S. 7356(Seward)/A. 10401(Morelle)

Life Settlements

Summary:  This bill would provide a new comprehensive statutory framework to regulate the life settlement business, including enhanced consumer protections.  Specifics include:

• Insurance Law § 308 is amended to add life settlement providers, settled policy investors and life settlement intermediaries to the list of entities that are required to provide written responses to Department inquiries.

• Insurance Law §§ 2102 and 2110 are amended to add life settlement brokers to the list of those persons required to obtain a license, and whose licenses may be revoked, suspended or not renewed by the Superintendent.

•  A new subsection (e) is added to Insurance Law § 2119 requiring life settlement brokers to receive compensation only pursuant to a written contract, and prohibiting excess charges.

• Insurance Law § 2120 is amended to provide that life settlement brokers must act in a fiduciary capacity for funds received or collected in such capacity.

• The continuing education requirements of Insurance Law § 2132 are amended to also apply to persons licensed to sell life settlements, and to exclude certain insurance producers with a life line of authority from the requirement to take an examination.

•  A new Insurance Law § 2137 is added to specify the licensing requirements (both initial and renewal) applicable to life settlement brokers.

• Insurance Law § 2401 is amended to include life settlements within the category of insurance subject to the prohibitions of unfair methods of competition or unfair or deceptive acts or practices.

• The definitions of "person" and "defined violation" contained in Insurance Law § 2402 are amended to include the business of life settlements and certain acts committed with respect to that business.

• Subsection (c) of Insurance Law 3220 is amended to require that a group policy that permits assignment of an insured person's rights by gift shall also allow assignment for value to the same extent that it allows assignment by gift.

• Existing Article 78 of the Insurance Law is deleted and replaced with a new Article 78 which, among other things:

1. provides the license requirements for life settlement providers;

2. provides the registration requirements for settled policy investors and life settlement intermediaries;

3. provides the Superintendent with the authority to refuse to renew, revoke or suspend the license of any life settlement provider or the registration of any settled policy investor or life settlement intermediary subject to notice and hearing;

4. requires life settlement providers to obtain approval by the Superintendent of life    settlement contract forms prior to use;

5. requires each licensee to file an annual statement with the Superintendent, and authorizes the Superintendent to examine or investigate the affairs of any   licensee, registrant or applicant;

6. prohibits licensees and registrants from disclosing the identity of the insured or owner in connection with a proposed or actual life settlement unless the disclosure is necessary for specifically identified purposes;

7. requires specific disclosure to be provided by the life settlement provider and the life settlement broker including the amount of compensation to be paid to the broker;

8. identifies prohibited practices and sets forth penalties and civil remedies; and

9. sets forth provisions for life settlement contracts made with non-resident owners.

• Insurance Law § 403 is amended to: (1) make the commission of a fraudulent life settlement act a violation of the Insurance Law; (2) define a fraudulent life settlement act by reference to Penal Law § 176.40; and (3) add "fraudulent life settlement act" as one of the actions for which the Superintendent is empowered to level a civil penalty.

• Insurance Law § 404(a) is amended to include the business of life settlements within the activities that the Superintendent may investigate.

• Insurance Law § 406 is amended to add provisions relating to attorney's fees and the status of documents and evidence obtained by the Superintendent during an investigation.

• Insurance Law § 409(g) is amended to change the month during which the annual fraud report must be filed from January to March.  (Also see…….)

• A new Insurance Law § 410 is added detailing the required parameters of life settlements fraud prevention plans that must be implemented and reported annually to the Superintendent.

• A new section 7 is added0 to the Penal Law to create new crimes of life settlement fraud and aggravated life settlement fraud.

• Banking Law § 570 is amended to integrate its provisions governing premium finance agreements with the requirements of amended Article 78 of the Insurance Law.

Effective Date:  N/A.

Last Action: The bill was referred to the Senate Insurance Committee on March 27, 2008.