OGC Op. No. 08-11-08
The Office of General Counsel issued the following opinion on November 26, 2008, representing the position of the New York State Insurance Department.
RE: Life Settlements
Does New York Insurance Law prohibit an entity, such as a trust, corporation, or partnership, that owns a life insurance policy covering an individual insured who is not chronically or terminally ill from selling the insurance policy to a third party?
No. The Insurance Law would govern the transaction if it were a viatical settlement as defined in N.Y. Ins. Law § 7801 (McKinney 2000). This transaction however, is not a viatical settlement because the insured does not have a catastrophic or life-threatening illness.
The inquirer presents this inquiry as one of a general nature, without reference to particular facts.
The inquirer asks whether an entity that owns a life insurance policy may sell that policy to a third party when the person whose life is insured is not chronically or terminally ill. For the sake of analysis, the Department assumes that at the time the policy was issued, the transaction was in compliance with the insurable interest requirements of Insurance Law
Insurance Law § 3205(b)(2) prohibits any person from purchasing or causing to be purchased a life insurance policy covering the life of another person, unless the policy benefits are payable to the person whose life is insured, that person’s personal representative, or any other person with an insurable interest at the time the policy is issued. Insurance Law
Turning to the specific question posed, the sale of an insurance policy by a viator would be regulated as a viatical settlement under Article 78 of the Insurance Law. But there is no indication that the transaction that the inquirer describes would be a viatical settlement. Insurance law
In the absence of a catastrophic or life-threatening illness, the agreement will not be considered a viatical settlement. See Opinion of the Office of the General Counsel No. 02-04-24 (April 24, 2002). Rather, the transaction appears more similar to a life settlement transaction. A “life settlement " is generally considered to be the sale by a policy owner of a life insurance policy insuring the life of an individual who is not suffering from a terminal illness. See Opinion of the Office of the General Counsel No. 08-06-08 (June 16, 2008). The New York Insurance Law does not currently specifically address life settlement transactions. However, the Department has introduced legislation to regulate all life settlement contracts, and a different but related bill passed the State Senate earlier this year. It is anticipated that further legislative action may be taken in 2009.
For further information you may contact Senior Attorney Brenda M. Gibbs at the Albany Office.
1 No person other than the insured may act as a viator to sell an insurance policy to a viatical settlement company. See Opinion of General Counsel No. 02-02-25 (February 19, 2002).