OGC Opinion No. 10-06-07

The Office of General Counsel issued the following opinion June 30, 2010, representing the position of the New York State Insurance Department.

RE: Technology Firm as a Life Settlement Intermediary

Questions Presented:

1. Is the technology firm described in the first scenario set forth below a life settlement intermediary for the purposes of Chapter 499 of the Laws of 2009 (the “Life Settlement Act”)?

2. Is the technology firm described in the second scenario set forth below a life settlement intermediary for the purposes of the Life Settlement Act?

Conclusions:

1. No. The technology firm described in the first scenario set forth below is not a life settlement intermediary for the purposes of the Life Settlement Act. However, the technology firm cannot obtain confidential information unless it is an authorized representative of any life settlement broker or life settlement provider that subscribes to and uses the technology firm’s system, and complies with the privacy requirements set forth in new Insurance Law § 7810(a).

2. Yes. The technology firm described in the second scenario below would be a life settlement intermediary for the purposes of the Life Settlement Act, and therefore would be required to register with the Insurance Department as a life settlement intermediary pursuant to new Insurance Law § 7804.

Facts:

The inquirer reports that he represents a technology firm that leases a business operating system specifically designed for life settlement market participants. In the first scenario that the inquirer presents, he reports that users, including life settlement brokers and life settlement providers, may post and retrieve confidential documents and information related to potential life settlement transactions in a secure, encrypted format. The inquirer further states that the users lease the “do it yourself technology,” and pay a subscription-based access fee for use of the system. All negotiations, including the production of offers and counteroffers, occur off-line. The inquirer states that the system does not electronically deliver offers and counteroffers.

The inquirer further reports that the system is not involved in the life settlement transaction, other than providing the vehicle for the secure and encrypted exchange of communications and information. However, the inquirer states that the system warehouses the data regarding offers received from a life settlement provider in the same manner as a market participant’s internal database would track the transactional history associated with a life settlement transaction.

In the second scenario that the inquirer presents, he reports that in the future, the technology firm’s system described in the first scenario may enable life settlement providers to enter offers for a life insurance policy directly into a life settlement broker’s database, which the life settlement broker would be able to access at its convenience. The inquirer further reports that the system will only warehouse the data and is not involved in the life settlement transaction.

The inquirer asks whether the technology firm as described in the first and second scenarios is a life settlement intermediary for the purposes of the Life Settlement Act.

Analysis:

On November 19, 2009, Governor David A. Paterson signed into law Chapter 499 of the Laws of 2009, which repeals Article 78 of the Insurance Law and adds a new Article 78 entitled, “Life Settlements.” ¹ Chapter 499 became effective on May 18, 2010, with the exception of new Insurance Law §§ 7810, 7811, and 7815, which apply to privacy, disclosures to owners and insureds, and stranger-originated life insurance (“STOLI”), respectively, and which took effect on November 19, 2009.

New Insurance Law § 7802(l) is relevant to the inquirer’s inquiry, and defines “life settlement intermediary” as “a person who maintains an electronic or other facility or system, for the disclosure, through a forum of offers and counteroffers, to sell or purchase a policy pursuant to a life settlement contract; and delivers to: (1) a life settlement provider an offer from a life settlement broker or owner to sell a policy; or (2) an owner or life settlement broker an offer from a life settlement provider to purchase a policy.” New Insurance Law § 7802(o) defines “person” as “any natural person or legal entity, including a partnership, limited liability company, association, trust or corporation.”

1. First Scenario

In the first scenario that the inquirer presents, he reports that users, including life settlement brokers and life settlement providers, may post and retrieve confidential documents and information related to potential life settlement transactions in a secure, encrypted format using the business operating system that the technology firm leases. The inquirer further reports that all negotiations, including the production of offers and counteroffers, occur off-line. However, the system warehouses the data regarding offers received from a life settlement provider in the same manner as a market participant’s internal database would track the transactional history associated with a life settlement transaction.

Based upon the foregoing, the technology firm is not a life settlement intermediary for the purposes of the Life Settlement Act, because the firm’s business operating system does not deliver offers and counteroffers to life settlement providers or life settlement brokers. Rather, the system merely houses confidential documents and other information for the benefit of the business operating system’s users.

However, new Insurance Law § 7810(a), which applies to privacy, states in relevant part that “[e]xcept as otherwise permitted or required by law, no life settlement provider, life settlement broker, or life settlement intermediary, or any authorized representative thereof, insurer, information bureau, rating agency or company, or any other person with actual knowledge of an insured or owner’s identity, shall disclose the identity of the insured or owner, or any information that there is a reasonable basis to believe could be used to identify the insured or owner, or the insured’s financial or medical information,” with certain exceptions.

In the scenario presented here, although the technology firm is not a life settlement intermediary, it cannot obtain confidential information unless it is an authorized representative of any life settlement broker or life settlement provider that subscribes to and uses the technology firm’s system, and complies with the privacy requirements set forth in new Insurance Law § 7810(a).

2. Second Scenario

In the second scenario that the inquirer presents, the technology firm’s system described in the first scenario may enable life settlement providers to enter offers for a life insurance policy directly into a life settlement broker’s database, which the life settlement broker would be able to access at its convenience. In this scenario, the technology firm would be a life settlement intermediary for the purposes of the Life Settlement Act, because the technology firm would be maintaining an electronic system “for the disclosure, through a forum of offers and counteroffers, to sell or purchase a policy pursuant to a life settlement contract,” and would deliver to a life settlement broker an offer by a life settlement provider to purchase a policy. As a result, the technology firm would be required to register with the Insurance Department as a life settlement intermediary pursuant to new Insurance Law § 7804.

For further information, you may contact Senior Attorney Joana Lucashuk at the New York City Office.

¹ New Insurance Law § 7802(k)(1), subject to certain exceptions set forth in section 7802(k)(2), defines “life settlement contract” as “an agreement establishing the terms under which compensation is provided to an owner, which compensation is less than the expected death benefit of the policy, in return for the assignment, transfer, sale, release, devise or bequest of any portion of: (A) the death benefit; (B) the ownership of the policy; or (C) any beneficial interest in the policy, or in a trust or any other entity that owns the policy, where a primary purpose of the transaction is to acquire the policy.”