OGC Op. No. 08-09-14
The Office of General Counsel issued the following opinion on September 29, 2008 representing the position of the New York Insurance Department.
Re: Life Settlements, Insurance Department Licensing
Must a company that provides administrative services to life settlement companies be licensed by the New York Insurance Department?
If the sellers are not “viators”, as defined in N.Y. Ins. Law § 7801 (McKinney 2000), the provision of administrative services requires no license from the Department.
The inquirer reports that, while his entity has not yet commenced operations, it is ascertaining its obligation to secure licenses in the jurisdictions in which it intends to provide its services. According to the organization’s website, the organization is
built to serve the needs of those participating in the Secondary Market for Life Insurance or Life Settlement Industry. The company brings to market a convenient option for Life Settlement providers and brokers to streamline and outsource mortality tracking operations. [Organization] is not limited to data collection and monitoring alone, but seeks to provide a comprehensive and tailored solution that manages the ‘insured’ side of business.
Among the services that the organization anticipates providing are: (1) complete applications for and file death certificates, (2) process insurance claims and pay death proceeds to the policy owner, (3) verify the continued status of the insured life, and (4) manage a funded account to pay future premiums on behalf of the policy owner. The inquirer asks whether the organization needs a license from the Department in order to provide such services.
The inquiry does not define the term “life settlement”, or explain its use of the words. Accordingly, the analysis set forth in the opinion is general in nature, and presumes that the term “life settlement” has the meaning commonly ascribed to such term.1
Insurance Law § 7802(a), which is relevant to the inquiry, requires that anyone who facilitates (or “brokers”) the sale of a life insurance policy that constitutes a viatical settlement must be licensed by the Insurance Department as a viatical settlement broker. Insurance Law § 7801(c) defines a viatical settlement as an agreement between a viator and a viatical settlement company to sell a life insurance policy to a licensed viatical settlement company. Insurance Law § 7801(b) defines a “viator” as follows:
[T]he 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
If the policy to be sold does not constitute a viatical settlement, then under present law, it is a life settlement, which is not regulated by the Insurance Department. Nor is there any requirement to be licensed as a viatical settlement broker from the Department in order to sell the policy. The Department expects, however, that in the coming Legislative session, as in the past, the Legislature will consider changing the law regarding the regulation of viatical settlements, and extend state regulation to the sale of all life insurance policies.
Insurance Law § 2101(g)(2), which is also relevant to the inquiry, defines a public adjuster as follows:
“Public adjuster" means any person, firm, association or corporation who, or which, for money, commission or any other thing of value, acts or aids in any manner on behalf of an insured in negotiating for, or effecting, the settlement of a claim or claims for loss or damage to property of the insured in this state caused by, or resulting from, any of the risks as enumerated in [various provisions of the Insurance Law] . . . or which, advertises for, or solicits employment as an adjuster of such claims, and shall also include any person who, for money, commission or any other thing of value, solicits, investigates, or adjusts such claims on behalf of any such public adjuster . . . .
It is not clear from the website whether Organization’s functions would encompass adjusting. The adjustment of claims under life insurance policies is not encompassed within the definition of Insurance Law § 2101(g)(2), and there is no provision for licensing of public adjusters for life insurance. While any proposed legislation could deal with the situation, under present law such “adjusting” might still be violative of other laws. See Judiciary Law § 460 (attorneys), General Business Law § 70 (private investigators).
This opinion is limited to the Insurance Law and the regulations promulgated thereunder, and does not purport to pass on any other statutes.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.
1 A “life settlement” is generally understood to be the sale of a life insurance policy by an individual who is not suffering from a terminal illness.