PA 08-175—sHB 5512

Insurance and Real Estate Committee

Judiciary Committee

AN ACT CONCERNING LIFE SETTLEMENTS

SUMMARY: This act revises prior insurance laws regarding viatical settlements to incorporate requirements for life settlements that are based on the National Conference of Insurance Legislators (NCOIL) Life Settlements Model Act. The act addresses an emerging type of life settlement activity, stranger-originated life insurance (STOLI), which it defines and prohibits.

Under the act, a “life settlement contract” is a written agreement entered into between a life insurance policy owner and another person (called a “provider”), under which the owner assigns, transfers, sells, devises, or bequeaths some or all of his or her policy's death benefit for money or other value. Prior law defined “viatical settlement contract” similarly, referring to the owner as a viator.

The act generally prohibits a person from entering into a life settlement contract involving a life insurance policy before, when, or within two years of purchasing a life insurance policy. Prior law prohibited it within two years after purchase, with certain exceptions. The act retains similar exceptions and adds several new exceptions to the prohibition, including life status changes (e. g. , divorce or retirement).

The act:

1. revises provider and broker licensing requirements, permits life insurance producers to act as brokers under certain conditions, and lowers the insurance commissioner's threshold for denying, suspending, revoking, or not renewing a license;

2. specifies and prohibits “fraudulent life settlement acts,” which it defines and subjects to criminal and civil penalties;

3. requires anyone who suspects fraud to report it to the commissioner and grants qualified immunity from liability for doing so;

4. revises examination, disclosure, confidentiality, advertising, and contract requirements;

5. identifies prohibited life settlement practices;

6. subjects settlement proceeds to state tax by eliminating an exemption;

7. permits insurers to ask a life insurance policy applicant about premium financing, life settlement arrangements, and his or her interest in the proposed insured person;

8. specifies that insurers cannot prohibit (a) life insurance producers and brokers from speaking with clients about life settlement options and (b) the lawful assignment of policies;

9. expands the commissioner's rule-making and regulatory authority;

10. eliminates various provisions, including one that prohibited settlement contract investors from influencing an insured person's medical treatment;

11. makes a violation of the act (a) an unfair insurance practice, (b) insurance fraud, and (c) in addition to other penalties allowed, subject to a civil penalty of up to $100,000; and

12. makes minor, technical, and conforming changes.

EFFECTIVE DATE: October 1, 2008

§ 1 — DEFINITIONS

Life Settlement Contract

Under prior law, a “viatical settlement contract” was a written agreement between a provider and a viator, under which the viator assigns, transfers, sells, devises, or bequeaths some or all of the policy's death benefit for compensation or other value that is less than the expected death benefit under the policy. The act renames it a “life settlement contract,” replaces “viator” with “owner,” and specifies that the value of the contract must be greater than the cash surrender value or accelerated death benefit available when the owner applies for the life settlement contract. (Cash surrender value is the amount the owner would receive for giving the policy back to the insurer that issued it. Accelerated death benefit is a life insurance policy option that permits a person to collect some of the policy's death benefit while he or she is alive. )

The act also defines a “life settlement contract” as:

1. the transfer, for money or value, of ownership or beneficial interest in a trust, or other entity that owns such a policy, if the trust or other entity was formed or used to acquire one or more life insurance contracts that insure a Connecticut resident;

2. a written agreement for a loan or other lending transaction, secured primarily by an individual or group life insurance policy; or

3. a premium finance loan made for a policy by the date the policy is issued where (a) the borrower does not use the loan proceeds solely to pay policy premiums and financing costs, (b) the owner receives, when taking the loan, a guarantee of the policy's future life settlement value, or (c) the owner agrees, when taking the loan, to sell the policy, or any portion of its death benefit, anytime after the policy is issued.

The act specifies that a life settlement contract does not include:

1. a policy loan from a life insurance company according to the policy terms;

2. a premium finance loan or any loan from a bank or other licensed financial institution, provided a (a) default on the loan or (b) policy transfer in connection with such a default, is not the result of an agreement or understanding with another person for the purpose of evading regulation;

3. an owner's collateral assignment of his or her life insurance policy;

4. a loan from a lender that does not violate state law on premium financing and does not come within the definition of life settlement contract;

5. an agreement where all the parties are (a) closely related to the insured by blood or law, (b) have a lawful substantial economic interest in the insured's continued life, health, and bodily safety, or (3) trusts established primarily for the parties' benefit;

6. an insured employee's designation, consent, or agreement in connection with his or her employer's purchase, or established trust, of life insurance on the employee's life;

7. a bona fide business succession planning arrangement between one or more (a) shareholders in a corporation or between a corporation and one or more of its shareholders or one or more trusts established by its shareholders, (b) partners in a partnership or between a partnership and one or more of its partners or one or more trusts established by its partners, or (c) members in a limited liability company (LLC) or between an LLC and one or more of its members or one or more trusts established by its members;

8. an agreement entered into between a service recipient, or a trust the service recipient established, and a service provider, or a trust the service provider established, that performs significant services for the service recipient's trade or business; or

9. any other contract, transaction, or arrangement from the “life settlement contract” definition that the commissioner determines is not the type intended to be regulated by the act.

Stranger-Originated Life Insurance (STOLI)

Under the act, “STOLI” is an act, practice, or arrangement to initiate a life insurance policy for the benefit of a third-party investor who, when the policy is issued, has no insurable interest in the insured. (“Insurable interest” exists when a person purchasing a life insurance policy that will pay out when someone else dies has an interest in that person staying alive, not in his or her death. )

STOLI includes cases in which life insurance is purchased with (1) resources or guarantees from or through a person (or entity) who could not lawfully initiate the policy and (2) a verbal or written arrangement or agreement to directly or indirectly transfer policy ownership or benefits to a third party. Trusts created to give the appearance of insurable interest and used to initiate policies for investors violate insurable interest laws.

STOLI arrangements do not include those things that are exceptions to the definition of a life settlement contract.

Advertisement

The act revises the definition of “advertisement” by expanding its purpose. By law, an advertisement is a (1) written, electronic, or printed communication; (2) recorded telephone message; or (3) radio, television, Internet, or similar media communication that has been published, disseminated, circulated, or placed before the public, directly or indirectly, for the purpose of inducing a person to purchase or sell a life insurance policy or interest through a settlement contract. The act expands the purpose to include inducing a person to purchase, sell, assign, devise, bequeath, or transfer the death benefit or ownership of a life insurance policy or interest through a life settlement contract.

Broker

A “broker” is a person who, (1) on behalf of a life insurance policy owner and (2) for a fee, commission, or other valuable consideration, offers or attempts to negotiate life settlement contracts between the owner and one or more providers. It specifies that a “broker” is not an attorney, certified public accountant, or certified financial planner (certified by a nationally recognized accreditation agency) retained to represent the owner and whose compensation the owner (and no one else) pays.

Provider

By law, a “provider” is a person, other than a life insurance policy owner, who enters into or facilitates a settlement contract with an owner, but is not:

1. a bank, savings bank, savings and loan association, or credit union;

2. a licensed lending institution that accepts an assignment of a life insurance policy or certificate issued pursuant to a group life insurance policy as collateral for a loan;

3. the insurer of a life insurance policy or rider that provides accelerated death benefits pursuant to Connecticut law;

4. a natural person who enters into or effectuates no more than one agreement in a calendar year for the transfer of a life insurance policy for compensation or anything of value that is less than the policy's expected death benefit;

5. a purchaser;

6. an authorized or eligible insurer that provides stop-loss coverage to a provider, purchaser, financing entity, special purpose entity, or related provider trust;

7. a financing entity;

8. a special purpose entity;

9. a related provider trust; or

10. an accredited investor or a qualified institutional buyer, as defined by federal law, who purchases a life settlement policy from a provider.

The act also specifies that a provider is not:

1. a creditor or secured party pursuant to a premium finance loan agreement that accepts an assignment of a life insurance policy or certificate issued pursuant to a group life insurance policy as collateral for a loan;

2. the insurer of a life insurance policy or rider that provides a cash surrender value;

3. a natural person who enters into or effectuates no more than one agreement in a calendar year for the transfer of a certificate issued pursuant to a group life insurance policy for compensation or anything of value that is less than the policy's expected death benefit; or

4. a broker.

Purchaser

By law, a “purchaser” is a person who pays compensation or anything of value as consideration for a beneficial interest in a trust that is vested with, or for the assignment, transfer, or sale of, an ownership or other interest in a life insurance policy or a certificate that is the subject of a settlement contract.

Prior law specified that a purchaser did not include (1) a licensee under the law, (2) an accredited investor or qualified institutional buyer, (3) a financing entity, (4) a special purpose entity, or (5) a related provider trust. The act eliminates these exceptions.

Special Purpose Entity

By law, a “special purpose entity” is a corporation, partnership, trust, LLC, or other similar entity formed solely to provide access, directly or indirectly, to institutional capital markets for a financing entity or provider.

The act expands the definition to include entities formed solely to provide access, directly or indirectly, to institutional capital markets in connection with a transaction in which the owner or a qualified institutional buyer, as defined in federal law, acquires the securities in the special purpose entity or the securities pay a fixed rate of return commensurate with established asset-backed institutional capital markets.

Financing Transaction

The act modifies the definition of "financing transaction" to mean any transaction in which a provider obtains financing from a financing entity, including any (1) secured or unsecured financing, (2) securitization transaction, or (3) securities offering that is registered, or exempt from registration, under federal or state securities law. Prior law (1) limited the financing for the purchase or transfer of settlement contracts or the policies or interests that are subject to them and (2) did not specify who was obtaining the financing.

§§ 2, 3, 17, 19, & 20 — LICENSING REQUIREMENTS

As with prior law, a person must obtain a license from the commissioner to act as a provider or broker. The act modifies the application requirements and includes some exceptions for licensure. The act removes requirements for, and references to, viatical settlement investment agents.

Licensed Life Producer May Act as Broker

Under the act, a person who is licensed as a (1) life insurance producer in Connecticut or in another state for at least one year and (2) nonresident producer in Connecticut in accordance with Connecticut law is deemed to meet the life settlement licensing requirements and may operate as a life settlement broker. The act requires such a producer, within 30 days from first acting as a broker, to (1) notify the commissioner on a form he prescribes and (2) pay a $13 filing fee. The producer's notification must include acknowledgement that he or she will act in accordance with the law.

Current Provider or Broker

The act permits a provider or broker who was lawfully transacting business in Connecticut before October 1, 2008 to continue to do so, pending the commissioner's approval or disapproval of his or her life settlement license application, but the application must be filed by October 31, 2008. While the license application is pending, the applicant may use any form of life settlement contract that has been filed with the commissioner and is pending approval, as long as it otherwise complies with the law.

Anyone who has lawfully negotiated life settlement contracts between an owner who is a Connecticut resident and one or more providers since at least October 1, 2007 may continue to do so pending approval or disapproval of his or her license application, but the application must be filed by October 31, 2008.

Any person transacting business in Connecticut while a license is pending must comply with the act's requirements. Providers and brokers are prohibited from using staff to perform each other's functions unless the staff is properly licensed.

License Exceptions

Under the act, a person is exempt from the broker licensure requirement if he or she is (1) a licensed attorney, certified public accountant, or financial planner accredited by a nationally recognized accreditation agency and (2) retained to represent the owner in life settlement contract negotiations, but whose compensation is not directly or indirectly paid by the provider or purchaser.

Information the Commissioner Requests

The act requires a license applicant to provide the commissioner with information that he may require on forms he approved.

Prior law permitted the commissioner to request an applicant to disclose the identity of its stockholders, partners, key management personnel, directors, officers, members, and employees. The act eliminates from this listing stockholders owning less than 10% of publicly traded stock, key management personnel, directors, and members. Thus, it permits the commissioner to request an applicant to disclose the identity of its stockholders owning 10% or more of publicly traded shares, partners, officers, and employees.

Prior law permitted the commissioner to deny a license if he determined that any partner, key manager, director, officer, employee, stockholder, or member who could materially influence the applicant's conduct failed to meet any of the settlement law's standards. The act eliminates from this listing key manager, director, and member. The commissioner may deny a license, therefore, if any such partner, officer, employee, or stockholder fails to meet the settlement law's standards.

The act requires a provider or broker to provide the commissioner with new or revised information about officers, stockholders holding 10% or more of the company's stock, partners, directors, members, or designated employees within 30 days after the information changes.

License Issued to Legal Entity

Prior law specified that a settlement provider, broker, or investment agent license issued to a corporation, partnership, LLC, or other legal entity authorized the entity's stockholders, partners, key managers, directors, officers, and employees named in the license application, and any supplements to it, to act on the entity's behalf as if they were licensed themselves. The act instead specifies that a license issued to a legal entity authorizes its members, officers, and designated employees named in the application, and any supplements, to act as a licensee under such license.

The act eliminates a provision that specified that a person's authorization under an entity's license terminated when the license expired or was suspended or revoked.

License Expiration, Renewal, and Fees

The act retains prior law regarding license expiration and renewal. Specifically, provider and broker licenses expire on March 31 in each year, but may be renewed annually. If a provider or broker fails to pay the renewal fee on time, the commissioner must revoke his or her license, unless he or she pays within five days after the commissioner sends, by first class mail, a written notice of nonrenewal after March 31.

The act also adds new provisions regarding license expiration and renewal that appear to conflict with the above requirements. It specifies that the term of a (1) producer license is equal to that of a domestic stock life insurance company (annual renewal) and (2) broker license is equal to that of an insurance producer (if an individual, renewal is every other year on the person's birth date, and if an entity, February 1 of even-numbered years). It also states that licenses requiring renewal must be renewed on their anniversary dates and that failure to pay the renewal fee results in license expiration.

As with prior law, a provider or broker license applicant must pay a $13 fee with each initial license application filed and a $20 fee for each license issued or renewed.

Commissioner's Investigation and Decision

By law, the commissioner must, upon receiving an application and license fee, investigate the applicant and issue a license if he determines that the applicant satisfies certain specified criteria.

Prior law required the commissioner to verify that the applicant:

1. had provided a detailed plan of operation;

2. was competent and trustworthy and intended to act in good faith;

3. had a good business reputation and adequate experience, training, or education to be qualified in the business; and

4. if a corporation, partnership, LLC, or other legal entity, had provided a certificate of good standing from its state of domicile that, if domiciled outside of Connecticut, was dated within 15 days of the license application.

The act revises these criteria and adds several new ones, such that the commissioner must verify that the applicant:

1. if a provider, has provided a detailed plan of operation (thus, the act exempts brokers from this requirement);

2. is competent and trustworthy and intends to act in good faith;

3. has a good business reputation and adequate experience, training, or education to be qualified in the business;

4. if a corporation, partnership, LLC, or other legal entity, (a) is formed or organized under Connecticut laws, (b) is a foreign legal entity authorized to do business in Connecticut, or (c) provides a certificate of good standing from its state of domicile; and

5. has provided an antifraud plan that meets the act's requirements as described below.

The act also prohibits the commissioner from issuing a license to a nonresident applicant unless the applicant has filed with him a written (1) designation of an agent for service of process or (2) irrevocable consent that any action against the applicant may be started by service of process on the commissioner. Another part of the act (§ 20), makes the commissioner the agent for service of legal process on licensed providers and brokers.

License Denial, Suspension, or Revocation

By law, the commissioner may deny, suspend, revoke, or not renew a license for specified reasons. The act retains some of the reasons from prior law, limits some, and expands others.

As with prior law, the commissioner may deny, suspend, revoke, or not renew a license if he determines that:

1. there was a material misrepresentation in the license application or other information given to the commissioner;

2. the licensee pleaded guilty or nolo contendere to a felony or misdemeanor involving criminal fraud or moral turpitude, regardless of whether the court has entered a judgment or conviction;

3. the provider entered into a life settlement contract using forms the commissioner has not approved;

4. the provider failed to honor contractual obligations under the settlement contract;

5. the licensee no longer meets the requirements for initial licensure; or

6. the provider assigned, transferred, or pledged a settled policy to someone other than a provider licensed in Connecticut, a purchaser, an accredited investor, a qualified institutional buyer, a financing entity, a special purpose entity, or related provider trust.

Under the act, the commissioner may take action against a person's license for the following reasons, revised from prior law as indicated:

1. the licensee, or licensee's partner, member, director, or officer (prior law included key manager and majority stockholders, but not member), (a) has been convicted of a felony, (b) has been convicted of a misdemeanor with a criminal fraud element or found guilty of fraudulent or dishonest practices (prior law limited these to only the licensee), (c) is subject to final administrative action, or (d) is otherwise proven to be untrustworthy or incompetent to act as a licensee;

2. the licensee, or licensee's partner, member, officer, or key management personnel, violated the settlement law (instead of the licensee willfully violating the settlement law); or

3. the provider demonstrates a pattern of unreasonably withholding payments to owners (instead of unreasonably low payments).

By law, if the commissioner denies a license application or suspends, revokes, or does not renew a license, the aggrieved applicant or licensee may appeal in accordance with law. The commissioner, or his designee, may hold a hearing. Whenever someone other than the commissioner acts as the hearing officer, that person must submit to the commissioner a memorandum of findings and recommendations upon which the commissioner may base a decision.

Continuing Education for Brokers

The act requires brokers, excluding life insurance producers, to biennially complete at least 15 hours of continuing education on life settlements and related transactions. Not doing so subjects a person to penalties the commissioner may impose.

Insurer Not Liable for Others' Actions Unless Paid

The act specifies that the insurer that issued a policy that is the subject of a life settlement contract is not responsible for any act or omission of a broker, provider, or purchaser arising out of, or in connection with, the life settlement transaction, unless the insurer receives compensation for placing a life settlement contract from the broker, provider, or purchaser.

§§ 2 & 11 — ANTI-FRAUD PLAN

The act requires a license applicant to provide the commissioner an antifraud plan that meets the act's requirements and includes a description of:

1. procedures for detecting and investigating possible fraud and resolving material inconsistencies between medical records and insurance applications;

2. procedures for reporting insurance fraud to the commissioner;

3. antifraud education and training for its underwriters and other personnel; and

4. the personnel responsible for fraud investigation and reporting.

The antifraud plan must be reasonably calculated to detect, prosecute, and prevent fraudulent life settlement acts. The commissioner may order, or a licensee may request and the commissioner may grant, plan modifications necessary to ensure an effective antifraud program. Fraud investigators must be included in the plan and may be provider or broker employees or independent contractors.

Antifraud plans submitted to the commissioner are privileged and confidential, not public records, and not subject to discovery or subpoena in a civil or criminal action.

§§ 4 & 15 — FORMS AND ADVERTISING FILING REQUIREMENTS

Forms

The law prohibits the use of a life settlement contract form or disclosure statement in Connecticut unless it has been filed with, and approved by, the commissioner. The act requires, instead of permits, the commissioner to disapprove a contract form or disclosure statement if he finds that it (1) contains an unreasonable provision, (2) is contrary to the public interest, (3) does not comply with the relevant provisions of the settlement law (e. g. , disclosure, general, and advertising provisions), or (4) is misleading or unfair to the owner.

Advertising

Prior law included numerous detailed provisions regarding advertising that the act eliminates. The act includes fewer, but broad, advertising requirements.

The act continues to allow providers and brokers to advertise in Connecticut, while requiring that the advertisements must be accurate, truthful, and not misleading in fact or by implication. No one is allowed to (1) directly or indirectly market, advertise, solicit, or otherwise promote the purchase of a policy for the sole purpose of, or with an emphasis on, using the policy for a life settlement contract or (2) use the words “free” or “no cost,” or words of similar meaning, in the marketing, advertising, soliciting, or promoting of the policy purchase.

The act authorizes the commissioner to require that life settlement advertisements be filed with the Insurance Department. But it also prohibits a provider from using any promotional, advertising, and marketing material that has not been filed with the commissioner, who may decide if the material must be approved before use.

§§ 4 & 8 — INSURER PROHIBITIONS

Under the act, insurers may not:

1. prohibit a life insurance producer or broker from disclosing to a client the availability of life settlement contracts;

2. include in a life insurance policy a provision that prohibits a lawful assignment of the policy;

3. require, as a condition of responding to a request for coverage verification in connection with a life settlement contract, the owner, insured, provider, or broker to sign any form, disclosure, consent, waiver, or acknowledgment that the commissioner has not approved for use in connection with life settlement contracts in Connecticut; or

4. unreasonably delay ownership or beneficiary changes agreed to in a life settlement contract lawfully entered into in Connecticut or with a Connecticut resident.

§§ 2 & 5 — ANNUAL STATEMENT REQUIREMENTS, PENALTIES, AND REGULATION

The act requires that each provider file with the commissioner by March 1, instead of March 31, of each year an annual statement containing information he must prescribe by regulation.

It expands the annual statement contents that the regulation must require to include, for any life insurance policy acquired under a life settlement contract within five years of the policy's original issuance, (1) the total number, aggregate face amount, and life settlement proceeds of policies settled during the immediately preceding calendar year and (2) a breakdown of the information by policy issue year, the names of the insurance companies whose policies have been settled, and the brokers involved. The information required is limited to those transactions where the insured is a Connecticut resident and must exclude individual transaction data that could be used to identify the owner or the insured.

A provider that willfully fails to (1) file an annual statement or (2) reply within 30 days to the commissioner's related written inquiry, in addition to other penalties provided under the act, is subject, upon notice and a hearing, to a penalty of up to $250 a day of continued violation, up to a maximum of $25,000 for each failure.

§§ 5 & 8 — DISCLOSURE OF INSURED'S IDENTITY

Except as law otherwise requires or permits, the law prohibits anyone from disclosing to any other person an insured's identity, unless the disclosure meets certain conditions. The act also prohibits disclosing information that could be used to identify the insured or his or her financial or medical information, unless the same conditions are met. The act slightly modifies the conditions under which disclosure may be made. Disclosure is prohibited unless it is:

1. needed to effect a life settlement contract between the owner and a provider and the owner and insured have provided prior written consent (prior law required only the owner's signature);

2. provided in response to an investigation or examination by the commissioner or other government agency;

3. needed to effect the sale of life settlement contracts or interests as investments, provided (a) the sale is conducted in accordance with applicable state and federal securities laws and (b) the owner and the insured have both provided prior written consent;

4. a term or condition of the transfer of a policy by one provider to another, in which case the provider receiving such information must comply with the confidentiality requirements;

5. required to purchase stop loss coverage; or

6. necessary to allow providers or brokers, or their authorized representatives, to make contacts to determine health status.

“Authorized representative” does not include any person who has, or may have, a financial interest in the settlement contract other than a provider, licensed broker, financing entity, related provider trust, or special purpose entity. Each provider or broker must require its authorized representative to agree in writing to comply with the act's privacy provisions.

Nonpublic personal information solicited or obtained in connection with a proposed or actual life settlement contract is subject to the provisions applicable to financial institutions under the 1999 federal Gramm-Leach-Bliley Act (GLB) and all other applicable state and federal laws. (GLB requires financial institutions to comply with confidentiality provisions for consumers' personal information. )

By law, medical information that a licensee under the settlement law (presumably a provider or broker) solicits or obtains is subject to applicable law relating to the confidentiality of medical information.

§ 6 — EXAMINATIONS

Commissioner's Authority

Existing law authorizes the commissioner, when he deems it reasonably necessary to protect the public interest, to examine the business affairs of a producer or broker licensee or license applicant and specifies the examination procedures the commissioner must follow. It allows the commissioner to (1) order a licensee or applicant to produce records, books, files, or other information needed to determine if he or she is acting, or acted, in compliance with the law's provisions or contrary to the public interest; (2) issue subpoenas; (3) administer oaths; and (4) examine anyone under oath on matters relevant to the examination.

The act enumerates specific requirements for examinations related to life settlements and authorizes the commissioner to investigate suspected “fraudulent life settlement acts” and people engaged in the life settlement business.

The act permits the commissioner, if he determines that regulatory action is appropriate based on an examination, to initiate any proceedings or actions for which the law provides. The act does not limit the commissioner's authority to end or suspend an examination to pursue other legal or regulatory action under law. It specifies that findings of fact and conclusions made during an examination are prima facie evidence in any legal or regulatory action (i. e. , evidence that establishes a fact or upholds a judgment unless contradictory evidence is produced).

In lieu of an examination of a producer or broker from outside Connecticut who is licensed in Connecticut, the act permits the commissioner to accept an examination report on the person that the commissioner of the person's state prepared.

Penalty for Examination Refusal

The act authorizes the commissioner to suspend, refuse, or not renew a license, or an authority under a license, to engage in the life settlement business or other business subject to the commissioner's jurisdiction if a licensee, its officers, directors, employees, or agents refuse to (1) submit to examination or (2) comply with a reasonable written request from the commissioner.

Examinee Responsibilities – Costs, Access to Records

By law, the licensee or applicant under examination must pay all costs associated with the examination, including the reasonable cost to retain professionals or specialists as examiners when the commissioner deems necessary.

A licensee, or person from whom information is sought, and its officers, directors, and agents must provide the examiners with access to all books, records, accounts, papers, documents, assets, and computer or other recordings related to the licensee's property, assets, business, and affairs. The access must be timely, convenient, free, at reasonable hours, and at the licensee's offices.

Examination Staff

Upon deciding to initiate an examination, the commissioner must issue an examination warrant that appoints one or more examiners for that purpose. He may retain attorneys, appraisers, actuaries, accountants, and other professionals and specialists as examiners.

The act prohibits the commissioner from appointing an examiner who, directly or indirectly, has a conflict of interest or is affiliated with the management of, or owns a pecuniary interest in, any person subject to examination. But the act specifies that this does not automatically preclude an examiner from being an owner, an insured under a life settlement contract or insurance policy, or a beneficiary of a life insurance policy proposed for settlement.

Regardless of the conflict of interest provision, the commissioner may retain from time to time and on an individual basis, actuaries, accountants, and similar professionals independently practicing their professions, even though people subject to the commissioner's examination may employ or retain them from time to time.

Examiners must use common methods for examining life settlement licensees and follow guidelines and procedures set forth in a national organization's adopted examiners' handbook.

Provider Records

Prior law required licensees to maintain records of consummated transactions and settlement contracts for the commissioner's inspection during regular business hours. The act limits this requirement to providers and reduces, from five years to three, the time period for which records related to a particular insured person must be available to the commissioner.

Confidentiality

The act considers owners' and insureds' names and identification data to be private and confidential. It prohibits the commissioner from disclosing this information unless the law requires it.

The act specifies that examination reports, working papers, recorded information, documents, and copies of these items are (1) confidential and privileged, (2) not admissible as evidence in a private civil lawsuit, and (3) not subject to (a) subpoena, (b) discovery, or (c) public disclosure. It authorizes the commissioner to use these documents and other information in any regulatory or legal action he brings as part of his official duties. The licensee being examined must have access to all documents used to make the report.

The act also makes confidential all preliminary and final examination reports, examiner or licensee work papers and documents, and other information discovered or developed during the examination, in accordance with Connecticut law regarding financial examinations. Under that law, documents are confidential unless they are otherwise a matter of public record, or the commissioner deems it in the public interest to disclose, or otherwise make available for public inspection, the information contained in the documents.

Examination Reports

The examiner-in-charge must file with the commissioner, within 60 days after completing the examination, a verified written examination report under oath. An examination report must contain only (1) facts appearing on the books or from testimony concerning the licensee's affairs and (2) conclusions and recommendations the examiners find reasonably warranted based on the facts.

Upon receipt, the commissioner must give the licensee the report and a notice providing the licensee 30 days to (1) submit a written response or rebuttal to the report or (2) request a hearing on any disputed matter. A licensee's written response or rebuttal becomes part of the report.

Qualified Immunity

The commissioner, his authorized representatives, and examiners are immune from liability for statements made and conduct performed in good faith. A person who communicates or delivers information or data to the commissioner, his authorized representatives, or examiners in good faith and without fraudulent intent or intent to deceive is immune from liability. This does not abrogate or modify the commissioner's, his authorized representatives', and examiners' common law or statutory privilege or immunity.

Under the act, the commissioner, his authorized representative, an examiner, or a person providing information to them for the examination is entitled to an award of attorney's fees and costs if he or she (1) wins a civil lawsuit for libel, slander, or other relevant tort arising from his or her examination activities and (2) the party that sued was not substantially justified for doing so. The act specifies that a proceeding is “substantially justified” if it had a reasonable basis in law or fact at the time the party initiated it.

§ 7 — REQUIRED DISCLOSURES

Prior law required producers and brokers to provide the owner with certain written disclosures in a document separate from the settlement contract. The act requires the owner and the provider to sign the disclosure document. By law, the disclosures must also be conspicuously displayed in any settlement contract a provider gives an owner, including any affiliations or contractual arrangements between the provider and the broker.

The act changes when the disclosures must be made to the owner, revises the content of the disclosures, and makes it an unfair insurance practice not to provide them.

The act also deletes requirements that a provider disclose certain information to a purchaser (someone buying the life insurance policy from the owner).

Disclosures from Providers or Brokers

Prior law required a provider or broker to provide the owner with a disclosure document with each settlement application. The act instead requires that the disclosure be provided on or before the date the settlement contract is signed by all parties. As with prior law, the disclosure must include the following language:

All medical, financial or personal information solicited or obtained by a provider or broker about an insured, including the insured's identity or the identity of family members, a spouse or a significant other may be disclosed as necessary to effect the life settlement contract between the owner and the provider. If you are asked to provide this information, you will be asked to consent to the disclosure. The information may be provided to someone who buys the policy or provides funds for the purchase. You may be asked to renew your permission to share information every two years.

The act makes minor and technical changes to the following information that must be included in the disclosure:

1. there are possible alternatives to life settlement contracts, including accelerated death benefits, that the insurer may offer;

2. proceeds will be sent to the owner within three business days (prior law required two days) after the provider has received the insurer's or group administrator's acknowledgment that ownership of the policy or interest in the certificate has been transferred and the beneficiary has been designated in accordance with the life settlement contract terms;

3. receiving life settlement contract proceeds may adversely affect a person's eligibility for public assistance, or other government benefits or entitlements, and advice should be obtained from the appropriate agencies;

4. life settlement contract proceeds may be subject to creditors' claims;

5. entering into a life settlement contract may cause other rights or benefits, including conversion rights and waiver of premium benefits that may exist under the policy or certificate, to be forfeited and assistance should be sought from a financial advisor;

6. the provider or broker, or its authorized representative, may occasionally contact the insured to verify his or her health status or address, but not more than once every three months if life expectancy is over one year, and once per month if one year or less;

7. the commissioner requires delivery, during the contract solicitation process, of a buyer's guide, or a similar consumer advisory package, in a form he prescribes;

8. the affiliation, if any, between the provider and the insurer that issued the policy that is the subject of the settlement contract;

9. the provider's name, address, and telephone number; and

10. the independent third-party escrow agent's name, business address, and telephone number, and the fact that the owner may inspect or receive copies of the relevant escrow or trust agreements or documents.

Prior law required the disclosures to inform the owner that settlement contract proceeds may be taxable under federal income tax laws and assistance should be sought from a professional tax advisor. The act removes reference to federal law (i. e. , requires disclosure that proceeds may be taxable).

Prior law required the disclosure to inform the owner that he or she has a right to rescind the contract within 15 days after receiving the contract proceeds. The act changes the time period to 15 days after the date all parties sign the contract and the owner receives the required disclosures. It specifies that an owner's rescission is effective only if he or she (1) gives notice of it to the provider and (2) repays all proceeds and any premiums, loans, and loan interest the provider paid during the rescission period. Failure to provide written notice of the right of rescission delays the start of the rescission period to 30 days after the owner receives written notice of the right. As with prior law, if the insured dies within the rescission period, the contract is deemed rescinded subject to repayment of any proceeds, premiums, loans, and loan interest to the provider. The act specifies that it is the owner or the owner's estate that is responsible for the repayment.

The act requires that the following information also be included in the disclosures:

1. the amount and method of calculating compensation of a broker or other person working on the owner's behalf;

2. the date by which the funds will be available to the owner and the transmitter of them;

3. that the commissioner requires providers and brokers to print a separate, signed fraud warning on applications and life settlement contracts as follows: “Any person who knowingly presents false information in an application for insurance or life settlement contract is guilty of a crime and may be subject to fines and confinement in prison;

4. that a broker represents the owner exclusively, and not the insurer, the provider, or any other person, and owes a fiduciary duty to the owner, including a duty to act according to his or her instructions and in his or her best interest; and

5. that an ownership change could limit the insured's ability to purchase future insurance on his or her life because there is a limit to how much coverage insurers will issue on one life.

The act deletes a variety of items from the disclosure requirement, including, that (1) a provider may assign or otherwise transfer its interests in the policy to a third party and has 20 days to inform the insured of such a transaction, (2) that other people covered under the policy that is the subject of the settlement contract may lose their coverage, and (3) that the owner should consult with his or her insurance producer or insurer for advice on the possible settlement.

Additional Broker Disclosures

The act also requires a broker to give the owner and provider the following disclosures by the date all parties sign the life settlement contract. The disclosures must (1) be conspicuously displayed in the life settlement contract or in a separate document that the owner signs and (2) provide the following information:

1. the broker's name, business address, and telephone number;

2. a full, complete, and accurate description of all the offers, counter-offers, acceptances, and rejections relating to the proposed life settlement contract;

3. any affiliations or contractual arrangements between the broker and any person making an offer in connection with the proposed life settlement contract;

4. the name of each broker who receives compensation and the amount of compensation, which includes anything of value paid or given to the broker in connection with the life settlement contract;

5. a complete reconciliation of the provider's gross offer or bid, including commissions and fees, to the owner's net proceeds or value received, where “gross offer” or “bid” means the total amount or value the provider offered to purchase one or more life insurance policies, including commissions and fees; and

6. that the failure to provide the disclosures or rights described in this section is an unfair insurance practice under Connecticut law.

§ 8 — GENERAL RULES

Terminally or Chronically Ill

When entering into a life settlement contract with an owner of a policy that insures a terminally or chronically ill person, the provider must obtain certain documents.

By law, if the owner is also the insured under the policy, the provider must obtain a written statement from a licensed physician that the owner is of sound mind and under no undue influence to enter into the contract. The act also requires that the statement come from the owner's attending physician and include that the owner is also free from any constraint to enter the contract.

Similar to prior law, the act requires the provider to obtain a document in which the insured consents to the release of his or her medical records to (1) a provider, broker, or life insurance producer and (2) if the policy was issued less than two years (prior law specified 48 months) from the settlement contract application date, the insurer that issued the policy.

Owner Consent and Acknowledgment

By law, a provider must, before or when a life settlement contract is executed, obtain a witnessed document in which the owner (1) consents to the contract; (2) represents that he or she has a full and complete understanding of the policy's benefits; (3) acknowledges that he or she is entering into the contract freely and voluntarily; and (4) if the insured has a terminal or chronic illness or condition, that the illness or condition was diagnosed after the insurer issued the policy.

Coverage Verification

Prior law required an insurer to respond, within 30 calendar days, to a request for coverage verification on a commissioner-approved form. The act specifies that an insurer must respond within this timeframe to such requests from a provider, broker, or life insurance producer. The act requires the insurer to complete and issue the coverage verification or indicate why it is unable to respond. By law, the insurer's response must indicate whether, based on the medical evidence and documents provided, it intends to pursue an investigation regarding the policy's validity.

The act specifies that if a broker performs coverage verification “activities required of the provider,” then the provider is deemed to have fulfilled the act's requirements described in § 7, which enumerates required disclosures. (The connection between obtaining coverage verification and providing the required settlement contract disclosures is unclear. )

Notice to Insurer

Similar to prior law, the act requires a provider, within 20 days after an owner executes a life settlement contract, to give the insurer that issued the policy written notice that the policy has become subject to a life settlement contract. The notice must be sent with documents set forth under § 9 of the act (although it is unclear how this works since the referenced documents are (1) disclosures that an insurer may provide to a policy applicant and insured and (2) certifications an insurer may require from an applicant or insured). Prior law required the notice to be sent with a medical release and a copy of the owner's settlement application.

Transfer of Proceeds

The act increases the time a provider has to transfer settlement proceeds into escrow or a trust account. It requires the provider, within three (instead of two) business days of receiving the documents from the owner, to effect the policy transfer, to pay or transfer the settlement proceeds into an escrow or trust account in a state or federally chartered financial institution whose deposits are insured by the Federal Deposit Insurance Corporation.

The act requires the trustee or escrow agent, within three business days after receiving an acknowledgment from the insurer that the insurance policy has been transferred, to pay the settlement proceeds to the owner. Failure to tender the life settlement contract proceeds to the owner on time renders the settlement contract voidable by the owner for lack of consideration until the time payment is made to, and accepted by, the owner.

Tax Consequences

Prior law exempted settlement contract proceeds from state taxes. The act deletes this exemption. Thus, it subjects the proceeds to state taxation.

Broker Compensation

The act requires the fee a provider, party, individual, or owner pays to a broker in exchange for services to the owner regarding a life settlement contract to be computed as a percentage of the contract offer received and not as a percentage of the policy's face value. The act specifies that it does not prohibit a broker from reducing his or her fee below that percentage.

A broker must disclose to the owner anything of value paid or given to him or her in connection with a life settlement contract involving the owner.

Prohibition on Entering Settlement Contract

Prior law prohibited a person from entering into a viatical settlement contract within two years of purchasing a life insurance contract, unless certain conditions were met. The act instead prohibits a person from entering into a life settlement contract before, when, or within two years of purchasing a life insurance policy, regardless of when (1) compensation is to be paid or (2) the policy assignment, transfer, sale, devise, bequest, or surrender is to occur.

Similar to prior law, the prohibition does not apply if the owner certifies to the provider that the policy was converted, at his or her request, to an individual policy under a group policy conversion right, as long as he or she was insured under both policies for at least 24 months. The 24-month period is to be calculated without regard to a change in insurance carriers for the group policy, provided the coverage has been continuous and under the same group sponsorship.

As with prior law, the prohibition also does not apply if the owner submits independent evidence to the provider that, within the 24 months, the owner or insured (1) became terminally or chronically ill or (2) has disposed of his or her interests in a closely held corporation under the terms of a buyout or other similar agreement in effect when the insurance policy was initially issued.

The act expands upon prior law by specifying that the prohibition also does not apply if any of the following occurs within the 24 months and the owner submits independent evidence of that occurrence:

1. the owner's spouse dies;

2. the owner divorces;

3. the owner retires from full-time employment;

4. the owner becomes physically or mentally disabled and a physician determines that the disability prevents the owner from maintaining full-time employment; or

5. a court of competent jurisdiction enters a final order, judgment, or decree, on an application of the owner's creditor finding the owner bankrupt or insolvent or approving a petition for the owner's reorganization or an appointment of a receiver, trustee, or liquidator to all or a substantial part of the owner's assets.

As with prior law, the provider must submit the independent evidence to the insurer when requesting coverage verification and give the insurer a letter attesting that the documents submitted are true and correct copies of those he or she received. The act does not prohibit an insurer from exercising its right to contest a policy's validity.

By law, if the provider, when requesting an insurer to transfer the policy, submits a copy of the independent evidence, the act deems that the settlement contract meets the prohibition and exception requirements.

§ 9 — REQUIREMENTS WHEN INSURER ISSUES LIFE INSURANCE

When a person applies for life insurance, the act permits the insurer, in addition to other questions it may pose to the applicant, to ask if he or she intends to pay premiums by taking out a premium financing loan for which the lender will use the policy as collateral.

The act requires an insurer to reject the application if the applicant plans to use premium financing and the loan provides funds that can be used for a purpose other than paying for the premiums and financing costs, as that constitutes a prohibited practice under the act.

If the premium financing does not constitute a prohibited practice, the insurer may make the following disclosure to the applicant and the insured, in the application or an application amendment completed before the policy is delivered:

If you have entered into a loan arrangement where the policy is used as collateral and the policy does change ownership at some point in the future in satisfaction of the loan, the following may be true: (a) A change of ownership could lead to a stranger owning an interest in the insured's life; (b) a change of ownership could limit your ability to purchase future insurance on the insured's life because there is a limit to how much coverage insurers will issue on one life; (c) should there be a change of ownership and you wish to obtain more insurance coverage on the insured's life in the future, the insured's higher issue age, a change in health status or other factors may reduce the ability to obtain coverage or may result in significantly higher premiums; and (d) you should consult a professional advisor, since a change in ownership in satisfaction of the loan may result in tax consequences to the owner, depending on the structure of the loan.

The insurer also may require the applicant or the insured to certify that (1) he or she has not entered into any agreement or arrangement providing for the future sale of the life insurance policy; (2) the loan arrangement for the policy provides sufficient funds to pay some or all of the premiums and financing costs, and he or she has not entered into any agreement for consideration in exchange for obtaining the policy; and (3) the borrower has an insurable interest in the insured.

The act eliminates some provisions, including that an investor in a settlement contract is prohibited from influencing an insured person's medical treatment.

§ 10 — PROHIBITED PRACTICES

The act identifies prohibited practices and specifies that committing any of them constitutes a “fraudulent life settlement act” (see § 11). Under the act, it is a violation for any person to:

1. enter into a life settlement contract if he or she knows, or reasonably should have known, that the life insurance policy was obtained using a false, deceptive, or misleading application;

2. engage in any transaction, practice, or course of business if he or she knows, or reasonably should have known, that the intent was to avoid the act's notice requirements;

3. engage in any fraudulent act or practice in connection with any settlement transaction involving an owner who is a Connecticut resident;

4. issue, solicit, market, or otherwise promote a life insurance policy purchase for the purpose of, or with the emphasis on, entering a life settlement contract with it; or

5. if providing premium financing, receive any proceeds, fees, or other consideration from the policy or policy owner that exceed the principal, interest, and reasonable costs and expenses that the lender or borrower incurs in connection with the premium financing agreement. But the act permits a person providing premium financing to receive more than these amounts in the case of a default on the premium finance loan as long as the default, or a policy transfer related to it, is not the result of an agreement or understanding with someone else to avoid the act's requirements. The act requires a person who receives amounts in violation of this provision to pay them to the original policy owner or, if the owner is deceased when the overpayment is discovered, his or her estate.

It is a violation for a broker to knowingly solicit an offer from, effect a life settlement contract with, or make a sale to, any provider, financing entity, or related provider trust that is controlling, controlled by, or under common control with the broker, unless the broker discloses the relationship to the owner.

It is a violation for a provider to (1) knowingly enter into a life settlement contract with an owner if anything of value will be paid to a broker that is controlling, controlled by, or under common control with the provider, financing entity, or provider trust involved in the settlement contract, unless the provider discloses the relationship to the owner or (2) enter into a life settlement contract unless the life settlement promotional, advertising, and marketing material have been filed with the commissioner.

In addition, it is a violation for any life insurance producer, insurer, broker, or provider to make any statement or representation to the applicant or policyholder in connection with the sale or financing of a life insurance policy that the insurance is free or without cost for any period of time unless the policy says this.

§ 11 –— FRAUDULENT LIFE SETTLEMENT ACTS

The act prohibits anyone from committing fraudulent life settlement acts, which includes acts or omissions a person commits, knowingly and with intent to defraud, to deprive another of property or for pecuniary gain, or permits employees or agents to engage in, acts including: (1) presenting, causing to be presented, or preparing false material information with knowledge and belief that it will be presented to or by a provider, premium finance lender, broker, insurer, insurance producer, or any other person or (2) concealing material information as part of, in support of, or concerning, a fact material to one or more of the following:

1. an application or claim for, or underwriting of, a payment or benefit under a life settlement contract or insurance policy;

2. premiums paid on an insurance policy;

3. payments and ownership or beneficiary changes for a life settlement contract or insurance policy;

4. an insurance policy's reinstatement or conversion;

5. in the solicitation, offer to enter into or effect a life settlement contract or insurance policy;

6. issuing written evidence of a life settlement contract or insurance policy;

7. any application for, or the existence of, any payments related to a loan secured directly or indirectly by a life insurance policy; or

8. entering into any practice or plan that involves STOLI.

It is also a fraudulent life settlement act to:

1. not disclose, when an insurer asks for disclosure, that the prospective insured has undergone a life expectancy evaluation by any person or entity, other than the insurer or its authorized representative, in connection with issuing a policy;

2. employ any device, scheme, or artifice to defraud in the life settlement business; or

3. solicit, apply for, or issue a policy or employ any device, scheme, or artifice in violation of Connecticut's insurable interest laws.

When done to commit fraud or prevent its detection, it is a fraudulent life settlement act to, or permit others to:

1. remove, conceal, alter, destroy, or sequester from the commissioner the assets or records of a licensee or other person engaged in the life settlement business;

2. misrepresent or conceal a licensee's, financing entity's, insurer's, or other person's financial condition;

3. transact life settlement business in violation of laws requiring a license, certificate of authority, or other legal authority;

4. file with the commissioner a document containing false information or otherwise conceal information about a material fact from him;

5. engage in embezzlement, theft, misappropriation, or conversion of money, funds, premiums, credits, or other property of a provider, insurer, insured, owner, policy owner, or any other person engaged in the life settlement or insurance business;

6. knowingly and with intent to defraud, enter into, broker, or otherwise deal in a life settlement contract, the subject of which is a life insurance policy that was obtained by presenting false information concerning any fact material to the policy or by concealing, for the purpose of misleading another, information concerning any fact material to the policy, where the owner or the owner's agent intended to defraud the policy's issuer;

7. attempt to commit, assist, aid, or abet in the commission of, or conspire to commit, the acts or omissions specified in the act; or

8. misrepresent an owner's state of residence to evade or avoid the act's provisions.

The act prohibits a person from (1) knowingly or intentionally interfering with the act's enforcement or investigations of suspected or actual violations of it and (2) knowingly or intentionally permitting any person convicted of a felony involving dishonesty or breach of trust to participate in the life settlement business.

Providers and brokers must print the following fraud warning on applications and life settlement contracts: “Any person who knowingly presents false information in an application for insurance or life settlement contract is guilty of a crime and may be subject to fines and confinement in prison. ” Not having the required fraud warning on applications and contracts is not a defense in any prosecution for a fraudulent life settlement act. (See § 13 for the penalties associated with a fraudulent life settlement act. )

Reporting Fraud, Qualified Immunity

The act requires any person, whether or not he or she is engaged in the life settlement business, who has knowledge or a reasonable belief that a fraudulent life settlement act is being, will be, or has been committed to provide the commissioner the information he requires and in a manner he prescribes.

The act grants civil immunity to a person who reports (1) suspected, anticipated, or completed fraudulent life settlement acts or (2) suspected or completed fraudulent insurance acts, if the reported information is provided to or received from:

1. the commissioner or his employees, agents, or representatives;

2. federal, state, or local law enforcement or regulatory officials, or their employees, agents, or representatives;

3. a person involved in preventing and detecting fraudulent life settlement acts, or that person's agents, employees, or representatives;

4. any regulatory body, or its employees, agents, or representatives, overseeing life insurance, life settlements, securities, or investment fraud;

5. the life insurer that issued the life insurance policy covering the insured; or

6. the licensee or its agents, employees, or representatives.

A person does not receive immunity for making statements with actual malice.

In an action brought against a person for filing a report of, or furnishing other information concerning, a fraudulent life settlement act or a fraudulent insurance act, the party bringing the action must plead specifically any allegation that immunity does not apply because the person reporting the information did so with actual malice.

A person granted immunity is entitled to attorney's fees and costs if (1) he or she prevails in a civil lawsuit for libel, slander, or any other relevant tort arising out of his or her activities and (2) the party bringing the action was not substantially justified in doing so. A proceeding is “substantially justified” if it had a reasonable basis in law or fact when it was initiated.

The act does not abridge or modify a person's common law or statutory privileges or immunities.

The documents and evidence provided to, or obtained by, the commissioner in an investigation of suspected or actual fraudulent life settlement acts are (1) privileged and confidential, (2) not public records, and (3) not subject to discovery or subpoena in a civil or criminal action. The commissioner may release the information:

1. in administrative or judicial proceedings to enforce laws he administers;

2. to federal, state, or local law enforcement or regulatory agencies;

3. to an organization established to detect and prevent fraudulent life settlement acts;

4. to the National Association of Insurance Commissioners; or

5. at his discretion, to a person in the life settlement business aggrieved by a fraudulent life settlement act.

The commissioner's release of documents and evidence does not reduce or modify a person's granted immunity.

The act specifies that it does not:

1. preempt the authority or relieve the duty of other law enforcement or regulatory agencies to investigate, examine, and prosecute suspected violations of law;

2. preempt, supersede, or limit any provision of any state securities law or any related rule, order, or notice;

3. prevent or prohibit a person from voluntarily disclosing information concerning life settlement fraud to a law enforcement or regulatory agency other than the Insurance Department; or

4. limit the other powers Connecticut law grants the commissioner or an insurance fraud unit to investigate and examine possible law violations and to take appropriate action against wrongdoers.

§ 12 — INJUNCTIONS, CEASE AND DESIST ORDERS, DAMAGES

If a person violates the act's provisions, the commissioner, in addition to any other penalties that may apply, may seek an injunction in court and apply for temporary and permanent orders he thinks are necessary to stop the person from committing further violations.

Anyone harmed by a person's actions in violation of the act, or related regulations, may sue the person for damages.

Cease and Desist Orders

Under the act, the commissioner may issue a cease and desist order to a person violating its provisions, a regulation, an order, or a written agreement entered into with him.

When the commissioner finds that a violation of the act's provisions is an immediate danger to the public, he may issue an emergency cease and desist order that specifies the particular facts underlying his findings. The emergency cease and desist order is effective immediately upon service and remains effective for 90 days from the date of service. If the commissioner begins nonemergency cease and desist proceedings, the emergency cease and desist order remains effective, absent a court order.

Damages for Willful Violation

A court, in the event of a willful violation, may award statutory damages, in addition to actual damages, in an amount up to three times the actual damage award.

No Waiver

These provisions cannot be waived by agreement and no choice of law provision can be used to avoid the act's application to any settlement contract involving a Connecticut resident.

§§ 13 & 21 — PENALTIES

A person who commits a fraudulent life settlement act or otherwise violates the act is (1) guilty of insurance fraud and (2) subject to any additional penalties under law. Insurance fraud is a class D felony (see Table on Penalties).

The act authorizes the commissioner to impose a civil penalty of up to $100,000 and the amount of the claim for each violation against a person found to have committed a fraudulent life settlement act or otherwise violated the act.

The act requires the commissioner to revoke, for at least one year, the license of a person licensed under the act who commits a fraudulent life settlement.

The act makes a violation of its provisions a violation of the Connecticut unfair insurance practice act and, thus, subjects a person to the penalties under that law.

§ 14 — REGULATIONS

By law, the commissioner is authorized to adopt regulations to implement the law. Prior law specified that the regulations could establish standards for evaluating the reasonableness of payments under settlement contracts involving terminally or chronically ill people. The act removes the limiting factor and instead permits the regulations to establish standards for evaluating the reasonableness of payments under life settlement contracts generally.

By law, the regulations may also address:

1. discount rates used to determine the amount paid in exchange for the assignment, transfer, sale, devise, or bequest of a benefit under a life insurance policy;

2. appropriate licensing requirements and standards for continued licensure for providers and brokers;

3. bond requirements or other mechanisms for a provider's and broker's financial accountability; and

4. rules governing the relationship and responsibilities of providers, brokers, insurers, and their agents.

§ 14 — MULTIPLE POLICY OWNERS, OUT-OF-STATE RESIDENTS

If there is more than one owner on a single policy and the owners are residents of different states, the life settlement contract must be governed by the law of the state (1) in which the owner having the largest percentage ownership lives or (2) of one owner that all owners agree to in writing if the owners hold equal ownership. If equal owners do not agree in writing on a state of residence for jurisdictional purposes, the law of the state of the person insured under the policy governs.

When a provider in Connecticut enters into a life settlement contract with an out-of-state owner whose state has statutes or regulations governing life settlement contracts, the statutes and regulations of the owner's state of residence must govern the contract. If the state in which the owner lives does not have statutes or regulations governing life settlement contracts, the provider must give notice to the owner that neither Connecticut nor his or her state regulates the transaction, except that, if the transactions were executed in the owner's state of residence, the provider must maintain all records as that state requires. The forms used in states without life settlement laws or regulations do not need the commissioner's approval.

If there is a conflict in the laws that apply to an owner and a provider in any transaction, the laws of the state that apply to the owner take precedence and the provider must comply with them.

BACKGROUND

Connecticut Unfair Insurance Practice Act (CUIPA)

The law authorizes the commissioner to issue cease and desist orders to anyone engaged in unfair methods of competition or unfair or deceptive acts or practices.

Under prior law, he could issue fines, in addition to, or in lieu of, a revocation or suspension of a violator's license and restitution, of up to (1) $1,000 per violation to a $10,000 maximum or (2) $5,000 per violation to a $50,000 maximum in any six-month period for knowingly committing a violation. The law also imposed a fine of up to $10,000, in addition to or in lieu of a license suspension or revocation, for violating a cease and desist order.

PA 08-178 (§ 39) increases the fines effective October 1, 2008 to up to (1) $5,000 per violation to a $50,000 maximum, or (2) $25,000 per violation, to a $250,000 maximum in any six-month period for knowingly committing a violation. It increases the fine to up to $50,000 for violating a cease and desist order.

OLR Tracking: JLK: KM: JL: dw