§ 3844. Prohibited practices
(a) It is a violation of this subchapter for any person to:
(1) Commit any fraudulent life settlement acts.
(2) Enter into any practice, agreement, arrangement, or transaction that results in or
is intended to result in the issuance of stranger-originated life insurance or STOLI.
(3) Enter, within a five-year period commencing with the date of issuance of the insurance
policy or certificate, into a life settlement contract unless the policy owner certifies
to the life settlement provider that one or more of the following conditions have
commenced or occurred after the date of issuance of the insurance policy or certificate
and within the five-year period:
(A) The policy was issued upon the policy owner’s exercise of conversion rights arising
out of a group or individual policy, provided the total of the time covered under
the conversion policy plus the time covered under the prior policy is at least 60
months. The time covered under a group policy shall be calculated without regard to
any change in insurance carriers, provided the coverage has been continuous and under
the same group sponsorship.
(B) The policy owner submits independent evidence to the life settlement provider that
one or more of the following conditions have commenced or occurred after the date
of issuance of the insurance policy or certificate and within the five-year period:
(i) the policy owner or insured is terminally or chronically ill;
(ii) the policy owner’s spouse dies;
(iii) the policy owner divorces his or her spouse;
(iv) the policy owner retires from full-time employment;
(v) the policy owner becomes physically or mentally disabled and a physician determines
that the disability prevents the policy owner from maintaining full-time employment;
(vi) a final order, judgment, or decree is entered by a court of competent jurisdiction,
on the application of a creditor of the policy owner, adjudicating the policy owner
bankrupt or insolvent or approving a petition seeking reorganization of the policy
owner or appointing a receiver, trustee, or liquidator to all or a substantial part
of the policy owner’s assets; or
(vii) the policy owner has suffered a significant economic reversal, as demonstrated by
a 50 percent decline in the policy owner’s annual adjusted gross income, or by a 50
percent decline in the policy owner’s net worth, or as demonstrated by other facts
and circumstances approved by the Commissioner.
(C) The policy owner enters into a life settlement contract more than two years after
the date of issuance of a policy and, with respect to the policy, at all times prior
to the date that is two years after policy issuance, the following conditions are
met:
(i) policy premiums have been funded exclusively with unencumbered assets, including an
interest in the life insurance policy being financed only to the extent of its net
cash surrender value, provided by or with full recourse liability incurred by the
insured or a person described in subdivision 3835(9)(C)(v) of this title;
(ii) there is no agreement or understanding with any other person to guarantee any such
liability or to purchase or stand ready to purchase the policy, including through
an assumption or forgiveness of the loan; and
(iii) a life settlement provider or a life settlement broker has not conducted a life expectancy
evaluation of the insured in connection with a proposed settlement of the policy,
and the insured has not undergone a life expectancy evaluation for settlement in connection
with the issuance of the policy.
(b) Copies of the independent evidence described in subdivision (a)(3)(B) of this section
and documents required by section 3842 of this title shall be submitted to the insurer when the life settlement provider or other party
entering into a life settlement contract with a policy owner submits a request to
the insurer for verification of coverage. The copies shall be accompanied by a letter
of attestation from the life settlement provider that the copies are true and correct
copies of the documents received by the life settlement provider.
(c) No insurer may, as a condition of responding to a request for verification of coverage
or effecting the transfer of a policy pursuant to a life settlement contract, require
that the policy owner, insured, life settlement provider, or life settlement broker
sign any forms or disclosures of consent or waiver that have not been expressly approved
by the Commissioner for use in connection with life settlement contracts in this State.
(d) Upon receipt of a properly completed request for change of ownership or beneficiary
of a policy, the insurer shall respond in writing within 30 calendar days with written
acknowledgment confirming that the change has been effected or specifying the reasons
why the requested change cannot be processed. The insurer shall not unreasonably delay
effecting change of ownership or beneficiary and shall not otherwise seek to interfere
with any life settlement contract lawfully entered into in this state.
(e) It shall be a violation of this section to enter into a life settlement contract in
reliance on the conditions established in subdivision (a)(3)(B) of this section if
such condition commenced or occurred prior to the issuance of the insurance policy
or certificate.
(f) The Commissioner shall adopt rules regulating the marketing and solicitation of life
settlement products. (Added 2009, No. 53, § 1, eff. Jan. 1, 2010.)