|George E. Pataki
Gregory V. Serio
The Office of General Counsel issued the following opinion on March 7, 2003, representing the position of the New York State Insurance Department.
Re: Viatical Settlements
1. Is a license from the Insurance Department required for a firm to solicit individuals to acquire interests in life insurance policies that have been purchased by your firm?
2. May the firm pay compensation to individuals who refer prospective investors to the firm?
If the policies that the firm purchases are not on the lives of New York residents who are viators, as that term is defined in New York Insurance Law § 7801(b) (McKinney 2000), no license is required from this Department and this Department would not regulate any compensation paid as a "finders fee." If, however, the insured were a New York viator, the firm would have to be licensed as a viatical settlement company and could not pay a "finders fee" to individuals providing potential viators. New York Insurance Law § 7808(c) (McKinney 2000). The Insurance Law does not regulate compensation paid to individuals furnishing potential investors.
While the firm is not licensed in New York, it is licensed as an insurance producer in Oregon. The inquirer indicated that the firm would like to offer interests in policies that it has purchased to New York residents. The policies insure individuals with a wide range of life expectancies and are not limited to policies insuring individuals with a terminal illness.
New York Insurance Law § 7801(a) defines a 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 a 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.
New York Insurance Law § 7802(a) (McKinney 2000) prohibits acting as a viatical settlement company without a license from this Department. New York Insurance Law § 7808(c) provides:
Viatical settlement companies . . . shall not: . . . (2) pay or offer to pay any finder's fee, commission or other compensation to any viator's physician, attorney, accountant or other person providing medical, legal or financial planning services to the viator, or to any other person acting as agent of the viator with respect to the viatical settlement;
There is no provision in the New York Insurance Law regulating compensation to those who furnish investors to purchase interests in policies purchased by viatical settlement companies. Accordingly, if the insured is not a New York resident or, even if a New York resident, not a viator, this Department has no jurisdiction over any aspect of the transaction.
This opinion is limited to interpretation of the New York Insurance Law. The inquirer was referred to the Investor Protection Bureau of the Department of Law for a declaration as to whether such interests in life insurance policies are considered securities under other provisions of New York law.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.