OGC Op. No. 10-11-04

The Office of General Counsel issued the following opinion November 16, 2010, representing the position of the New York State Insurance Department.

Re: Applicability of Article 78 of the Insurance Law

Question Presented:

Which state’s life settlement laws govern when a trust wishes to sell a life insurance policy, the grantor resides in a state other than New York, and the trust’s trustee signs the life settlement contract in New York?

Conclusion:

The policy owner has a choice. The policy owner may choose to have Article 78 of the New York Insurance Law (McKinney Supp. 2010) govern, because signing the life settlement contract in New York means that the contract is being made in New York. Alternatively, the policy owner may elect in writing to have the life settlement laws of the state in which the grantor resides govern the life settlement contract pursuant to Insurance Law § 7819(b)(2). However, if the policy owner elects to have the other state’s life settlement laws govern the contract, then any requirement set forth in Article 78 of the Insurance Law that does not pertain to the terms of the life settlement contract still applies, because the trustee signs the life settlement contract in New York and therefore, the contract is being made with a policy owner physically in New York. This includes life settlement provider licensing and disclosure requirements.

Facts:

The inquirer reports that his mother does not reside in New York, but rather is a resident of Florida and Massachusetts and the grantor of a trust that is sited in Florida. The inquirer also reports that his mother is no longer interested in funding the trust to pay the premiums on a life insurance policy on her life and therefore, the trust would like to sell the policy. The inquirer is the trustee of the trust and a New York resident, and the inquirer signed the paperwork to sell the policy in New York. The inquirer states that ABC, a New York-licensed life settlement provider, wishes to purchase the policy.

Since Massachusetts does not appear to have a life settlement law, the inquirer asks whether Article 78 of the Insurance Law or Florida’s life settlement laws govern.

Analysis:

Insurance Law § 7819(a) states that Article 78 of the Insurance Law “shall apply to any life settlement contract made, proposed to be made, or solicited with a resident of this state or any owner physically in this state.” With regard to determining the state of residence, Insurance Law § 7819(c) provides in pertinent part that:

For the purposes of this section, with respect to any person other than a natural person, the state of residence shall be:

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(2) with respect to a trust, a state in which the grantor resides.

Accordingly, pursuant to Insurance Law § 7819(c)(2), the state of residence of a trust is the state in which the grantor resides and not the situs of the trust. Therefore, the situs of the trust is not relevant to a choice of law analysis under Insurance Law § 7819.

In addition, Insurance Law § 7819(b)(2) states that:

A life settlement contract entered into with an owner who is a resident of another state may be governed by the laws of the other state provided that the owner elects in writing to be governed by the laws of the other state, and if the owner is also a resident of this state, the life settlement contract is made, proposed to be made and solicited outside this state.

Thus, a life settlement contract entered into with a policy owner who is a resident of a state other than New York may be governed by the life settlement laws of that other state if the policy owner elects in writing to be governed by the laws of that state.

Here, the state of residence is Florida, because the inquirer’s mother, who is the grantor, resides in Florida. However, the inquirer has a choice as to which state’s life settlement laws govern the life settlement contract. The inquirer may choose Article 78 of the Insurance Law to govern, because signing the life settlement contract in New York means that the contract is being made in New York. Alternatively, the inquirer may elect in writing to have Florida’s life settlement laws govern the life settlement contract pursuant to Insurance Law § 7819(b)(2).

Nevertheless, Insurance Law § 2102(a)(1) prohibits any person, firm, association, or corporation from acting as a life settlement broker in New York without having authority to do so by virtue of a license issued and in force pursuant to the Insurance Law. In addition, Insurance Law § 7803(a) prohibits a person from engaging in the business of life settlements as a life settlement provider in New York without having authority to do so by virtue of a life settlement provider license issued and in force pursuant to Article 78 of the Insurance Law. Thus, if the inquirer elects to have Florida’s life settlement laws govern the contract, then any requirement set forth in Article 78 that does not pertain to the terms of the life settlement contract still applies, because the inquirer signed the life settlement contract in New York and therefore, the contract is being made with a policy owner physically in New York. This includes life settlement provider licensing and disclosure requirements.

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