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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.)
