TITLE 27
Insurance
CHAPTER 27-72
Life Settlements Act
SECTION 27-72-2
§ 27-72-2 Definitions.
As used in this chapter:
(1) "Advertisement" means any written, electronic or printed
communication or any communication by means of recorded telephone messages or
transmitted on radio, television, the Internet or similar communications media,
including film strips, motion pictures and videos, published, disseminated,
circulated or placed before the public, directly or indirectly, for the purpose
of creating an interest in or inducing a person to purchase or sell, assign,
devise, bequest or transfer the death benefit or ownership of a life insurance
policy or an interest in a life insurance policy pursuant to a life settlement
contract.
(2) "Broker" means a person who, on behalf of an owner and
for a fee, commission or other valuable consideration, offers or attempts to
negotiate life settlement contracts between an owner and provider. A broker
represents only the owner and owes a fiduciary duty to the owner to act
according to the owner's instructions, and in the best interest of the owner,
notwithstanding the manner in which the broker is compensated. A broker does
not include an attorney, certified public accountant or financial planner
retained in the type of practice customarily performed in their professional
capacity to represent the owner whose compensation is not paid directly or
indirectly by the provider or any other person, except the owner.
(3) "Business of life settlements" means an activity involved
in, but not limited to, offering to enter into, soliciting, negotiating,
procuring, effectuating, monitoring, or tracking, of life settlement contracts.
(4) "Chronically ill" means:
(i) Being unable to perform at least two (2) activities of
daily living (i.e., eating, toileting, transferring, bathing, dressing or
continence);
(ii) Requiring substantial supervision to protect the
individual from threats to health and safety due to severe cognitive
impairment; or
(iii) Having a level of disability similar to that described
in subdivision (i) as determined by the United States Secretary of Health and
Human Services.
(5) "Commissioner" means the director of the department of
business regulation or his or her designee.
(6) "Federally regulated entity" means a national bank,
thrift, credit union, or any entity registered or exempt from registration
under 15 U.S.C. § 80a-1 et. seq., 15 U.S.C. § 80b-1 et. seq., 15
U.S.C. § 77a et. seq., and 15 U.S.C. § 78a et. seq., or any affiliate
thereof.
(7) "Financing entity" means an underwriter, placement agent,
lender, purchaser of securities, purchaser of a policy or certificate from a
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 contract or purchase of one or
more policies; and
(ii) Who has an agreement in writing with one or more
providers to finance the acquisition of life settlement contracts.
"Financing entity" does not include a non-accredited investor
or purchaser.
(8) "Financing transaction" means a transaction in which a
licensed provider obtains financing from a financing entity including, without
limitation, any secured or unsecured financing, any securitization transaction,
or any securities offering which either is registered or exempt from
registration under federal and state securities law.
(9) "Fraudulent life settlement act" includes:
(i) Acts or omissions committed by any person who, knowingly
and with intent to defraud, 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, but not limited to:
(A) Presenting, causing to be presented or preparing with
knowledge and belief that it will be presented to or by a provider, premium
finance lender, broker, 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) In the solicitation, offer to enter into, or
effectuation of a life settlement contract, or insurance policy;
(VIII) The issuance of written evidence of life settlement
contract or insurance;
(IX) Any application for or the existence of or any payments
related to a loan secured directly or indirectly by any interest in a life
insurance policy; or
(X) Enter into any practice or plan which involves stranger
originated life insurance (STOLI).
(B) Failing to disclose to the insurer where the request for
such disclosure has been asked for by the insurer that the prospective insured
has undergone a life expectancy evaluation by any person or entity other than
the insurer or its authorized representatives in connection with the issuance
of the policy.
(C) Employing any device, scheme, or artifice to defraud in
the business of life settlements.
(D) In the solicitation, application or issuance of a life
insurance policy, employing any device, scheme or artifice in violation of
state insurable interest laws.
(ii) In the furtherance of a fraud or to prevent the
detection of a fraud any person commits or permits its employees or its agents
to:
(A) 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;
(B) Misrepresent or conceal the financial condition of a
licensee, financing entity, insurer or other person;
(C) 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;
(D) File with the commissioner or the chief insurance
regulatory official of another jurisdiction a document containing false
information or otherwise concealing information about a material fact from the
commissioner;
(E) Engage in embezzlement, theft, misappropriation or
conversion of monies, funds, premiums, credits or other property of a provider,
insurer, insured, owner, insurance, policy owner or any other person engaged in
the business of life settlements or insurance;
(F) Knowingly and with intent to defraud, enter into, broker,
or otherwise deal 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
owner or the owner's agent intended to defraud the policy's issuer;
(G) Attempt to commit, assist, aid or abet in the commission
of, or conspiracy to commit the acts or omissions specified in this subsection;
or
(H) Misrepresent the state of residence of an owner to be a
state or jurisdiction that does not have a law substantially similar to this
chapter for the purpose of evading or avoiding the provisions of this chapter.
(10) "Insured" means the person covered under the policy
being considered for sale in a life settlement contract.
(11) "Life expectancy" means the arithmetic mean of the
number of months the insured under the life insurance policy to be settled can
be expected to live as determined by a life expectancy company provider,
broker, or financing entity considering medical records and appropriate
experiential data.
(12) "Life insurance producer" means any person licensed in
this state as a resident or nonresident insurance producer who has received
qualification or authority for life insurance coverage or a life line of
coverage pursuant to chapter 27-2.4.
(13) "Life settlement contract" means a written agreement
entered into between a provider and an owner, establishing the terms under
which compensation or any thing of value will be paid, which compensation or
thing of value is less than the expected death benefit of the insurance policy
or certificate, in return for the owner's assignment, transfer, sale, devise or
bequest of the death benefit or any portion of an insurance policy or
certificate of insurance for compensation; provided, however, that the minimum
value for a life settlement contract shall be greater than a cash surrender
value or accelerated death benefit available at the time of an application for
a life settlement contract. "Life settlement contract" also includes the
transfer for compensation or value of ownership or beneficial interest in a
trust or other entity that owns such policy if the trust or other entity was
formed or availed of for the principal purpose of acquiring one or more life
insurance contracts, which life insurance contract insures the life of a person
residing in this state.
(i) "Life settlement contract" also includes a premium
finance loan made for a policy on or before the date of issuance where:
(A) The loan proceeds are not used solely to pay premiums for
the policy and any costs or expenses incurred by the lender or the borrower in
connection with the financing; or
(B) The owner receives on the date of the premium finance
loan a guarantee of the future life settlement value of the policy; or
(C) The owner 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.
(ii) "Life Settlement Contract" does not include:
(A) A policy loan by a life insurance company pursuant to the
terms of the life insurance policy or accelerated death provisions contained in
the life insurance policy, whether issued with the original policy or as a
rider;
(B) A premium finance loan, as defined herein, or any loan
made to an insured, a trust established by an insured, or an entity established
by the insured by a bank, federally regulated entity, or other licensed
financial institution or any transfer, foreclosure, option to transfer, sale of
any interest in collateral of such loan subsequent thereto for the purpose of
evading regulation under this chapter;
(C) A collateral assignment of a life insurance policy by an
owner;
(D) A loan made by a lender that does not violate Rhode
Island general laws chapter 19-14.6, provided such loan is not described in
subdivision (i) above, and is not otherwise within the definition of life
settlement contract;
(E) An agreement where all the parties:
(I) are closely related to the insured by blood or law; or
(II) have a lawful substantial economic interest in the
continued life, heath and bodily safety of the person insured, or are trusts
established primarily for the benefit of such parties;
(F) 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;
(G) A bona fide business succession planning arrangement:
(I) Between one or more shareholders in a corporation or
between a corporation and one or more of its shareholders or one or more trust
established by its shareholders;
(II) Between one or more partners in a partnership or between
a partnership and one or more of its partners or one or more trust established
by its partners; or
(III) Between one 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 trust established by its members;
(H) 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
(I) Any other contract, transaction or arrangement from the
definition of life settlement contract that the commissioner determines is not
of the type intended to be regulated by this chapter.
(14) "Net death benefit" means the amount of the life
insurance policy or certificate to be settled less any outstanding debts or
liens.
(15) "Owner" means the owner of a life insurance policy or a
certificate holder under a group policy, with or without a terminal illness,
who enters or seeks to enter into a life settlement contract. For the purposes
of this article, an owner shall not be limited to an owner of a life insurance
policy or a certificate holder under a group policy that insures the life of an
individual with a terminal or chronic illness or condition except where
specifically addressed. The term "owner" does not include:
(i) Any provider or other licensee under this chapter;
(ii) A qualified institutional buyer as defined in Rule 144A
of the Federal Securities Act of 1933, as amended;
(iii) A financing entity;
(iv) A special purpose entity; or
(v) A related provider trust.
(16) "Patient identifying information" means an insured's
address, telephone number, facsimile number, electronic mail address,
photograph or likeness, employer, employment status, social security number, or
any other information that is likely to lead to the identification of the
insured.
(17) "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.
(18) "Premium finance loan" is a loan made primarily for the
purposes of making premium payments on a life insurance policy, which loan is
secured by an interest in such life insurance policy.
(19) "Person" means any natural person or legal entity
including, but not limited to, a partnership, limited liability company,
association, trust or corporation.
(20) "Provider" means a person, other than an owner, who
enters into or effectuates a life settlement contract with an owner, a provider
does not include:
(i) Any bank, savings bank, savings and loan association,
credit union;
(ii) A licensed lending institution or creditor or secured
party pursuant to a premium finance loan agreement which takes an assignment of
a life insurance policy or certificate issued pursuant to a group life
insurance policy as collateral for a loan;
(iii) The insurer of a life insurance policy or rider to the
extent of providing accelerated death benefits or riders or cash surrender
value;
(iv) Any natural person who enters into or effectuates no
more than one agreement in a calendar year for the transfer of a life insurance
policy or certificate issued pursuant to a group life insurance policy, for
compensation or anything of value less than the expected death benefit payable
under the policy;
(v) A purchaser;
(vi) Any authorized or eligible insurer that provides stop
loss coverage to a provider; purchaser, financing entity, special purpose
entity, or related provider trust;
(vii) A financing entity;
(viii) A special purpose entity;
(ix) A related provider trust;
(x) A broker; or
(xi) An accredited investor or qualified institutional buyer
as defined; respectively, in regulation D, rule 501 or rule 144A of the Federal
Securities Act of 1933, as amended, who purchases a life settlement policy from
a provider.
(21) "Purchased policy" means a policy or group certificate
that has been acquired by a provider pursuant to a life settlement contract.
(22) "Purchaser" means a person who pays compensation or
anything of value as consideration for a beneficial interest in a trust which
is vested with, or for the assignment, transfer or sale of, an ownership or
other interest in a life insurance policy or a certificate issued pursuant to a
group life insurance policy which has been the subject of a life settlement
contract.
(23) "Related provider trust' means a titling trust or other
trust established by a licensed 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. In order to qualify as a related
provider trust, the trust must have a written agreement with the licensed
provider under which the licensed provider is responsible for ensuring
compliance with all statutory and regulatory requirements and under which the
trust agrees to make all records and files relating to life settlement
transactions available to the commissioner as if those records and files were
maintained directly by the licensed provider.
(24) "Settled policy" means a life insurance policy or
certificate that has been acquired by a provider pursuant to a life settlement
contract.
(25) "Special purpose entity" means a corporation,
partnership, trust, limited liability company, or other legal entity formed
solely to provide either directly or indirectly access to institutional capital
markets:
(i) For a financing entity or provider; or
(ii) In connection with a transaction in which the securities
in the special purpose entity are acquired by the owner or by a "qualified
institutional buyer" as defined in Rule 144 promulgated under the Federal
Securities Act of 1933, as amended; or
(iii) The securities pay a fixed rate of return commensurate
with established asset-backed institutional capital markets.
(26) "Stranger-originated life insurance" or "STOLI" is a
practice or plan to initiate a life insurance policy for the benefit of a
third-party investor who, at the time of policy origination, has no insurable
interest in the insured. STOLI practices include, but are not limited to, 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 inception, there is an arrangement or agreement, whether verbal or written,
to directly or indirectly transfer the ownership of the policy and/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 this
chapter.
(27) "Terminally ill" means having an illness or sickness
that can reasonably be expected to result in death in twenty-four (24) months
or less.
History of Section.
(P.L. 2009, ch. 195, § 1; P.L. 2009, ch. 262, § 1.)
