 380.9 (2001):
(a) A viator may not assign, transfer, sell, devise or bequeath to a viatical settlement company: (1) a death benefit for any insured other than the viator; or (2) any accidental death benefit.
(b) A viator may not assign death benefits under a joint life insurance or a joint survivorship policy unless the other insured has predeceased the viator.
Thus, this Department believes that it is clear from the language of N.Y. Comp. R. & Regs. tit. 11, § 380.9(a) that the owner/viator must also be the insured. Furthermore, this Department does not agree that the language in N.Y. Comp. R. & Regs. tit. 11, § 380.9(a) is inconsistent with the legislative intent. The language of New York Insurance Law 7801 may not be interpreted without consideration of other portions of New York Insurance Law Article 78. New York Insurance Law § 7808(a) (McKinney 2000) provides:
A viatical settlement company entering into a viatical settlement with any viator shall first obtain a duly witnessed and authorized application in which the viator consents to the viatical settlement, acknowledges the catastrophic or life-threatening illness, represents that he or she has a full and complete understanding of the viatical settlement, that he or she has a full and complete understanding of the benefits of the life insurance policy, releases his or her medical records, and acknowledges that he or she has entered into the viatical settlement freely and voluntarily. (emphasis added)
The above quoted portion of New York Insurance Law § 7801(b), when read in conjunction with New York Insurance Law § 7808(a), clearly indicates that the Legislature contemplated the viator and insured, with respect to individual life insurance, would be the same individual. Thus, this Department in its regulatory function has always interpreted N.Y. Comp. R. & Regs. tit. 11, § 380.9(a), quoted above, to prohibit a policyholder from selling such a policy insuring another to a viatical settlement company.
As to group life insurance policies, although New York Insurance Law § 7809 (McKinney 2000) contemplates that the insured may be other than the policyholder, the insured individual must be the one who sells the policy.
The inquirer also cited various provisions of N.Y. Comp. R. & Regs. tit. 11, § 380.6(g) (2001) that he believes contain inconsistent statements:
(g) The application for the viatical settlement contract shall: (1) set forth a prominently displayed notice to read as follows: "Receipt of payment pursuant to a viatical settlement may affect eligibility for public assistance programs such as medical assistance (medicaid), aid to families with dependent children, supplementary social security income, and AIDS drug assistance programs and may be taxable. Prior to applying for a viatical settlement, policyowners should consult with the appropriate social services agency concerning how receipt will affect the eligibility of the recipient and the recipient's spouse or dependents, and with a qualified tax advisor.";
(2) contain the applicant's consent to the viatical settlement, an acknowledgement by the applicant that he or she has a catastrophic or life-threatening illness, and the applicant's representation that he or she has a full and complete understanding of the viatical settlement;
(3) contain a provision that the proposal which the viatical settlement company will deliver to the applicant before the viatical settlement is signed will not include a detailed description of how the payment amount was determined unless the applicant specifically requests in the application such detailed description which shall also include the assumed life expectancy of the viator if requested by the applicant;
The notice required by N.Y. Comp. R. & Regs. tit. 11, § 380.6(g)(1) has been enacted in haec verba from that prescribed by New York Insurance Law § 7807(a) (McKinney 2001). Accordingly, there can be no inconsistency with the statute. With respect to N.Y. Comp. R. & Regs. tit. 11, § 380.6(g)(2), this Department does not believe that there is either an inconsistency with the statute or the possibility of a misimpression.
This Department notes the inquirers belief that in N.Y. Comp. R. & Regs. tit. 11, § 380.6(g)(3) "there appears the idea that the applicant is different from the viator, but it is the viators life expectancy which is to be considered in the application." The Department disagrees but will consider whether the statute or Regulation should be amended to eliminate any possible confusion.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.