The Vermont Statutes Online

Title 8 : Banking and Insurance

Chapter 103 : Life Insurance Policies and Annuity Contracts

Subchapter 005B : Life Settlements

• § 3835. Definitions

  As used in this subchapter:

  (1) “Advertising” means any written, electronic, or printed communication or any communication by means of recorded telephone messages or that is transmitted on radio, television, the Internet, or similar communications media, including film strips, motion pictures, and videos, that are published, disseminated, circulated, or placed directly before the public in this State for the purpose of creating an interest in or inducing a person to sell, assign, devise, bequest, or transfer the death benefit or ownership of a life insurance policy pursuant to a life settlement contract.

  (2) “Business of life settlements” means an activity involved in, but not limited to, the offering, soliciting, negotiating, procuring, effectuating, financing, monitoring, tracking, administering, underwriting, selling, transferring, assigning, pledging, hypothecating, or in any other manner acquiring an interest in a life insurance policy by means of a life settlement contract.

  (3) “Chronically ill” means:

  (A) being unable to perform at least two activities of daily living, including eating, toileting, transferring, bathing, dressing, or continence;

  (B) requiring substantial supervision to protect the individual from threats to health and safety due to intellectual disability; or

  (C) having a level of disability similar to that described in subdivision (A) of this subdivision (3) as determined by the appropriate administrator of a state or federal public disability insurance or benefit program.

  (4) “Commissioner” means the Commissioner of Financial Regulation.

  (5)(A) “Financing entity” means an insurance underwriter, placement agent, lender, purchaser of securities, purchaser of a policy or certificate from a life settlement provider, credit enhancer, or any entity that has a direct ownership in a policy or certificate that is the subject of a life settlement contract, but:

  (i) whose principal activity related to the transaction is providing funds to effect the life settlement or purchase of one or more policies subject to a life settlement contract; and

  (ii) who has an agreement with one or more licensed life settlement providers to finance the acquisition of life settlement contracts.

  (B) “Financing entity” does not include a life settlement purchaser.

  (C) “Financing entity” includes an accredited investor as defined by Rule 501 as promulgated under the Federal Securities Act of 1933, as amended.

  (6) “Fraudulent life settlement act” includes:

  (A) acts or omissions committed by any person who knowingly or who reasonably should know and, for the purpose of depriving another of property or for pecuniary gain, commits or permits its employees or its agents to engage in acts, including:

  (i) presenting, causing to be presented, or preparing with knowledge or belief that it will be presented to or by a life settlement provider, life settlement broker, financing entity, insurer, insurance producer, or any other person false material information or concealing material information, as part of, in support of, or concerning a fact material to one or more of the following:

  (I) an application for the issuance of a life settlement contract or insurance policy;

  (II) the underwriting of a life settlement contract or insurance policy;

  (III) a claim for payment or benefit pursuant to a life settlement contract or insurance policy;

  (IV) premiums paid on an insurance policy;

  (V) payments and changes in ownership or beneficiary made in accordance with the terms of a life settlement contract or insurance policy;

  (VI) the reinstatement or conversion of an insurance policy;

  (VII) the solicitation, offer, effectuation, or sale of a life settlement contract or insurance policy;

  (VIII) the issuance of written evidence of a life settlement contract or insurance; or

  (IX) a financing transaction; and

  (ii) employing any plan, financial structure, device, scheme, or artifice to defraud related to policies subject to a life settlement contract.

  (B) any person in the furtherance of a fraudulent settlement act or to prevent the detection of a fraudulent settlement act committing or permitting its employees or its agents to:

  (i) remove, conceal, alter, destroy, or sequester from the Commissioner the assets or records of a licensee or other person engaged in the business of life settlements;

  (ii) misrepresent or conceal the financial condition of a licensee, financing entity, insurer, or other person;

  (iii) transact the business of life settlements in violation of laws requiring a license, certificate of authority, or other legal authority for the transaction of the business of life settlements; or

  (iv) file with the Commissioner or the equivalent chief insurance regulatory official of another jurisdiction a document that contains false information or that otherwise conceals information about a material fact from the Commissioner;

  (C) embezzlement, theft, misappropriation, or conversion of monies, funds, premiums, credits, or other property of a life settlement provider, insurer, insured, policy owner, insurance policy owner, or any other person engaged in the business of life settlements or insurance;

  (D) recklessly entering into, negotiating, brokering, or otherwise dealing 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 person or the persons intended to commit a fraudulent settlement act with respect to the policy’s issuer, the life settlement provider, or the owner;

  (E) facilitating the change of state of ownership of a policy or certificate or the state of residency of a policy owner to a state or jurisdiction that does not have a law similar to this subchapter for the express purposes of evading or avoiding the provisions of this subchapter;

  (F) attempting to commit, assisting, aiding, or abetting in the commission of or conspiracy to commit the acts or omissions specified in this subdivision (6).

  (7) “Life insurance producer” means any person licensed in this State as a resident or nonresident insurance producer who has received qualification to sell life insurance coverage or a life line of coverage pursuant to chapter 131 of this title.

  (8) “Life settlement broker” means a natural person who is working exclusively on behalf of a policy owner and, for a fee, commission, or other valuable consideration, offers or attempts to negotiate life settlement contracts between an owner and one or more life settlement providers. Notwithstanding the manner in which the life settlement broker is compensated, a life settlement broker is deemed to represent only the policy owner and not the insurer or the life settlement provider and to owe a fiduciary duty to the policy owner to act according to the policy owner’s instructions and in the best interest of the policy owner. The term does not include an attorney or a certified public accountant who is retained to represent the policy owner and whose compensation is not paid directly or indirectly by the life settlement provider or purchaser.

  (9)(A) “Life settlement contract” means a written agreement between a policy owner and a life settlement provider or any affiliate of the life settlement provider establishing the terms under which compensation or anything of value is or will be paid, which compensation or value is less than the expected death benefits of the policy, in return for the policy owner’s present or future assignment, transfer, sale, devise, or bequest of the death benefit or ownership of any portion of the insurance policy or certificate of insurance.

  (B) “Life settlement contract” includes a premium finance loan made for a life insurance policy by a lender to a policy owner on, before, or after the date of issuance of the policy where:

  (i) the policy owner or the insured receives on the date of the premium finance loan a guarantee of a future life settlement value of the policy; or

  (ii) the policy owner or the insured agrees on the date of the premium finance loan to sell the policy or any portion of its death benefit on any date following the issuance of the policy.

  (C) “Life settlement contract” does not include:

  (i) a policy loan or accelerated death benefit made by the insurer pursuant to the policy’s terms;

  (ii) loan proceeds that are used solely to pay:

  (I) premiums for the policy;

  (II) the costs of the loan, including, without limitation, interest, arrangement fees, utilization fees and similar fees, closing costs, legal fees and expenses, trustee fees and expenses, and third party collateral provider fees and expenses, including fees payable to letter of credit issuers;

  (iii) a loan made by a bank or other licensed financial institution in which the lender takes an interest in a life insurance policy solely to secure repayment of a loan or, if there is a default on the loan and the policy is transferred, the transfer of such a policy by the lender, provided that the default itself is not pursuant to an agreement or understanding with any other person for the purpose of evading regulation under this subchapter;

  (iv) a loan made by a lender that does not violate chapter 143 of this title, provided that the premium finance loan is not described in subdivision (B) of this subdivision (9);

  (v) an agreement where all the parties are closely related to the insured by blood or law; or have a lawful substantial economic interest in the continued life, health, and bodily safety of the person insured, or are trusts established primarily for the benefit of such parties;

  (vi) any designation, consent, or agreement by an insured who is an employee of an employer in connection with the purchase by the employer, or trust established by the employer, of life insurance on the life of the employee;

  (vii) a bona fide business succession planning arrangement:

  (I) between two or more shareholders in a corporation or between a corporation and one or more of its shareholders or one or more trusts established by its shareholders;

  (II) between two or more 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

  (III) between two or more members in a limited liability company or between a limited liability company and one or more of its members or one or more trusts established by its members;

  (viii) an agreement entered into by a service recipient, or a trust established by the service recipient and a service provider, or a trust established by the service provider who performs significant services for the service recipient’s trade or business; or

  (ix) any other contract, transaction, or arrangement exempted from the definition of life settlement contract by the Commissioner by rule or order based on a determination that the contract, transaction, or arrangement is not of the type intended to be regulated by this subchapter.

  (10) “Life settlement investment agent” means a person who is an appointed or contracted agent of a licensed life settlement provider who solicits or arranges the funding for the purchase of a life settlement by a life settlement purchaser and who is acting on behalf of a life settlement provider.

  (11)(A) “Life settlement provider” means a person other than a policy owner that solicits, enters into, or effectuates a life settlement contract with a policy owner resident in this State.

  (B) “Life settlement provider” does not include:

  (i) a bank, savings bank, savings and loan association, credit union, or other licensed lending institution that takes an assignment of a life insurance policy solely as collateral for a loan;

  (ii) a premium finance company making premium finance loans and exempted by the Commissioner from the licensing requirement under the premium finance laws that takes an assignment of a life insurance policy solely as collateral for a loan;

  (iii) the issuer of the life insurance policy;

  (iv) an authorized or eligible insurer that provides stop loss coverage or financial guaranty insurance to a life settlement provider, purchaser, financing entity, special purpose entity, or related provider trust;

  (v) a financing entity;

  (vi) a special purpose entity;

  (vii) a related provider trust;

  (viii) a life settlement purchaser; or

  (ix) any other person that the Commissioner determines by rule or order is not the type of person intended to be covered by the definition of life settlement provider.

  (12)(A) “Life settlement purchaser” means a person who provides a sum of money as consideration for a life insurance policy or an interest in the death benefits of a life insurance policy, or a person who owns or acquires or is entitled to a beneficial interest in a trust that owns a life settlement contract or is the beneficiary of a life insurance policy that has been or will be the subject of a life settlement contract, for the purpose of deriving an economic benefit.

  (B) “Life settlement purchaser” does not include:

  (i) an accredited investor or qualified institutional buyer as defined, respectively, in Rule 501(a) or Rule 144A promulgated under the Federal Securities Act of 1933, as amended;

  (ii) a financing entity;

  (iii) a special purpose entity; or

  (iv) a related provider trust.

  (13) “Policy” means an individual or group policy, group certificate, contract, or arrangement of life insurance owned by a resident of this State, regardless of whether delivered or issued for delivery in this State.

  (14)(A) “Policy owner” means the owner of a life insurance policy or a certificate holder under a group policy who resides in this State and enters or seeks to enter into a life settlement contract. For the purposes of this subchapter, a policy owner shall not be limited to an owner of a life insurance policy or a certificate holder under a group policy insuring the life of an individual with a terminal or chronic illness or condition. If there is more than one policy owner on a single policy and the policy owners are residents of different states, the transaction shall be governed by the law of the state in which the policy owner having the largest percentage ownership resides or, if the policy owners hold equal ownership, the state of residence of one policy owner agreed upon in writing by all the policy owners.

  (B) “Policy owner” does not include a:

  (i) qualified institutional buyer as defined in Rule 144A promulgated under the Federal Securities Act of 1933, as amended;

  (ii) a financing entity;

  (iii) a special purpose entity;

  (iv) a related provider trust;

  (v) a purchaser of a purchased policy.

  (15) “Purchased policy” means a life insurance policy or certificate that has been acquired by a life settlement provider pursuant to a life settlement contract.

  (16) “Related provider trust” means a titling trust or other trust established by a licensed life settlement provider or a financing entity for the sole purpose of holding the ownership or beneficial interest in purchased policies in connection with a financing transaction. The trust shall have a written agreement with the licensed life settlement provider under which the licensed life settlement provider is responsible for ensuring compliance with all statutory and regulatory requirements and under which the trust agrees to make all records and files related to life settlement transactions available to the Commissioner as if those records and files were maintained directly by the licensed life settlement provider.

  (17) “Special purpose entity” means a corporation, partnership, trust, limited liability company, or other similar entity formed solely to provide either directly or indirectly access to institutional capital markets:

  (A) for a financing entity or licensed life settlement provider; or

  (B)(i) in connection with a transaction in which the securities in the special purposes entity are acquired by the owner or by “qualified institutional buyers” as defined in Rule 144A promulgated under the Securities Act of 1933, as amended, and in which the securities are sold in compliance with 9 V.S.A. chapter 150 (the Vermont Uniform Securities Act) and the orders and rules adopted or issued thereunder; or

  (ii) in connection with a transaction in which the securities pay a fixed rate of return commensurate with established asset-backed institutional capital markets and in which the securities are sold in compliance with 9 V.S.A. chapter 150 (the Vermont Uniform Securities Act) and the orders and rules adopted or issued thereunder.

  (18) “Stranger-originated life insurance,” or “STOLI,” means an act or acts, practice or an arrangement to initiate a life insurance policy in the name of a resident of this State for the benefit of a third party who, at the time of policy origination, has no insurable interest under the laws of this State in the life of the insured. STOLI practices include cases in which life insurance is purchased with resources or guarantees from or through a person or entity who, at the time of policy inception, could not lawfully initiate the policy himself, herself, or itself and where, at the time of policy inception, there is an arrangement or agreement, whether verbal or written, to directly or indirectly transfer the ownership of the policy or the policy benefits to a third party. Trusts that are created to give the appearance of insurable interest and are used to initiate policies for investors violate insurable interest laws and the prohibition against wagering on life. STOLI arrangements do not include those practices set forth in subdivision (9)(C) of this section.

  (19) “Terminally ill” means having an illness or sickness that can reasonably be expected to result in death in 24 months or less.

  (20) “Viator” means any person who owns, controls, or has rights to the benefits or values of a life insurance policy or who owns, is covered by, controls, or has rights to the benefits or values of a group policy, either of which insures the life of a person who is terminally or chronically ill or has a life-threatening illness or condition and who enters into an agreement under which the life settlement provider will pay compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy or certificate, in return for the assignment, transfer, sale, devise, or bequest of the death benefit or ownership of the insurance policy or certificate to the life settlement provider. (Added 2009, No. 53, § 1, eff. Jan. 1, 2010; amended 2011, No. 78 (Adj. Sess.), § 2, eff. April 2, 2012; 2013, No. 96 (Adj. Sess.), § 16.)