PRINTER'S NO. 1275
No. 1127 Session of 1999
INTRODUCED BY ROONEY, THOMAS, BELFANTI, BUNT, M. COHEN, COLAFELLA, GEORGE, GRUCELA, JAMES, MAHER, MELIO, MICHLOVIC, NICKOL, ORIE, RAMOS, SATHER, SCRIMENTI, SERAFINI, SEYFERT, SHANER, STABACK, STEELMAN, TRELLO, WALKO AND WOJNAROSKI, MARCH 29, 1999
REFERRED TO COMMITTEE ON INSURANCE, MARCH 29, 1999
AN ACT 1 Providing for viatical settlements and for powers and duties of 2 the Insurance Department. 3 The General Assembly of the Commonwealth of Pennsylvania 4 hereby enacts as follows: 5 Section 1. Short title. 6 This act shall be known and may be cited as the Viatical 7 Settlements Act. 8 Section 2. Definitions. 9 The following words and phrases when used in this act shall 10 have the meanings given to them in this section unless the 11 context clearly indicates otherwise: 12 "Commissioner." The Insurance Commissioner of the 13 Commonwealth. 14 "Department." The Insurance Department of the Commonwealth. 15 "Financing entity." An underwriter, placement agent, lender, 16 purchaser of securities, purchaser of a policy or certificate
1 from a viatical settlement provider, credit enhancer or any 2 person that may be a party to a viatical settlement contract and 3 that has a direct ownership in a policy or certificate that is 4 the subject of a viatical settlement contract but whose sole 5 activity related to the transaction is providing funds to effect 6 the viatical settlement and who has an agreement in writing with 7 a licensed viatical settlement provider to act as a participant 8 in a financing transaction. 9 "Financing transaction." A transaction in which a licensed 10 viatical settlement provider or a financing entity obtains 11 financing for viatical settlement contracts, viaticated policies 12 or interest therein, including, without limitation, any secured 13 or unsecured financing, any securitization transaction or any 14 securities offering either registered or exempt from 15 registration under Federal and State securities law or any 16 direct purchase or interests in a policy or certificate if the 17 financing transaction complies with Federal and State securities 18 law. 19 "Person." A legal entity, including, but not limited to, an 20 individual, partnership, limited liability company, association, 21 trust, corporation or other legal entity. 22 "Viatical settlement broker." A person who on behalf of a 23 viator and for a fee, commission or other valuable consideration 24 offers or attempts to negotiate viatical settlements between a 25 viator and one or more viatical settlement providers. 26 Irrespective of the manner in which the viatical settlement 27 broker is compensated, a viatical settlement broker is deemed to 28 represent only the viator and owes a fiduciary duty to the 29 viator to act according to the viator's instructions and in the 30 best interest of the viator. The term does not include an 19990H1127B1275 - 2 -
1 attorney, accountant or financial planner retained to represent 2 the viator whose compensation is paid directly by or at the 3 direction of the viator. 4 "Viatical settlement contract." A written agreement entered 5 into between a viatical settlement provider and a viator. The 6 agreement shall establish the terms under which the viatical 7 settlement provider will pay compensation or anything of value, 8 which compensation or value is less than the expected death 9 benefit of the insurance policy or certificate, in return for 10 the viator's assignment, transfer, sale, devise or bequest of 11 the death benefit or ownership of all or a portion of the 12 insurance policy or certificate of insurance to the viatical 13 settlement provider. The term also includes a contract for a 14 loan or other financial transaction secured primarily by an 15 individual or group life insurance policy, other than a loan by 16 a life insurance company pursuant to the terms of the life 17 insurance contract, or a loan secured by the cash value of a 18 policy. 19 "Viatical settlement provider." A person, other than a 20 viator, who enters into a viatical settlement contract. The term 21 shall include a person who obtains financing from a financing 22 entity for the purchase, acquisition, transfer or other 23 assignment of one or more viatical settlement contracts, 24 viaticated policies or interest therein or otherwise sells, 25 assigns, transfers, pledges, hypothecates or otherwise disposes 26 of one or more viatical settlement contracts, viaticated 27 policies or interests therein. The term shall not include: 28 (1) a bank, savings bank, savings and loan association, 29 credit union or other licensed lending institution that takes 30 an assignment of a life insurance policy as collateral for a 19990H1127B1275 - 3 -
1 loan; 2 (2) the issuer of a life insurance policy providing 3 accelerated death benefits pursuant to the contract; or 4 (3) a natural person who enters into no more than one 5 agreement in a calendar year for the transfer of life 6 insurance policies for any value less than the expected death 7 benefit. 8 "Viatical settlement representative." A person who is an 9 authorized agent of a licensed viatical settlement provider or 10 viatical settlement broker, as applicable, who acts or aids in 11 any manner in the solicitation of a viatical settlement. The 12 term shall not include: 13 (1) an attorney, accountant or a person exercising a 14 power of attorney granted by a viator; or 15 (2) a person who is retained to represent a viator and 16 whose compensation is paid by or at the direction of the 17 viator regardless of whether the viatical settlement is 18 consummated. 19 A viatical settlement representative is deemed to represent only 20 the viatical settlement provider or viatical settlement broker. 21 "Viaticated policy." A life insurance policy or certificate 22 that has been acquired by a viatical settlement provider 23 pursuant to a viatical settlement contract. 24 "Viator." The owner of a life insurance policy or a 25 certificate holder under a group policy insuring the life of an 26 individual with a catastrophic, life-threatening or chronic 27 illness or condition who enters or seeks to enter into a 28 viatical settlement contract. 29 Section 3. License requirements. 30 (a) General rule.--No person may operate as a viatical 19990H1127B1275 - 4 -
1 settlement provider, viatical settlement representative or 2 viatical settlement broker without first obtaining a license 3 from the department. 4 (b) Application.--Application for a viatical settlement 5 provider, viatical settlement representative or viatical 6 settlement broker license shall be made to the commissioner by 7 the applicant on a form prescribed by the department and shall 8 be accompanied by an application fee as determined by the 9 department. 10 (c) Renewal.--A license issued under this section may be 11 renewed biennially upon payment of a renewal fee as determined 12 by the department. Failure to pay the fee or submit the renewal 13 form within the terms prescribed by the department shall be 14 deemed voluntary termination of the license. 15 (d) Full disclosure.--The applicant shall provide 16 information on forms required by the commissioner. The 17 commissioner may, at any time, require the applicant to fully 18 disclose the identity of all stockholders, partners, officers, 19 members and employees, and the commissioner may, in the 20 commissioner's discretion, refuse to issue a license in the name 21 of a legal entity if not satisfied that any officer, employee, 22 stockholder, partner or member thereof who may materially 23 influence the applicant's conduct meets the standards set forth 24 in this act. 25 (e) Authorization.--A license issued to a legal entity 26 authorizes all members, officers and designated employees of the 27 legal entity to act as viatical settlement providers, viatical 28 settlement brokers or viatical settlement representatives as 29 applicable under the license and those persons shall be named in 30 the application and any supplements to the application. 19990H1127B1275 - 5 -
1 (f) Investigation.--Upon the filing of an application and 2 the payment of the license fee, the commissioner shall make an 3 investigation of each applicant and issue a license if the 4 commissioner finds that the applicant: 5 (1) Has provided a detailed plan of operation. 6 (2) Is competent and trustworthy and intends to act in 7 good faith in the capacity involved by the license applied 8 for. 9 (3) Has a good business reputation and has had 10 experience, training or education so as to be qualified in 11 the business for which the license is applied for. 12 (4) If a legal entity, provides a certificate of good 13 standing from the state of its domicile. 14 (g) Hearing.--An applicant who disputes the department's 15 determination concerning licensure may seek a formal 16 administrative hearing before the commissioner under 2 Pa.C.S. 17 Ch. 5 Subch. A (relating to practice and procedure of 18 Commonwealth agencies) and subject to review and appeal in 19 accordance with 2 Pa.C.S. Ch. 7 Subch. A (relating to judicial 20 review of Commonwealth agency action). 21 (h) Nonresident applicant.--The department may not issue a 22 license to a nonresident applicant unless a written designation 23 of an agent for service of process is filed with and maintained 24 by the department. 25 Section 4. License suspension, revocation and denial. 26 The department may suspend, revoke or refuse to renew the 27 license of a viatical settlement provider, viatical settlement 28 representative or viatical settlement broker if the department 29 finds that: 30 (1) there was any material misrepresentation in the 19990H1127B1275 - 6 -
1 application for the license; 2 (2) the licensee or any officer, partner, member or key 3 management personnel of the licensee has been convicted of 4 fraudulent or dishonest practices, is subject to a final 5 administrative action or is otherwise shown to be 6 untrustworthy or incompetent; 7 (3) the viatical settlement provider demonstrates a 8 pattern of unreasonable payments to viators; 9 (4) the licensee has been found guilty of or has pleaded 10 guilty or nolo contendere to any felony or to a misdemeanor 11 involving fraud or moral turpitude, regardless of whether a 12 judgment of conviction has been entered by the court; 13 (5) the viatical settlement provider has entered into 14 any viatical settlement contract that has not been approved 15 under this act; 16 (6) the viatical settlement provider has failed to honor 17 contractual obligations set out in a viatical settlement 18 contract; 19 (7) the licensee no longer meets the requirements for 20 initial licensure; 21 (8) the viatical settlement provider has assigned, 22 transferred or pledged a viaticated policy to a person other 23 than a viatical settlement provider licensed in this 24 Commonwealth or a financing entity; or 25 (9) The licensee has violated any provision of this act 26 or any regulations promulgated by the department. 27 Section 5. Approval of viatical settlement contracts. 28 (a) General rule.--Any viatical settlement contract proposed 29 to be used by viatical settlement providers in this Commonwealth 30 shall be filed for review with the department. Unless 19990H1127B1275 - 7 -
1 disapproved within 45 days of receipt by the department, the 2 filing shall be effective for use. 3 (b) Disapproval after use.--Any viatical settlement contract 4 approved or effective for use in accordance with subsection (a) 5 may be subsequently disapproved by the department. The 6 department shall notify the viatical settlement provider in 7 writing and provide the opportunity for a hearing as provided in 8 2 Pa.C.S. Ch. 5 Subch. A (relating to practice and procedure of 9 Commonwealth agencies) and Ch. 7 Subch. A (relating to judicial 10 review of Commonwealth agency action). 11 (c) Discontinuance of contract.--If following a hearing the 12 commissioner finds that a viatical settlement contract should be 13 disapproved, the commissioner shall order the use of the 14 contract to be discontinued after a date specified in the order. 15 Section 6. Reporting requirements and confidentiality. 16 (a) General rule.--Each viatical settlement provider shall 17 file with the department on or before March 1 of each year an 18 annual statement containing such information as the commissioner 19 by rule may prescribe. 20 (b) Confidentiality.--Except as otherwise allowed or 21 required by law, a viatical settlement provider, viatical 22 settlement representative, viatical settlement broker, insurance 23 company, insurance agent, insurance broker, information bureau, 24 rating agency or company or any other person with actual 25 knowledge of a viator's identity may not disclose that identity 26 as a viator to any other person unless the disclosure: 27 (1) is necessary to effect a viatical settlement between 28 the viator and a viatical settlement provider and the viator 29 has provided prior written consent to the disclosure; 30 (2) is provided in response to an investigation by the 19990H1127B1275 - 8 -
1 commissioner or any other governmental officer or agency; or 2 (3) is a term of or condition to the transfer of a 3 viaticated policy by one viatical settlement provider to 4 another viatical settlement provider or financing entity. 5 (4) Is made by an insurance company in the course of its 6 business, including, without being limited to, activities 7 such as reinsurance transactions, sales or mergers of the 8 insurance company or one or more of its books of business, 9 handling and investigation of claims and conduct of all legal 10 proceedings connected with them, underwriting, litigation and 11 market conduct investigations. 12 Section 7. Examination. 13 (a) General rule.--The department may, when the department 14 deems it reasonably necessary to protect the interests of the 15 public, examine the business and affairs of any licensee or 16 applicant for a license. The department may order any licensee 17 or applicant to produce any records, books, files or other 18 information reasonably necessary to ascertain whether or not the 19 licensee or applicant is acting or has acted in violation of the 20 law or otherwise contrary to the interests of the public. The 21 expenses incurred in conducting any examination shall be paid by 22 the licensee or applicant. 23 (b) Confidentiality.--The names and individual 24 identification data for all viators shall be considered private 25 and confidential information and may not be disclosed by the 26 department unless required by law. 27 (c) Records.--Records of all transactions of viatical 28 settlement contracts shall be maintained by the viatical 29 settlement provider and shall be available to the department for 30 inspection and duplication during reasonable business hours. A 19990H1127B1275 - 9 -
1 viatical settlement provider shall maintain records of each 2 viatical settlement until five years after the death of the 3 insured. 4 Section 8. Disclosure. 5 (a) General rule.--A viatical settlement provider, viatical 6 settlement representative or viatical settlement broker shall 7 disclose the following information to the viator no later than 8 the time of application: 9 (1) Possible alternatives to viatical settlement 10 contracts for individuals with catastrophic, life-threatening 11 or chronic illnesses, including any accelerated death 12 benefits offered under the viator's life insurance policy. 13 (2) Some or all of the proceeds of the viatical 14 settlement may be free from Federal income tax and from State 15 franchise and income taxes, and that assistance should be 16 sought from a professional tax advisor. 17 (3) Proceeds of the viatical settlement may be subject 18 to the claims of creditors. 19 (4) Receipt of the proceeds of a viatical settlement may 20 adversely affect the viator's eligibility for Medicaid or 21 other government benefits or entitlements, and that advice 22 should be obtained from the appropriate government agencies. 23 (5) The viator's right to rescind a viatical settlement 24 contract 15 days after the receipt of the viatical settlement 25 proceeds by the viator, as provided in section 9(c). 26 (6) Funds will be sent to the viator within two business 27 days after the viatical settlement provider has received the 28 insurer or group administrator's acknowledgment that 29 ownership of the policy or interest in the certificate has 30 been transferred and the beneficiary has been designated 19990H1127B1275 - 10 -
1 pursuant to the viatical settlement contract. 2 (7) Entering into a viatical settlement contract may 3 cause other rights or benefits, including conversion rights 4 and waiver of premium benefits that may exist under the 5 policy or certificate, to be forfeited by the viator and that 6 assistance should be sought from a financial advisor. 7 (b) Disclosure by viatical settlement provider.--A viatical 8 settlement provider shall disclose the following information to 9 the viator prior to the date the viatical settlement contract is 10 signed by all parties: 11 (1) The affiliation, if any, between the viatical 12 settlement provider and the issuer of an insurance policy to 13 be viaticated. 14 (2) If an insurance policy to be viaticated has been 15 issued as a joint policy or involves family riders or any 16 coverage of a life other than the insured under the policy to 17 be viaticated, the viator shall be informed of the possible 18 loss of coverage on the other lives and be advised to consult 19 with his or her insurance producer or the company issuing the 20 policy for advice on the proposed viatication. 21 (3) The dollar amount of the current death benefit 22 payable to the viatical settlement provider under the policy 23 or certificate. 24 (4) The availability of any additional guaranteed 25 insurance benefits, the dollar amount of any accidental death 26 and dismemberment benefits under the policy or certificate 27 and the viatical settlement provider's interest in those 28 benefits. 29 Section 9. Guidelines. 30 (a) General rule.--A viatical settlement provider entering 19990H1127B1275 - 11 -
1 into a viatical settlement contract shall first obtain: 2 (1) If the viator is the insured, a written statement 3 from a licensed attending physician that the viator is of 4 sound mind and under no constraint or undue influence to 5 enter into a viatical settlement contract. 6 (2) A witnessed document: 7 (i) in which the viator consents to the viatical 8 settlement contract; 9 (ii) acknowledges that the insured has a 10 catastrophic, life-threatening or chronic illness or 11 condition; 12 (iii) represents that the viator has a full and 13 complete understanding of the viatical settlement 14 contract, that he has a full and complete understanding 15 of the benefits of the life insurance policy; and 16 (iv) acknowledges that the viator has entered into 17 the viatical settlement contract freely and voluntarily. 18 (3) A document in which the insured consents to the 19 release of his medical records to a viatical settlement 20 provider or viatical settlement broker. 21 (b) Medical records.--All medical information solicited or 22 obtained by a licensee shall be subject to the applicable 23 provision of State law relating to confidentiality of medical 24 information. 25 (c) Rescission.--Each viatical settlement contract entered 26 into in this Commonwealth shall provide the viator with an 27 unconditional right to rescind the contract for at least 15 28 calendar days from the receipt of the viatical settlement 29 proceeds. If the insured dies during the rescission period, the 30 viatical settlement contract shall be deemed to have been 19990H1127B1275 - 12 -
1 rescinded subject to repayment to the viatical settlement 2 provider of all viatical settlement proceeds. 3 (d) Transfer of proceeds.--Immediately upon the viatical 4 settlement provider's receipt of documents to effect the 5 transfer of the insurance policy, the viatical settlement 6 provider shall pay the proceeds of the viatical settlement to an 7 escrow or trust account in a federally chartered or State- 8 chartered financial institution whose deposits are insured by 9 the Federal Deposit Insurance Corporation (FDIC). The account 10 shall be managed by a trustee or escrow agent independent of the 11 parties to the contract. The trustee or escrow agent shall 12 transfer the proceeds to the viator immediately upon the 13 viatical settlement provider's receipt of acknowledgment of the 14 transfer of the insurance policy. 15 (e) Deadline.--Failure to tender consideration to the viator 16 for the viatical settlement contract within the time disclosed 17 pursuant to section 8(a)(6) renders the viatical settlement 18 contract voidable by the viator for lack of consideration until 19 the time consideration is tendered to and accepted by the 20 viator. 21 (f) Commissions.--No viatical settlement broker or viatical 22 settlement representative shall receive from a viatical 23 settlement provider a fee, commission or other valuable 24 consideration for services rendered to or in connection with 25 viators resident in this Commonwealth unless the viatical 26 settlement provider is licensed in this Commonwealth. 27 (g) Health status.-- 28 (1) Contacts with an insured for the purpose of 29 determining the health status of the insured by the viatical 30 settlement provider, viatical settlement broker or viatical 19990H1127B1275 - 13 -
1 settlement representative after the viatical settlement has 2 occurred may only be made by the viatical settlement provider 3 or broker licensed in this Commonwealth and shall be limited 4 to once every three months for insureds with a life 5 expectancy of more than one year, and to no more than one per 6 month for insureds with a life expectancy of one year or 7 less. 8 (2) The provider or broker shall explain the procedure 9 for these contacts at the time the viatical settlement 10 contract is entered into. 11 (3) The limitations set forth in this subsection shall 12 not apply to any contact with an insured under a viaticated 13 policy for reasons other than determining the insured's 14 health status. 15 (h) Prohibition.--No person who invests in a viaticated 16 policy, including, but not limited to, a participant in a 17 financing transaction, may influence the treatment of the 18 insured's illness. 19 Section 10. Responsibility of department. 20 The commissioner shall: 21 (1) Promulgate regulations implementing this act. 22 (2) Establish standards for evaluating reasonableness of 23 payments under viatical settlement contracts, including, but 24 not limited to, regulation of the amount paid in exchange for 25 assignment, transfer, sale, devise or bequest of a benefit 26 under a life insurance policy. 27 (3) Establish appropriate licensing requirements, fees 28 and standards for continued licensure for viatical settlement 29 providers, representatives and brokers. 30 (4) Require a bond or other mechanism for financial 19990H1127B1275 - 14 -
1 accountability for viatical settlement providers. 2 (5) Adopt rules governing the relationship and 3 responsibilities of both insurers and viatical settlement 4 providers, brokers and representatives during the viatication 5 of a life insurance policy or certificate. 6 Section 11. Miscellaneous provisions. 7 (a) State aid.--A person may not be required as a condition 8 of eligibility for State aid to exercise a viatical settlement 9 or be denied or suffer a reduction in aid as a result of not 10 entering into a viatical settlement. 11 (b) Available resource.--Aid agencies or programs may not 12 consider viatical benefits as an available resource in 13 determining eligibility for public assistance. 14 (c) Income.--A viatical settlement shall not be included in 15 any of the class of taxable income enumerated in Article III of 16 the act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform 17 Code of 1971, to determine the tax liability of the viator as 18 defined in this act. 19 Section 12. Unfair trade practices. 20 A violation of this act shall be considered an unfair trade 21 practice and shall be subject to all Commonwealth statutes which 22 address unfair trade practices, including the act of July 22, 23 1974 (P.L.589, No.205), known as the Unfair Insurance Practices 24 Act. 25 Section 13. Enforcement. 26 (a) General rule.--Upon a determination by hearing that this 27 act or any regulations promulgated by the department pursuant to 28 this act have been violated, the commissioner may pursue one or 29 more of the following courses of action: 30 (1) Issue an order requiring the person to cease and 19990H1127B1275 - 15 -
1 desist from engaging in such violation. 2 (2) Suspend, revoke or refuse to renew the license of 3 the offending person or persons. 4 (3) Impose a civil penalty in the amount of $5,000 for 5 each violation. 6 (b) Additional remedies.--The enforcement remedies imposed 7 under this section are in addition to any other remedies or 8 penalties imposed by any other applicable statute. 9 (c) Hearing.--Before taking any action under this section, 10 the commissioner shall give notice to the person accused of 11 violating this act or regulations promulgated by the department 12 under this act, stating specifically the nature of each alleged 13 violation and fixing a time and place, at least ten days 14 thereafter, for a formal administrative hearing in accordance 15 with 2 Pa.C.S. Ch. 5 Subch. A (relating to practice and 16 procedure of Commonwealth agencies) and subject to review and 17 appeal in accordance with 2 Pa.C.S. Ch. 7 Subch. A (relating to 18 judicial review of Commonwealth agency action). After such 19 hearing or upon failure of the accused to appear at such 20 hearing, the commissioner shall impose any of the above 21 penalties which the commissioner deems appropriate. 22 Section 14. Effective date. 23 This act shall take effect in 180 days. A26L40DMS/19990H1127B1275 - 16 -