§3835. Definitions

Link to law: http://legislature.vermont.gov/statutes/section/08/103/03835
Published: 2015

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The Vermont Statutes Online



Title

08

:
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:

(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.)
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