|
|
|
|
AN ACT
|
|
relating to life settlements and the sale, exchange, or replacement |
|
of life insurance and annuity contracts. |
|
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
|
SECTION 1. Section 541.058(b), Insurance Code, is amended |
|
to read as follows: |
|
(b) It is not a rebate or discrimination prohibited by |
|
Section 541.056(a) or 541.057: |
|
(1) for a life insurance or life annuity contract, to |
|
pay a bonus to a policyholder or otherwise abate the policyholder's |
|
premiums in whole or in part out of surplus accumulated from |
|
nonparticipating insurance policies if the bonus or abatement: |
|
(A) is fair and equitable to policyholders; and |
|
(B) is in the best interests of the insurer and |
|
its policyholders; |
|
(2) for a life insurance policy issued on the |
|
industrial debit plan, to make to a policyholder who has |
|
continuously for a specified period made premium payments directly |
|
to the insurer's office an allowance in an amount that fairly |
|
represents the saving in collection expenses; |
|
(3) for a group insurance policy, to readjust the rate |
|
of premium based on the loss or expense experience under the policy |
|
at the end of a policy year if the adjustment is retroactive for |
|
only that policy year; |
|
(4) for a life annuity contract, to waive surrender |
|
charges under the contract when the contract holder exchanges that |
|
contract for another annuity contract issued by the same insurer or |
|
an affiliate of the same insurer that is part of the same holding |
|
company group if: |
|
(A) the waiver and the exchange are fully, |
|
fairly, and accurately explained to the contract holder in a manner |
|
that is not deceptive or misleading; and |
|
(B) the contract holder is given credit for the |
|
time that the previous contract was held when determining any |
|
surrender charges under the new contract; |
|
(5) in connection with an accident and health |
|
insurance policy, to provide to policy or certificate holders, in |
|
addition to benefits under the terms of the insurance contract, |
|
health-related services or health-related information, or to |
|
disclose the availability of those additional services and |
|
information to prospective policy or certificate holders; or |
|
(6) in connection with a health maintenance |
|
organization evidence of coverage, to provide to enrollees, in |
|
addition to benefits under the evidence of coverage, health-related |
|
services or health-related information, or to disclose the |
|
availability of those additional services and information to |
|
prospective enrollees or contract holders. |
|
SECTION 2. The heading to Chapter 1111, Insurance Code, is |
|
amended to read as follows: |
|
CHAPTER 1111. [LIFE AND VIATICAL SETTLEMENTS AND] ACCELERATED |
|
TERM LIFE INSURANCE BENEFITS |
|
SECTION 3. Subtitle A, Title 7, Insurance Code, is amended |
|
by adding Chapter 1111A to read as follows: |
|
CHAPTER 1111A. LIFE SETTLEMENT CONTRACTS |
|
Sec. 1111A.001. SHORT TITLE. This Act may be cited as the |
|
Life Settlements Act. |
|
Sec. 1111A.002. DEFINITIONS. In this chapter: |
|
(1) "Advertisement" means a written, electronic, or |
|
printed communication or a communication by means of a recorded |
|
telephone message or transmitted on radio, television, the |
|
Internet, or similar communications media, including film strips, |
|
motion pictures, and videos, published, disseminated, circulated, |
|
or placed directly before the public 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 |
|
under 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 a life settlement contract between an |
|
owner and a provider or estimates life expectancies for a life |
|
settlement contract. A broker who offers or attempts to negotiate a |
|
life settlement contract 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 a 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: |
|
(A) being unable to perform at least two |
|
activities of daily living such as eating, toileting, transferring, |
|
bathing, dressing, or continence; |
|
(B) requiring substantial supervision to protect |
|
the individual from threats to health and safety due to severe |
|
cognitive impairment; or |
|
(C) having a level of disability similar to that |
|
described in Paragraph (A) as determined under rules adopted by the |
|
commissioner after consideration of any applicable regulation, |
|
guideline, or determination of the United States Secretary of |
|
Health and Human Services. |
|
(5) "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 whose principal |
|
activity related to the transaction is providing funds to effect |
|
the life settlement contract or purchase of a policy, and who has an |
|
agreement in writing with a provider to finance the acquisition of a |
|
life settlement contract. The term does not include a |
|
non-accredited investor or purchaser. |
|
(6) "Financing transaction" means a transaction in |
|
which a licensed provider obtains financing from a financing entity |
|
including secured or unsecured financing, a securitization |
|
transaction, or a securities offering that is either registered or |
|
exempt from registration under federal and state securities law. |
|
(7) "Fraudulent life settlement act" includes: |
|
(A) an act or omission committed by a person who, |
|
knowingly and with intent to defraud, for the purpose of depriving |
|
another of property or for pecuniary gain, commits, or permits an |
|
employee or an agent to engage in, acts including: |
|
(i) 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 |
|
agent, 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: |
|
(a) an application for the issuance of |
|
a life settlement contract or an insurance policy; |
|
(b) the underwriting of a life |
|
settlement contract or an insurance policy; |
|
(c) a claim for payment or benefit |
|
pursuant to a life settlement contract or an insurance policy; |
|
(d) premium paid on an insurance |
|
policy; |
|
(e) payment for and changes in |
|
ownership or beneficiary made in accordance with the terms of a life |
|
settlement contract or an insurance policy; |
|
(f) the reinstatement or conversion |
|
of an insurance policy; |
|
(g) in the solicitation, offer to |
|
enter into, or effectuation of a life settlement contract, or an |
|
insurance policy; |
|
(h) the issuance of written evidence |
|
of life settlement contracts or insurance; or |
|
(i) an application for or the |
|
existence of or any payment related to a loan secured directly or |
|
indirectly by an interest in a life insurance policy; |
|
(ii) failing to disclose to the insurer, if |
|
the insurer has requested the disclosure, 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; or |
|
(iii) employing a device, scheme, or |
|
artifice to defraud in the business of life settlements; and |
|
(B) acts or omissions in the furtherance of a |
|
fraud or to prevent the detection of a fraud, or acts or omissions |
|
that permit an employee or an agent to: |
|
(i) remove, conceal, alter, destroy, or |
|
sequester from the commissioner the assets or records of a license |
|
holder or another person engaged in the business of life |
|
settlements; |
|
(ii) misrepresent or conceal the financial |
|
condition of a license holder, 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; |
|
(iv) file with the commissioner or the |
|
chief insurance regulatory official of another jurisdiction a |
|
document containing false information or concealing information |
|
about a material fact; |
|
(v) 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; |
|
(vi) 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 that fact, for the purpose |
|
of misleading another, or providing information concerning any fact |
|
material to the policy, if the owner or the owner's agent intended |
|
to defraud the policy's issuer; |
|
(vii) attempt to commit, assist, aid or |
|
abet in the commission of, or engage in conspiracy to commit the |
|
acts or omissions specified in this paragraph; or |
|
(viii) 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. |
|
(8) "Insured" means a person covered under the policy |
|
being considered for sale in a life settlement contract. |
|
(9) "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 or provider considering medical records and appropriate |
|
experiential data. |
|
(10) "Life insurance agent" means a person licensed in |
|
this state as a resident or nonresident insurance agent who has |
|
received qualification or authority to write life insurance |
|
coverage under this code. |
|
(11) "Life settlement contract" means a written |
|
agreement entered into between a provider and an owner establishing |
|
the terms under which compensation or anything of value will be paid |
|
and 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 a portion of an |
|
insurance policy or certificate of insurance for compensation; |
|
provided, however, that the minimum value for a life settlement |
|
contract must be greater than a cash surrender value or accelerated |
|
death benefit available at the time of an application for a life |
|
settlement contract. The term also includes the transfer for |
|
compensation or value of ownership or beneficial interest in a |
|
trust or other entity that owns the policy if the trust or other |
|
entity was formed or used for the principal purpose of acquiring one |
|
or more life insurance contracts that insure the life of an |
|
individual residing in this state. The term also includes: |
|
(A) a written agreement for a loan or other |
|
lending transaction, secured primarily by an individual or group |
|
life insurance policy; and |
|
(B) a premium finance loan made for a policy on or |
|
before the date of issuance of the policy if: |
|
(i) 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; |
|
(ii) the owner receives on the date of the |
|
premium finance loan a guarantee of the future life settlement |
|
value of the policy; or |
|
(iii) the owner agrees on the date of the |
|
premium finance loan to sell the policy or any portion of its death |
|
benefit on a date following the issuance of the policy. |
|
(11-A) "Life settlement contract" does not include: |
|
(A) a policy loan by a life insurance company |
|
under the terms of a life insurance policy or accelerated death |
|
provision contained in the life insurance policy, whether issued |
|
with the original policy or as a rider; |
|
(B) a premium finance loan or any loan made by a |
|
bank or other licensed financial institution, provided that neither |
|
default on the loan nor the transfer of the policy in connection |
|
with the default is under an agreement or understanding with any |
|
other person 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 |
|
Chapter 651, provided that the loan is not described in Subdivision |
|
(11) and is not otherwise within the definition of life settlement |
|
contract; |
|
(E) an agreement with respect to which 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 the parties; |
|
(F) a 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 trusts 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 trusts 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 trusts 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. |
|
(12) "Net death benefit" means the amount of the life |
|
insurance policy or certificate to be settled less any outstanding |
|
debts or liens. |
|
(13) "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. In this chapter, the term "owner" is not |
|
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 as |
|
specifically provided. The term does not include: |
|
(A) a provider or other license holder under this |
|
chapter; |
|
(B) a qualified institutional buyer as defined by |
|
17 C.F.R. Section 230.144A, as amended; |
|
(C) a financing entity; |
|
(D) a special purpose entity; or |
|
(E) a related provider trust. |
|
(14) "Patient identifying information" means an |
|
insured's address, telephone number, facsimile number, e-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. |
|
(15) "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. |
|
(16) "Premium finance loan" is a loan made primarily |
|
for the purposes of making premium payments on a life insurance |
|
policy that is secured by an interest in the life insurance policy. |
|
(17) "Person" means an individual or legal entity, |
|
including a partnership, limited liability company, association, |
|
trust, or corporation. |
|
(18) "Provider" means a person, other than an owner, |
|
who enters into or effectuates a life settlement contract with an |
|
owner. The term does not include: |
|
(A) a bank, savings bank, savings and loan |
|
association, or credit union; |
|
(B) a licensed lending institution or creditor or |
|
secured party pursuant to a premium finance loan agreement that |
|
takes an assignment of a life insurance policy or certificate |
|
issued pursuant to a group life insurance policy as collateral for a |
|
loan; |
|
(C) the insurer of a life insurance policy or |
|
rider to the extent of providing accelerated death benefits or |
|
riders under Subchapter B, Chapter 1111, or cash surrender value; |
|
(D) an individual who enters into or effectuates |
|
not 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; |
|
(E) a purchaser; |
|
(F) any authorized or eligible insurer that |
|
provides stop loss coverage to a provider, purchaser, financing |
|
entity, special purpose entity, or related provider trust; |
|
(G) a financing entity; |
|
(H) a special purpose entity; |
|
(I) a related provider trust; |
|
(J) a broker; or |
|
(K) an accredited investor or qualified |
|
institutional buyer as those terms are defined by 17 C.F.R. |
|
Sections 230.501 and 230.144A, respectively, as amended, who |
|
purchases a life settlement policy from a provider. |
|
(19) "Purchased policy" means a policy or group |
|
certificate that has been acquired by a provider pursuant to a life |
|
settlement contract. |
|
(20) "Purchaser" means a person who pays compensation |
|
or anything of value as consideration for a beneficial interest in a |
|
trust that 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 that |
|
has been the subject of a life settlement contract. |
|
(21) "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 department as if |
|
those records and files were maintained directly by the licensed |
|
provider. |
|
(22) "Settled policy" means a life insurance policy or |
|
certificate that has been acquired by a provider pursuant to a life |
|
settlement contract. |
|
(23) "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: |
|
(A) for a financing entity or provider; or |
|
(B) in connection with a transaction in which: |
|
(i) the securities in the special purpose |
|
entity are acquired by the owner or by a qualified institutional |
|
buyer as defined by 17 C.F.R. Section 230.144A, as amended; or |
|
(ii) the securities pay a fixed rate of |
|
return commensurate with established asset-backed institutional |
|
capital markets. |
|
(24) "Terminally ill" means having an illness or |
|
sickness that can reasonably be expected to result in death not |
|
later than 24 months after the date of diagnosis. |
|
Sec. 1111A.003. LICENSING REQUIREMENTS; EXEMPTION. (a) A |
|
person, wherever located, may not act as a provider or broker with |
|
an owner who is a resident of this state, unless the person holds a |
|
license from the department. |
|
(b) An application for a provider or broker license must be |
|
made to the department by the applicant on a form prescribed by the |
|
commissioner. The application must be accompanied by a fee in an |
|
amount established by the commissioner by rule. The license and |
|
renewal fees for a provider license must be reasonable and the |
|
license and renewal fees for a broker license may not exceed those |
|
established for an insurance agent, as otherwise provided by this |
|
chapter. |
|
(c) A person who has been licensed as a life insurance agent |
|
in this state or the person's home state for at least one year and is |
|
licensed as a nonresident agent in this state meets the licensing |
|
requirements of this section and may operate as a broker. |
|
(d) Not later than the 30th day after the first date of |
|
operating as a broker, a life insurance agent shall notify the |
|
commissioner on a form prescribed by the commissioner that the |
|
agent is acting as a broker and shall pay any applicable fee to be |
|
determined by the commissioner by rule. Notification must include |
|
an acknowledgement by the life insurance agent that the agent will |
|
operate as a broker in accordance with this chapter. |
|
(e) An insurer that issued a policy that is the subject of a |
|
life settlement contract is not responsible for any act or omission |
|
of a broker or provider or purchaser arising out of or in connection |
|
with the life settlement transaction, unless the insurer receives |
|
compensation for the placement of a life settlement contract from |
|
the provider, purchaser, or broker in connection with the life |
|
settlement contract. |
|
(f) A person licensed as an attorney, certified public |
|
accountant, or financial planner accredited by a nationally |
|
recognized accreditation agency, who is retained to represent the |
|
owner and whose compensation is not paid directly or indirectly by |
|
the provider or purchaser, may negotiate life settlement contracts |
|
for the owner without having to obtain a license as a broker. |
|
(g) A license expires on the second anniversary of the date |
|
of issuance. A license holder may renew the license on payment of a |
|
renewal fee. As specified by Subsection (b), the renewal fee for a |
|
provider license may not exceed a reasonable fee. |
|
(h) An applicant shall provide the information that the |
|
commissioner requires on forms adopted by the commissioner. The |
|
commissioner may, at any time, require an applicant to fully |
|
disclose the identity of its stockholders, except stockholders |
|
owning fewer than 10 percent of the shares of an applicant whose |
|
shares are publicly traded, partners, officers and employees, and |
|
the commissioner may, in the exercise of the commissioner's sole |
|
discretion, refuse to issue a license in the name of any person if |
|
the commissioner is not satisfied that an officer, an employee, a |
|
stockholder, or a partner of the applicant who may materially |
|
influence the applicant's conduct meets the standards of Sections |
|
1111A.001 to 1111A.018. |
|
(i) A license issued to a partnership, corporation, or other |
|
entity authorizes each member, officer, and designated employee |
|
named in the application and any supplement to the application to |
|
act as a license holder under the license. |
|
(j) After the filing of an application and the payment of |
|
the license fee, the commissioner shall investigate each applicant |
|
and may issue a license if the commissioner finds that the |
|
applicant: |
|
(1) if a provider, has provided a detailed plan of |
|
operation; |
|
(2) is competent and trustworthy and intends to |
|
transact business in good faith; |
|
(3) has a good business reputation and has had |
|
experience, training, or education to qualify in the business for |
|
which the license is applied; |
|
(4) if the applicant is a legal entity, is formed or |
|
organized under the laws of this state or is a foreign legal entity |
|
authorized to transact business in this state, or provides a |
|
certificate of good standing from the state of its domicile; and |
|
(5) has provided to the commissioner an antifraud plan |
|
that meets the requirements of Section 1111A.022 and includes: |
|
(A) a description of the procedures for detecting |
|
and investigating possible fraudulent acts and procedures for |
|
resolving material inconsistencies between medical records and |
|
insurance applications; |
|
(B) a description of the procedures for reporting |
|
fraudulent insurance acts to the commissioner; |
|
(C) a description of the plan for antifraud |
|
education and training of its underwriters and other personnel; and |
|
(D) a written description or chart outlining the |
|
arrangement of the antifraud personnel who are responsible for the |
|
investigation and reporting of possible fraudulent insurance acts |
|
and the investigation of unresolved material inconsistencies |
|
between medical records and insurance applications. |
|
(k) The commissioner may not issue a license to a |
|
nonresident applicant unless a written designation of an agent for |
|
service of process is filed and maintained with the department or |
|
unless the applicant has filed with the department the applicant's |
|
written irrevocable consent that any action against the applicant |
|
may be commenced by service of process on the commissioner. |
|
(l) A license holder shall file with the department not |
|
later than March 1 of each year an annual statement containing the |
|
information as the commissioner by rule prescribes. |
|
(m) A provider may not allow any person to perform the |
|
functions of a broker unless the person holds a current, valid |
|
license as a broker, and as provided in this section. |
|
(n) A broker may not allow any person to perform the |
|
functions of a provider unless the person holds a current, valid |
|
license as a provider, and as provided in this section. |
|
(o) A provider or broker shall provide to the commissioner |
|
new or revised information about officers, stockholders described |
|
by Subsection (h), partners, directors, members, or designated |
|
employees within 30 days of the change. |
|
(p) An individual licensed as a broker shall complete on a |
|
biennial basis 15 hours of training related to life settlements and |
|
life settlement transactions, as required by the commissioner. A |
|
life insurance agent who is operating as a broker under this section |
|
is not subject to the requirements of this subsection. |
|
(q) The business of life settlements constitutes the |
|
business of insurance. |
|
Sec. 1111A.004. LICENSE SUSPENSION, REVOCATION, OR REFUSAL |
|
TO RENEW. (a) The commissioner may suspend, revoke, or refuse to |
|
renew the license of a license holder if the commissioner finds |
|
that: |
|
(1) there was a material misrepresentation in the |
|
application for the license; |
|
(2) the license holder or an officer, partner, member, |
|
or director of the license holder has been guilty of fraudulent or |
|
dishonest practices, is subject to a final administrative action, |
|
or is otherwise shown to be untrustworthy or incompetent to act as a |
|
license holder; |
|
(3) the license holder is a provider and demonstrates |
|
a pattern of unreasonably withholding payments to policy owners; |
|
(4) the license holder no longer meets the |
|
requirements for initial licensure; |
|
(5) the license holder or any officer, partner, |
|
member, or director of the license holder has been convicted of a |
|
felony, or of any misdemeanor with respect to which criminal fraud |
|
is an element, or has pleaded guilty or nolo contendere with respect |
|
to a felony or a misdemeanor with respect to which criminal fraud or |
|
moral turpitude is an element, regardless of whether a judgment of |
|
conviction has been entered by the court; |
|
(6) the license holder is a provider and has entered |
|
into a life settlement contract using a form that has not been |
|
approved under this chapter; |
|
(7) the license holder is a provider and has failed to |
|
honor contractual obligations in a life settlement contract; |
|
(8) the license holder is a provider and has assigned, |
|
transferred, or pledged a settled policy to a person other than a |
|
provider licensed in this state, a purchaser, an accredited |
|
investor or qualified institutional buyer as defined respectively |
|
in 17 C.F.R. Section 230.144A, as amended, a financing entity, a |
|
special purpose entity, or a related provider trust; or |
|
(9) the license holder or any officer, partner, |
|
member, or key management personnel of the license holder has |
|
violated this chapter. |
|
(b) The commissioner may deny a license application or |
|
suspend, revoke, or refuse to renew the license of a license holder |
|
in accordance with Chapter 2001, Government Code. |
|
Sec. 1111A.005. REQUIREMENTS FOR CONTRACT FORMS, |
|
DISCLOSURE FORMS, AND ADVERTISEMENTS. (a) A person may not use |
|
any form of life settlement contract in this state unless the form |
|
has been filed with and approved, if required, by the commissioner |
|
in a manner that conforms with the filing procedures and any time |
|
restrictions or deeming provisions for life insurance forms, |
|
policies, and contracts. |
|
(b) An insurer may not, as a condition of responding to a |
|
request for verification of coverage or in connection with the |
|
transfer of a policy pursuant to a life settlement contract, |
|
require that the owner, insured, provider, or broker sign any form, |
|
disclosure, consent, waiver, or acknowledgment that has not been |
|
expressly approved by the commissioner for use in connection with |
|
life settlement contracts. |
|
(c) A person may not use a life settlement contract form or |
|
provide to an owner a disclosure statement form unless the form is |
|
first filed with and approved by the commissioner. The |
|
commissioner shall disapprove a life settlement contract form or |
|
disclosure statement form if, in the commissioner's opinion, the |
|
contract or contract provisions fail to meet the requirements of |
|
Sections 1111A.011, 1111A.012, 1111A.014, and 1111A.023(b), or are |
|
unreasonable, contrary to the interests of the public, or otherwise |
|
misleading or unfair to the owner. |
|
(d) At the commissioner's discretion, the commissioner may |
|
require the submission of advertisements. |
|
Sec. 1111A.006. REPORTING REQUIREMENTS AND PRIVACY. |
|
(a) For a policy settled not later than the fifth anniversary of |
|
the date of policy issuance, each provider shall file with the |
|
commissioner not later than March 1 of each year an annual statement |
|
containing the information that the commissioner prescribes by |
|
rule. In addition to any other requirements, the annual statement |
|
must specify the total number, aggregate face amount, and life |
|
settlement proceeds of policies settled during the immediately |
|
preceding calendar year, together with a breakdown of the |
|
information by policy issue year. The annual statement must also |
|
include the names of each insurance company whose policies have |
|
been settled and the brokers that have settled the policies. |
|
(b) The information required under Subsection (a) is |
|
limited to only those transactions in which the insured is a |
|
resident of this state and may not include individual transaction |
|
data regarding the business of life settlements or information if |
|
there is a reasonable basis to find that the information could be |
|
used to identify the owner or the insured. |
|
(c) A provider that wilfully fails to file an annual |
|
statement as required in this section, or wilfully fails to reply |
|
not later than the 30th day after the date the provider receives a |
|
written inquiry from the department about the filing of the annual |
|
statement, shall, in addition to other penalties provided by this |
|
chapter, after notice and opportunity for hearing be subject to a |
|
penalty of up to $250 for each day of delay, not to exceed $25,000 in |
|
the aggregate, for the failure to file or respond. |
|
(d) Except as otherwise allowed or required by law, a |
|
provider, broker, insurance company, insurance agent, information |
|
bureau, rating agency or company, or any other person with actual |
|
knowledge of an insured's identity, may not disclose the identity |
|
of an insured or information that there is a reasonable basis to |
|
believe could be used to identify the insured or the insured's |
|
financial or medical information to any other person unless the |
|
disclosure is: |
|
(1) necessary to effect a life settlement contract |
|
between the owner and a provider and the owner and insured have |
|
provided prior written consent to the disclosure; |
|
(2) necessary to effectuate the sale of a life |
|
settlement contract, or interests in the contract, as an |
|
investment, provided the sale is conducted in accordance with |
|
applicable state and federal securities law and provided further |
|
that the owner and the insured have both provided prior written |
|
consent to the disclosure; |
|
(3) provided in response to an investigation or |
|
examination by the commissioner or another governmental officer or |
|
agency or under Section 1111A.018; |
|
(4) a term or condition of the transfer of a policy by |
|
one provider to another licensed provider, in which case the |
|
receiving provider shall comply with the confidentiality |
|
requirements of this subsection; |
|
(5) necessary to allow the provider or broker or the |
|
provider's or broker's authorized representative to make contact |
|
for the purpose of determining health status provided that in this |
|
subdivision, authorized representative does not include a person |
|
who has or may have a financial interest in the settlement contract |
|
other than a provider, licensed broker, financing entity, related |
|
provider trust, or special purpose entity and that the provider or |
|
broker requires the authorized representative to agree in writing |
|
to adhere to the privacy provisions of this chapter; or |
|
(6) required to purchase stop loss coverage. |
|
(e) Nonpublic personal information solicited or obtained in |
|
connection with a proposed or actual life settlement contract is |
|
subject to the provisions applicable to financial institutions |
|
under the federal Gramm-Leach-Bliley Act (Pub. L. No. 106-102), and |
|
any other state and federal laws relating to confidentiality of |
|
nonpublic personal information. |
|
Sec. 1111A.007. EXAMINATION. Subchapter B, Chapter 401, |
|
applies to a person engaged in the business of life settlements. |
|
Sec. 1111A.008. IMMUNITY FROM LIABILITY. (a) No cause of |
|
action shall arise nor shall any liability be imposed against the |
|
commissioner, the commissioner's authorized representatives, or |
|
any examiner appointed by the commissioner for a statement made or |
|
conduct performed in good faith while carrying out this chapter. |
|
(b) No cause of action shall arise, nor shall any liability |
|
be imposed against any person for the act of communicating or |
|
delivering information to the commissioner or the commissioner's |
|
authorized representative or examiner pursuant to an examination |
|
made under this chapter, if the act of communication or delivery was |
|
performed in good faith and without fraudulent intent or the intent |
|
to deceive. This subsection does not abrogate or modify in any way |
|
any common law or statutory privilege or immunity enjoyed by any |
|
person identified in Subsection (a). |
|
Sec. 1111A.009. INVESTIGATIVE AUTHORITY OF THE |
|
COMMISSIONER. The commissioner may investigate a suspected |
|
fraudulent life settlement act and a person engaged in the business |
|
of life settlements. |
|
Sec. 1111A.010. COST OF EXAMINATIONS. The reasonable and |
|
necessary cost of an examination under this chapter is to be |
|
assessed against the person being examined in accordance with |
|
Section 751.208. |
|
Sec. 1111A.011. ADVERTISING. (a) A broker or provider |
|
licensed pursuant to this chapter may conduct or participate in an |
|
advertisement in this state. The advertisement must comply with |
|
all advertising and marketing laws under Chapter 541 and rules |
|
adopted by the commissioner that are applicable to life insurers or |
|
to license holders under this chapter. |
|
(b) Advertisements shall be accurate, truthful, and not |
|
misleading in fact or by implication. |
|
(c) A person may not: |
|
(1) market, advertise, solicit, or otherwise promote |
|
the purchase of a policy for the sole purpose of or with an emphasis |
|
on settling the policy; or |
|
(2) use the words "free," "no cost," or words of |
|
similar import in the marketing, advertising, or soliciting of, or |
|
otherwise promoting, the purchase of a policy. |
|
Sec. 1111A.012. DISCLOSURES TO OWNERS. (a) The broker, or |
|
the provider if no broker is involved in the application, shall |
|
provide in writing, in a separate document that is signed by the |
|
owner, the following information to the owner not later than the |
|
date of application for a life settlement contract: |
|
(1) the fact that possible alternatives to life |
|
settlement contracts exist, including accelerated benefits offered |
|
by the issuer of the life insurance policy; |
|
(2) the fact that some or all of the proceeds of a life |
|
settlement contract may be taxable and that assistance should be |
|
sought from a professional tax advisor; |
|
(3) the fact that the proceeds from a life settlement |
|
contract could be subject to the claims of creditors; |
|
(4) the fact that receipt of proceeds from a life |
|
settlement contract may adversely affect the recipients' |
|
eligibility for public assistance or other government benefits or |
|
entitlements and that advice should be obtained from the |
|
appropriate agency; |
|
(5) the fact that the owner has a right to terminate a |
|
life settlement contract within 15 days of the date the contract is |
|
executed by all parties and the owner has received the disclosures |
|
described in this section, that rescission, if exercised by the |
|
owner, is effective only if both notice of the rescission is given |
|
and the owner repays all proceeds and any premiums, loans, and loan |
|
interest paid on account of the provider during the rescission |
|
period, and that if the insured dies during the rescission period, |
|
the contract is considered rescinded subject to repayment by the |
|
owner or the owner's estate of all proceeds and any premiums, loans, |
|
and loan interest to the provider; |
|
(6) the fact that proceeds will be sent to the owner |
|
within three business days after the provider has received the |
|
insurer or group administrator's acknowledgement that ownership of |
|
the policy or interest in the certificate has been transferred and |
|
the beneficiary has been designated in accordance with the terms of |
|
the life settlement contract; |
|
(7) the fact that entering into a life settlement |
|
contract may cause the owner to forfeit other rights or benefits, |
|
including conversion rights and waiver of premium benefits that may |
|
exist under the policy or certificate of a group policy, and that |
|
assistance should be sought from a professional financial advisor; |
|
(8) the amount and method of calculating the |
|
compensation, including anything of value, paid or given, or to be |
|
paid or given, to the broker, or any other person acting for the |
|
owner in connection with the transaction; |
|
(9) the date by which the funds will be available to |
|
the owner and the identity of the transmitter of the funds; |
|
(10) the fact that the commissioner requires delivery |
|
of a buyer's guide or a similar consumer advisory package in the |
|
form prescribed by the commissioner to owners during the |
|
solicitation process; |
|
(11) the following language: "All medical, financial, |
|
or personal information solicited or obtained by a provider or |
|
broker about an insured, including the insured's identity or the |
|
identity of family members or a spouse or a significant other, may |
|
be disclosed as necessary to effect the life settlement contract |
|
between the owner and provider. If you are asked to provide this |
|
information, you will be asked to consent to the disclosure. The |
|
information may be provided to someone who buys the policy or |
|
provides funds for the purchase. You may be asked to renew your |
|
permission to share information every two years."; |
|
(12) the fact that the commissioner requires providers |
|
and brokers to print separate signed fraud warnings on the |
|
applications and on the life settlement contracts as follows: "Any |
|
person who knowingly presents false information in an application |
|
for insurance or a life settlement contract is guilty of a crime and |
|
may be subject to fines and confinement in prison."; |
|
(13) the fact that the insured may be contacted by |
|
either the provider or broker or an authorized representative of |
|
the provider or broker for the purpose of determining the insured's |
|
health status or to verify the insured's address and that this |
|
contact is limited to once every three months if the insured has a |
|
life expectancy of more than one year, and not more than once per |
|
month if the insured has a life expectancy of one year or less; |
|
(14) the affiliation, if any, between the provider and |
|
the issuer of the insurance policy to be settled; |
|
(15) that a broker represents exclusively the owner, |
|
and not the insurer or the provider or any other person, and owes a |
|
fiduciary duty to the owner, including a duty to act according to |
|
the owner's instructions and in the best interest of the owner; |
|
(16) the name, address, and telephone number of the |
|
provider; |
|
(17) the name, business address, and telephone number |
|
of the independent third party escrow agent, and the fact that the |
|
owner may inspect or receive copies of the relevant escrow or trust |
|
agreements or documents; and |
|
(18) the fact that a change of ownership could in the |
|
future limit the insured's ability to purchase future insurance on |
|
the insured's life because there is a limit to how much coverage |
|
insurers will issue on one life. |
|
(b) The written disclosures described by Subsection (a) |
|
must be conspicuously displayed in a life settlement contract |
|
furnished to the owner by a provider, including any affiliations or |
|
contractual arrangements between the provider and the broker. |
|
(c) A broker shall provide the owner and the provider with |
|
at least the following disclosures not later than the date on which |
|
the life settlement contract is signed by all parties and which must |
|
be conspicuously displayed in the life settlement contract or in a |
|
separate document signed by the owner: |
|
(1) the name, business address, and telephone number |
|
of the broker; |
|
(2) a full, complete, and accurate description of all |
|
the offers, counter-offers, acceptances, and rejections relating |
|
to the proposed life settlement contract; |
|
(3) a written disclosure of any affiliations or |
|
contractual arrangements between the broker and any person making |
|
an offer in connection with the proposed life settlement contract; |
|
(4) the name of each broker who receives compensation |
|
and the amount of compensation, including anything of value, paid |
|
or given to the broker in connection with the life settlement |
|
contract; and |
|
(5) a complete reconciliation of the gross offer or |
|
bid by the provider to the net amount of proceeds or value to be |
|
received by the owner. |
|
(d) For the purpose of this section, "gross offer or bid" |
|
means the total amount or value offered by the provider for the |
|
purchase of one or more life insurance policies, inclusive of |
|
commissions and fees. |
|
(e) The failure to provide the disclosures or rights |
|
described in this section is an unfair method of competition or an |
|
unfair or deceptive act or practice. |
|
Sec. 1111A.013. DISCLOSURE TO INSURER. (a) Without |
|
limiting the ability of an insurer to assess the insurability of a |
|
policy applicant and to determine whether to issue the policy, and |
|
in addition to other questions an insurance carrier may lawfully |
|
pose to a life insurance applicant, an insurer may inquire in the |
|
application for insurance whether the proposed owner intends to pay |
|
premiums with the assistance of financing from a lender that will |
|
use the policy as collateral to support the financing. |
|
(b) If, as described in Sections 1111A.002(11) and (11-A), |
|
the loan provides funds that can be used for a purpose other than |
|
paying for the premiums, costs, and expenses associated with |
|
obtaining and maintaining the life insurance policy and loan, and |
|
notwithstanding any other law, the application must be rejected as |
|
a violation of Section 1111A.017. |
|
(c) If the financing does not violate Section 1111A.017, the |
|
insurance carrier: |
|
(1) may make disclosures, not later than the date of |
|
the delivery of the policy, to the applicant and the insured, either |
|
on the application or on an amendment to the application that |
|
include the following or substantially similar statements: |
|
"If you have entered into a loan arrangement in which the policy is |
|
used as collateral, and the policy does change ownership at some |
|
point in the future in satisfaction of the loan, the following may |
|
be true: |
|
(A) a change of ownership could lead to a |
|
stranger owning an interest in the insured's life; |
|
(B) a change of ownership could in the future |
|
limit your ability to purchase future insurance on the insured's |
|
life because there is a limit to how much coverage insurers will |
|
issue on one life; |
|
(C) should there be a change of ownership and you |
|
wish to obtain more insurance coverage on the insured's life in the |
|
future, the insured's higher issue age, a change in health status, |
|
or other factors may reduce the ability to obtain coverage or may |
|
result in significantly higher premiums; and |
|
(D) you should consult a professional advisor, |
|
since a change in ownership in satisfaction of the loan may result |
|
in tax consequences to the owner, depending on the structure of the |
|
loan."; |
|
(2) may require certifications, such as the following, |
|
from the applicant or the insured: |
|
(A) "I have not entered into any agreement or |
|
arrangement providing for the future sale of this life insurance |
|
policy"; |
|
(B) "My loan arrangement for this policy provides |
|
funds sufficient to pay for some or all of the premiums, costs, and |
|
expenses associated with obtaining and maintaining my life |
|
insurance policy, but I have not entered into any agreement by which |
|
I am to receive consideration in exchange for procuring this |
|
policy"; and |
|
(C) "The borrower has an insurable interest in |
|
the insured." |
|
Sec. 1111A.014. GENERAL RULES. (a) Before entering into a |
|
life settlement contract with an owner of a policy with respect to |
|
which the insured is terminally or chronically ill, the provider |
|
must obtain: |
|
(1) if the owner is the insured, a written statement |
|
from a licensed attending physician that the owner is of sound mind |
|
and under no constraint or undue influence to enter into a |
|
settlement contract; and |
|
(2) a document in which the insured consents to the |
|
release of medical records to a provider, settlement broker, or |
|
insurance agent and, if the policy was issued less than two years |
|
after the date of application for a settlement contract, to the |
|
insurance company that issued the policy. |
|
(b) An insurer shall respond to a request for verification |
|
of coverage submitted by a provider, settlement broker, or life |
|
insurance agent not later than the 30th calendar day after the date |
|
the request is received. The request for verification of coverage |
|
must be made on a form approved by the commissioner. The insurer |
|
shall complete and issue the verification of coverage or indicate |
|
in which respects the insurer is unable to respond. In the |
|
response, the insurer shall indicate whether at the time of the |
|
response, based on the medical evidence and documents provided, the |
|
insurer intends to pursue an investigation about the validity of |
|
the insurance contract. |
|
(c) On or before the date of execution of the life |
|
settlement contract, the provider shall obtain a witnessed document |
|
in which the owner consents to the settlement contract, represents |
|
that the owner has a full and complete understanding of the |
|
settlement contract and of the benefits of the policy, acknowledges |
|
that the owner is entering into the settlement contract freely and |
|
voluntarily, and, for persons with a terminal or chronic illness or |
|
condition, acknowledges that the insured has a terminal or chronic |
|
illness and that the terminal or chronic illness or condition was |
|
diagnosed after the policy was issued. |
|
(d) The insurer may not unreasonably delay effecting change |
|
of ownership or beneficiary with any life settlement contract |
|
lawfully entered into in this state or with a resident of this |
|
state. |
|
(e) If a settlement broker or life insurance agent performs |
|
any of these activities required of the provider, the provider is |
|
deemed to have fulfilled the requirements of this section. |
|
(f) If a broker performs the verification of coverage |
|
activities required of the provider, the provider is deemed to have |
|
fulfilled the requirements of Section 1111A.012. |
|
(g) Not later than the 20th day after the date that an owner |
|
executes the life settlement contract, the provider shall give |
|
written notice to the insurer that issued that insurance policy |
|
that the policy has become subject to a life settlement contract. |
|
The notice shall be accompanied by the documents required by |
|
Section 1111A.013(c). |
|
(h) Medical information solicited or obtained by a license |
|
holder is subject to the applicable provision of state law relating |
|
to confidentiality of medical information, if not otherwise |
|
provided in this chapter. |
|
(i) A life settlement contract entered into in this state |
|
must provide that the owner may rescind the contract on or before 15 |
|
days after the date the contract is executed by all parties to the |
|
contract. Rescission, if exercised by the owner, is effective only |
|
if notice of the rescission is given and the owner repays all |
|
proceeds and any premiums, loans, and loan interest paid on account |
|
of the provider within the rescission period. If the insured dies |
|
during the rescission period, the contract is rescinded subject to |
|
repayment by the owner or the owner's estate of all proceeds and any |
|
premiums, loans, and loan interest to the provider. |
|
(j) Not later than the third business day after the date the |
|
provider receives from the owner the documents to effect the |
|
transfer of the insurance policy, the provider shall pay the |
|
proceeds of the settlement into an escrow or trust account managed |
|
by a trustee or escrow agent in a state or federally chartered |
|
financial institution pending acknowledgement of the transfer by |
|
the issuer of the policy. The trustee or escrow agent shall |
|
transfer to the owner the proceeds due to the owner not later than |
|
the third business day after the date the trustee or escrow officer |
|
receives from the insurer acknowledgment of the transfer of the |
|
insurance policy. |
|
(k) Failure to tender the life settlement contract proceeds |
|
to the owner on or before the date disclosed to the owner renders |
|
the contract voidable by the owner for lack of consideration until |
|
the time the proceeds are tendered to and accepted by the owner. A |
|
failure to give written notice of the right of rescission under this |
|
subsection tolls the right of rescission for 30 days after the date |
|
the written notice of the right of rescission has been given. |
|
(l) A fee paid by a provider, an owner, or other person to a |
|
broker in exchange for services provided to the owner pertaining to |
|
a life settlement contract must be computed as a percentage of the |
|
offer obtained, not the face value of the policy. Nothing in this |
|
section prohibits a broker from voluntarily reducing the broker's |
|
fee to less than a percentage of the offer obtained. |
|
(m) A broker shall disclose to the owner anything of value |
|
paid or given to a broker that relates to a life settlement |
|
contract. |
|
(n) A person, at any time prior to or at the time of the |
|
application for, or issuance of, a policy, or during a two-year |
|
period beginning on the date of issuance of the policy, may not |
|
enter into a life settlement contract regardless of the date the |
|
compensation is to be provided and regardless of the date the |
|
assignment, transfer, sale, devise, bequest, or surrender of the |
|
policy is to occur. This prohibition does not apply if: |
|
(1) the owner certifies to the provider that the |
|
policy was issued on the 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 24 months; or |
|
(2) the owner submits independent evidence to the |
|
provider that one or more of the following conditions have been met |
|
during the two-year period described by this subsection: |
|
(A) the owner or insured is terminally or |
|
chronically ill; |
|
(B) the owner or insured disposes of the owner's |
|
or insured's ownership interests in a closely held corporation, |
|
pursuant to the terms of a buyout or other similar agreement in |
|
effect at the time the insurance policy was initially issued; |
|
(C) the owner's spouse dies; |
|
(D) the owner divorces the owner's spouse; |
|
(E) the owner retires from full-time employment; |
|
(F) the owner becomes physically or mentally |
|
disabled and a physician determines that the disability prevents |
|
the owner from maintaining full-time employment; or |
|
(G) a final order, judgment, or decree is entered |
|
by a court of competent jurisdiction, on the application of a |
|
creditor of the owner, adjudicating the owner bankrupt or |
|
insolvent, or approving a petition seeking reorganization of the |
|
owner or appointing a receiver, trustee, or liquidator to all or a |
|
substantial part of the owner's assets. |
|
(o) For the purposes of Subsection (n)(1), time covered |
|
under a group policy must be calculated without regard to a change |
|
in insurance carriers, provided the coverage has been continuous |
|
and under the same group sponsorship. |
|
(p) Copies of the independent evidence described by |
|
Subsection (n)(2) must be submitted to the insurer at the time the |
|
provider submits a request to the insurer for verification of |
|
coverage. The copies must be accompanied by a letter of attestation |
|
from the provider that the copies are true and correct copies of the |
|
documents received by the provider. This section does not prohibit |
|
an insurer from exercising its right to contest the validity of a |
|
policy. |
|
(q) If the provider submits to the insurer a copy of |
|
independent evidence provided for Subsection (n)(2)(A) at the time |
|
the provider submits a request to the insurer to effect the transfer |
|
of the policy to the provider, the copy is deemed to establish that |
|
the settlement contract satisfies the requirements of this section. |
|
Sec. 1111A.015. AUTHORITY TO ADOPT RULES. (a) The |
|
commissioner may adopt rules implementing this chapter and |
|
regulating the activities and relationships of providers, brokers, |
|
insurers, and their authorized representatives. |
|
(b) The commissioner may not adopt a rule establishing a |
|
price or fee for the sale or purchase of a life settlement contract. |
|
This subsection does not prohibit the commissioner from adopting a |
|
rule relating to an unjust price or fee for the sale or purchase of a |
|
life settlement contract. |
|
(c) The commissioner may not adopt a rule that regulates the |
|
actions of an investor providing money to a life or viatical |
|
settlement company. |
|
Sec. 1111A.016. CONFLICT OF LAWS. (a) If there is more |
|
than one owner on a single policy, and the owners are residents of |
|
different states, the life settlement contract is governed by the |
|
law of the state in which the owner having the largest percentage |
|
ownership resides or, if the owners hold equal ownership, the state |
|
of residence of one owner agreed on in writing by all of the owners. |
|
The law of the state of the insured shall govern in the event that |
|
equal owners fail to agree in writing on a state of residence for |
|
jurisdictional purposes. |
|
(b) A provider licensed in this state who enters into a life |
|
settlement contract with an owner who is a resident of another state |
|
that has enacted statutes or adopted rules governing life |
|
settlement contracts is governed in the effectuation of that life |
|
settlement contract by the statutes and rules of the owner's state |
|
of residence. If the state in which the owner is a resident has not |
|
enacted statutes or adopted rules governing life settlement |
|
contracts, the provider shall give the owner notice that neither |
|
state regulates the transaction on which the owner is entering. For |
|
transactions in those states, however, the provider shall maintain |
|
all records required by this chapter if the transactions were |
|
executed in this state. The forms used in those states need not be |
|
approved by the department. |
|
(c) If there is a conflict in the laws that apply to an owner |
|
and a purchaser in any individual transaction, the laws of the state |
|
that apply to the owner shall take precedence and the provider shall |
|
comply with those laws. |
|
Sec. 1111A.017. PROHIBITED PRACTICES. (a) A person may |
|
not: |
|
(1) enter into a life settlement contract if the |
|
person knows or reasonably should have known that the life |
|
insurance policy was obtained by means of a false, deceptive, or |
|
misleading application for the policy; |
|
(2) engage in a transaction, practice, or course of |
|
business if the person knows or reasonably should have known that |
|
the intent of engaging in the transaction, practice, or course of |
|
business is to avoid the notice requirements of this chapter; |
|
(3) engage in a fraudulent act or practice in |
|
connection with a transaction relating to any settlement involving |
|
an owner who is a resident of this state; |
|
(4) issue, solicit, market, or otherwise promote the |
|
purchase of an insurance policy for the purpose of, or with an |
|
emphasis on, settling the policy; |
|
(5) if providing premium financing, receive any |
|
proceeds, fee, or other consideration from the policy or owner in |
|
addition to the amounts required to pay principal, interest, and |
|
any reasonable costs or expenses incurred by the lender or borrower |
|
in connection with the premium finance agreement, except in event |
|
of a default, unless either the default on the loan or transfer of |
|
the policy occurs pursuant to an agreement or understanding with |
|
any other person for the purpose of evading regulation under this |
|
chapter; |
|
(6) with respect to any settlement contract or |
|
insurance policy and to a broker, knowingly solicit an offer from, |
|
effectuate a life settlement contract with, or make a sale to any |
|
provider, financing entity, or related provider trust that is |
|
controlling, controlled by, or under common control with the broker |
|
unless the relationship is fully disclosed to the owner; |
|
(7) with respect to any life settlement contract or |
|
insurance policy and a provider, knowingly enter into a life |
|
settlement contract with an owner if, in connection with the life |
|
settlement contract, anything of value will be paid to a broker that |
|
is controlling, controlled by, or under common control with the |
|
provider or the financing entity or related provider trust that is |
|
involved in such settlement contract, unless the relationship is |
|
fully disclosed to the owner; |
|
(8) with respect to a provider, enter into a life |
|
settlement contract unless the life settlement promotional, |
|
advertising, and marketing materials, as may be prescribed by rule, |
|
have been filed with the commissioner, provided that in no event may |
|
any marketing materials expressly reference that the insurance is |
|
free for any period of time; or |
|
(9) with respect to any life insurance agent, |
|
insurance company, broker, or provider, make any statement or |
|
representation to the applicant or policyholder in connection with |
|
the sale or financing of a life insurance policy to the effect that |
|
the insurance is free or without cost to the policyholder for any |
|
period of time unless provided in the policy. |
|
(b) A violation of this section is a fraudulent life |
|
settlement act. |
|
Sec. 1111A.018. FRAUD PREVENTION AND CONTROL. (a) A |
|
person may not commit a fraudulent life settlement act. |
|
(b) A person may not interfere with the enforcement of this |
|
chapter or an investigation of a suspected or actual violation of |
|
this chapter. |
|
(c) A person in the business of life settlements may not |
|
knowingly or intentionally permit a person convicted of a felony |
|
involving dishonesty or breach of trust to participate in the |
|
business of life settlements. |
|
(d) A life settlement contract and an application for a life |
|
settlement contract, regardless of the form of transmission, must |
|
contain the following, or a substantially similar, statement: "Any |
|
person who knowingly presents false information in an application |
|
for insurance or a life settlement contract is guilty of a crime and |
|
may be subject to fines and confinement in prison." |
|
(e) The failure to include a statement as required in |
|
Subsection (d) is not a defense in any prosecution for a fraudulent |
|
life settlement act. |
|
Sec. 1111A.019. MANDATORY REPORTING OF FRAUDULENT LIFE |
|
SETTLEMENT ACTS. A person engaged in the business of life |
|
settlements has a duty under Section 701.051 to report a fraudulent |
|
life settlement act. |
|
Sec. 1111A.020. CONFIDENTIALITY. (a) The documents and |
|
evidence obtained by the commissioner in an investigation of a |
|
suspected or an actual fraudulent life settlement act are |
|
privileged and confidential, are not a public record, and are not |
|
subject to discovery or subpoena in a civil or criminal action. |
|
(b) Subsection (a) does not prohibit release by the |
|
commissioner of documents and evidence obtained in an investigation |
|
of a suspected or an actual fraudulent life settlement act: |
|
(1) in an administrative or judicial proceeding to |
|
enforce a provision of this code or another insurance law of this |
|
state; |
|
(2) to a federal, state, or local law enforcement or |
|
regulatory agency, to an organization established for the purpose |
|
of detecting and preventing a fraudulent life settlement act, or to |
|
the National Association of Insurance Commissioners; or |
|
(3) at the discretion of the commissioner, to a person |
|
in the business of life settlements that is aggrieved by a |
|
fraudulent life settlement act. |
|
(c) Release of documents and evidence under Subsection (b) |
|
does not abrogate or modify the privilege granted in Subsection |
|
(a). |
|
Sec. 1111A.021. OTHER LAW ENFORCEMENT OR REGULATORY |
|
AUTHORITY. This chapter does not: |
|
(1) preempt the authority or relieve the duty of |
|
another law enforcement or regulatory agency to investigate, |
|
examine, and prosecute a suspected violation of law; |
|
(2) preempt, supersede, or limit any provision of any |
|
state securities law or any rule, order, or notice issued under the |
|
law; |
|
(3) prevent or prohibit a person from disclosing |
|
voluntarily information concerning life settlement fraud to a law |
|
enforcement or regulatory agency other than the department; or |
|
(4) limit the powers granted by the laws of this state |
|
to the commissioner or an insurance fraud unit to investigate and |
|
examine a possible violation of law and to take appropriate action |
|
against wrongdoers. |
|
Sec. 1111A.022. LIFE SETTLEMENT ANTIFRAUD INITIATIVES. |
|
(a) A provider or broker shall implement antifraud initiatives |
|
reasonably calculated to detect, prosecute, and prevent fraudulent |
|
life settlement acts. At the discretion of the commissioner, the |
|
commissioner may order, or a license holder may request and the |
|
commissioner may grant, a modification of the following required |
|
initiatives as necessary to ensure an effective antifraud program. |
|
A modification granted under this section may be more or less |
|
restrictive than the required initiatives so long as the |
|
modification may reasonably be expected to accomplish the purpose |
|
of this section. Antifraud initiatives must include: |
|
(1) fraud investigators, who may be provider or broker |
|
employees or independent contractors; and |
|
(2) an antifraud plan, which must be submitted to the |
|
commissioner and must include: |
|
(A) a description of the procedures for detecting |
|
and investigating possible fraudulent life settlement acts and |
|
procedures for resolving material inconsistencies between medical |
|
records and insurance applications; |
|
(B) a description of the procedures for reporting |
|
possible fraudulent life settlement acts to the commissioner; |
|
(C) a description of the plan for antifraud |
|
education and training of underwriters and other personnel; and |
|
(D) a description or chart outlining the |
|
organizational arrangement of the antifraud personnel who are |
|
responsible for the investigation and reporting of possible |
|
fraudulent life settlement acts and investigating unresolved |
|
material inconsistencies between medical records and insurance |
|
applications. |
|
(b) An antifraud plan submitted to the commissioner is |
|
privileged and confidential, is not subject to disclosure under |
|
Chapter 552, Government Code, and is not subject to discovery or |
|
subpoena in a civil action. |
|
Sec. 1111A.023. INJUNCTION; CIVIL REMEDIES; CEASE AND |
|
DESIST ORDERS. (a) In addition to the penalties and other |
|
enforcement provisions of this chapter, if any person violates this |
|
chapter or any rule implementing this chapter, the commissioner may |
|
seek an injunction in a court in the county where the person resides |
|
or has a principal place of business and may apply for temporary and |
|
permanent orders that the commissioner determines necessary to |
|
restrain the person from further committing the violation. |
|
(b) The commissioner may issue a cease and desist order |
|
against a person who violates any provision of this chapter, any |
|
rule or order adopted by the commissioner, or any written agreement |
|
entered into with the commissioner, in accordance with Chapter 82. |
|
(c) If the commissioner finds that an action in violation of |
|
this chapter presents an immediate danger to the public and |
|
requires an immediate final order, the commissioner may issue an |
|
emergency cease and desist order under Chapter 83. |
|
(d) The provisions of this chapter may not be waived by |
|
agreement. No choice of law provision may prevent the application |
|
of this chapter to any settlement. |
|
Sec. 1111A.024. PENALTIES. (a) It is a violation of this |
|
chapter for any person, provider, broker, or any other party |
|
related to the business of life settlements to commit a fraudulent |
|
life settlement act. |
|
(b) A person who knowingly, recklessly, or intentionally |
|
commits a fraudulent life settlement act commits a criminal offense |
|
and is subject to penalties under Chapter 35, Penal Code. |
|
(c) Subtitle B, Title 2, applies to a violation of this |
|
chapter. |
|
Sec. 1111A.025. APPLICABILITY OF OTHER INSURANCE LAWS. The |
|
following laws apply to a person engaged in the business of life |
|
settlements: |
|
(1) Chapters 82, 83, 84, 101, 481, and 701; |
|
(2) Sections 31.002, 32.021, 32.023, 32.041, 38.001, |
|
81.004, 86.001, 86.051, 86.052, 201.004, 401.051, 401.054, |
|
401.151(a), 521.003, 521.004, 543.001(c), 801.056, and 862.052; |
|
(3) Subchapter A, Chapter 32; |
|
(4) Subchapter C, Chapter 36; |
|
(5) Subchapter B, Chapter 404; and |
|
(6) Subchapter B, Chapter 491. |
|
Sec. 1111A.026. APPLICABILITY OF CERTAIN PROVISIONS TO LIFE |
|
EXPECTANCY ESTIMATORS. (a) The following provisions do not apply |
|
to a broker who acts solely as a life expectancy estimator: |
|
(1) Section 1111A.003(p); |
|
(2) Section 1111A.012; and |
|
(3) Sections 1111A.014(l) and (m). |
|
(b) The commissioner may exempt a broker who acts only as a |
|
life expectancy estimator from other provisions of this chapter if |
|
the commissioner finds that the application of those provisions to |
|
the broker is not necessary for the public welfare. |
|
SECTION 4. Section 1114.004(a), Insurance Code, is amended |
|
to read as follows: |
|
(a) Except as otherwise specifically provided by this |
|
chapter, this chapter does not apply to transactions involving: |
|
(1) credit life insurance; |
|
(2) group life insurance or group annuities for which |
|
there is no direct solicitation of individuals by an agent; |
|
(3) [group] life insurance and annuities used to fund |
|
prepaid funeral benefits contracts, as defined by Chapter 154, |
|
Finance Code; |
|
(4) an application to: |
|
(A) exercise a contractual change or a conversion |
|
privilege made to the insurer that issued the existing policy or |
|
contract; |
|
(B) replace an existing policy or contract by the |
|
insurer that issued the existing policy or contract under a program |
|
filed with and approved by the commissioner; or |
|
(C) exercise a term conversion privilege among |
|
corporate affiliates; |
|
(5) life insurance proposed to replace life insurance |
|
under a binding or conditional receipt issued by the same insurer; |
|
(6) a policy or contract used to fund: |
|
(A) an employee pension benefit plan or employee |
|
welfare benefit plan that is covered by the Employee Retirement |
|
Income Security Act of 1974 (29 U.S.C. Section 1001 et seq.); |
|
(B) a plan described by Section 401(a), 401(k), |
|
or 403(b), Internal Revenue Code of 1986, if established or |
|
maintained by an employer; |
|
(C) a government or church plan, as defined by |
|
Section 414, Internal Revenue Code of 1986, a government or church |
|
welfare benefit plan, or a deferred compensation plan of a state or |
|
local government or tax exempt organization described under Section |
|
457, Internal Revenue Code of 1986; or |
|
(D) a nonqualified deferred compensation |
|
arrangement established or maintained by an employer or plan |
|
sponsor; |
|
(7) new coverage provided under a life insurance |
|
policy or contract if the cost is borne wholly by the insured's |
|
employer or by an association of which the insured is a member; |
|
(8) an existing life insurance policy that is a |
|
nonconvertible term life insurance policy scheduled to expire in |
|
five years or less and that cannot be renewed; |
|
(9) immediate annuities purchased with proceeds from |
|
an existing contract; or |
|
(10) structured settlements. |
|
SECTION 5. Subchapter B, Chapter 1114, Insurance Code, is |
|
amended by adding Section 1114.057 to read as follows: |
|
Sec. 1114.057. DISCLOSURE OF AVAILABILITY OF WAIVER OF |
|
SURRENDER CHARGES. An insurer that offers to waive surrender |
|
charges as described by Section 541.058(b)(4) shall provide |
|
reasonable notice of that offer to the insurer's prospective or |
|
current contract holders. The notice may be provided by any |
|
available means, including a disclosure document or by display on a |
|
link that is prominently placed on the insurer's Internet website. |
|
SECTION 6. Section 1115.001, Insurance Code, is amended to |
|
read as follows: |
|
Sec. 1115.001. PURPOSE. The purpose of this chapter is to |
|
establish standards and procedures regarding recommendations made |
|
to a consumer that result in a transaction involving annuity |
|
products, and to require insurers to establish a system to |
|
supervise those recommendations, to ensure that the insurance needs |
|
and financial objectives of the consumer as of the time of the |
|
transaction are appropriately addressed. |
|
SECTION 7. Section 1115.002, Insurance Code, is amended by |
|
amending Subdivisions (2), (3), and (4) and adding Subdivisions |
|
(2-a), (5), and (6) to read as follows: |
|
(2) "Annuity" means an [a fixed, variable, or modified
|
|
guaranteed] annuity that is an insurance product under the laws of |
|
this state that is individually solicited, whether the product is |
|
classified as an individual annuity or group annuity. |
|
(2-a) "Continuing education provider" means a person |
|
authorized to offer continuing education courses under Chapter |
|
4004. |
|
(3) "Insurer" means a [an insurance] company |
|
authorized to engage in the business of life insurance and |
|
annuities in this state. |
|
(4) "Recommendation" means advice provided by an |
|
agent, or an insurer if no agent is involved, to an individual |
|
consumer that results in a purchase, [or] exchange, or replacement |
|
of an annuity made in accordance with that advice. |
|
(5) "Replacement" means a transaction in which a new |
|
policy or contract is to be purchased and the proposing agent, or |
|
the proposing insurer if an agent is not involved, knows or should |
|
know that, by reason of the transaction, an existing policy or |
|
contract has been or is to be: |
|
(A) lapsed, forfeited, surrendered or partially |
|
surrendered, assigned to the replacing insurer, or otherwise |
|
terminated; |
|
(B) converted to reduced paid-up insurance, |
|
continued as extended term insurance, or otherwise reduced in value |
|
by the use of nonforfeiture benefits or other policy values; |
|
(C) amended so as to effect either a reduction in |
|
benefits or in the term for which coverage would otherwise remain in |
|
force or for which benefits would be paid; |
|
(D) reissued with any reduction in cash value; or |
|
(E) used in a financed purchase. |
|
(6) "Suitability information" means information that |
|
is reasonably appropriate to determine the suitability of a |
|
recommendation, including the following: |
|
(A) age; |
|
(B) annual income; |
|
(C) financial situation and needs, including the |
|
financial resources used for the funding of the annuity; |
|
(D) financial experience; |
|
(E) financial objectives; |
|
(F) intended use of the annuity; |
|
(G) financial time horizon; |
|
(H) existing assets, including investment and |
|
life insurance holdings; |
|
(I) liquidity needs; |
|
(J) liquid net worth; |
|
(K) risk tolerance; and |
|
(L) tax status. |
|
SECTION 8. Section 1115.003, Insurance Code, is amended to |
|
read as follows: |
|
Sec. 1115.003. APPLICABILITY; EXEMPTIONS. (a) This |
|
chapter applies to any recommendation to purchase, replace, or |
|
exchange an annuity that: |
|
(1) is made to a consumer by an agent, or an insurer if |
|
an agent is not involved; and |
|
(2) results in the recommended purchase, replacement, |
|
or exchange. |
|
(b) Unless otherwise specifically included, this chapter |
|
does not apply to transactions [recommendations] involving: |
|
(1) direct response solicitations if there is no |
|
recommendation based on information collected from the consumer |
|
under this chapter; or |
|
(2) contracts used to fund: |
|
(A) an employee pension benefit plan or employee |
|
welfare benefit plan covered by the Employee Retirement Income |
|
Security Act of 1974 (29 U.S.C. Section 1001 et seq.); |
|
(B) a plan described by Section 401(a), 401(k), |
|
403(b), 408(k), or 408(p), Internal Revenue Code of 1986, if |
|
established or maintained by an employer; |
|
(C) a government or church plan, as defined by |
|
Section 414, Internal Revenue Code of 1986, a government or church |
|
welfare benefit plan, or a deferred compensation plan of a state or |
|
local government or tax exempt organization described under Section |
|
457, Internal Revenue Code of 1986; |
|
(D) a nonqualified deferred compensation |
|
arrangement established or maintained by an employer or plan |
|
sponsor; |
|
(E) settlements of or assumptions of liabilities |
|
associated with personal injury litigation or any dispute or claim |
|
resolution process; or |
|
(F) prepaid funeral benefits contracts, as |
|
defined by Chapter 154, Finance Code. |
|
SECTION 9. Section 1115.051, Insurance Code, is amended to |
|
read as follows: |
|
Sec. 1115.051. SUITABILITY OF ANNUITY PRODUCT REQUIRED. |
|
(a) In recommending to a consumer the purchase of an annuity or the |
|
exchange of an annuity that results in another insurance |
|
transaction or series of insurance transactions, the agent, or the |
|
insurer if an agent is not involved, must have a reasonable basis to |
|
believe that: |
|
(1) the recommendation is suitable for the consumer on |
|
the basis of the facts disclosed by the consumer as to the |
|
consumer's investments and other insurance products and as to the |
|
consumer's financial situation and needs, including the consumer's |
|
suitability information; |
|
(2) the consumer has been reasonably informed of |
|
various features of the annuity, such as the potential surrender |
|
period and the surrender charge, any potential tax penalty if the |
|
consumer sells, exchanges, surrenders, or annuitizes the annuity, |
|
mortality and expense fees, investment advisory fees, potential |
|
charges for and features of riders, limitations on interest |
|
returns, insurance and investment components, and market risk; |
|
(3) the consumer would benefit from certain features |
|
of the annuity, such as tax-deferred growth, annuitization, or a |
|
death or living benefit; |
|
(4) the particular annuity as a whole, the underlying |
|
subaccounts to which funds are allocated at the time of the purchase |
|
or exchange of the annuity, and any riders or similar product |
|
enhancements are suitable, and, in the case of an exchange or |
|
replacement, the transaction as a whole is suitable, for the |
|
particular consumer based on the consumer's suitability |
|
information; and |
|
(5) in the case of an exchange or replacement of an |
|
annuity, the exchange or replacement is suitable, including taking |
|
into consideration whether the consumer: |
|
(A) will incur a surrender charge, be subject to |
|
the commencement of a new surrender period, lose existing benefits |
|
such as death, living, or other contractual benefits, or be subject |
|
to increased fees, investment advisory fees, or charges for riders |
|
or similar product enhancements; |
|
(B) would benefit from product enhancements and |
|
improvements; and |
|
(C) has had another annuity exchange or |
|
replacement, and in particular, an exchange or replacement in the |
|
preceding 36 months. |
|
(b) Before the execution of a purchase, exchange, or |
|
replacement of an annuity resulting from a recommendation, an |
|
agent, or an insurer if an agent is not involved, shall make |
|
reasonable efforts to obtain the consumer's suitability |
|
information. |
|
(c) Except as permitted by Subsection (d), an insurer may |
|
not issue an annuity recommended to a consumer unless the insurer |
|
has a reasonable basis to believe the annuity is suitable based on |
|
the consumer's suitability information. |
|
(d) Subject to Subsection (e), an agent or insurer does not |
|
have any obligation to a consumer related to an annuity transaction |
|
if: |
|
(1) the consumer refuses to provide suitability |
|
information requested by the agent or insurer; |
|
(2) the agent or insurer does not make a |
|
recommendation; |
|
(3) the agent or insurer makes a recommendation later |
|
found to have been prepared based on inaccurate material |
|
information provided by the consumer; or |
|
(4) the consumer decides to enter into a transaction |
|
that is not based on a recommendation of the agent or insurer. |
|
(e) An insurer's issuance of an annuity under circumstances |
|
described by Subsection (d) must be reasonable under all |
|
circumstances actually known to the insurer at the time the annuity |
|
is issued. |
|
(f) An agent, or an insurer if an agent is not involved, |
|
shall at the time of sale of an annuity: |
|
(1) make a record of any recommendation made by the |
|
agent or insurer that is subject to Subsection (a); |
|
(2) obtain a customer-signed statement documenting |
|
the customer's refusal, if any, to provide suitability information; |
|
and |
|
(3) obtain a customer-signed statement acknowledging |
|
that an annuity transaction is not recommended if the customer |
|
decides to enter into an annuity transaction that is not based on |
|
the agent's or insurer's recommendation. [Before the execution of a
|
|
purchase or exchange of an annuity resulting from a recommendation,
|
|
an agent, or the insurer if an agent is not involved, must make
|
|
reasonable efforts to obtain:
|
|
[(1) information from the consumer concerning:
|
|
[(A) the consumer's financial status;
|
|
[(B) the consumer's tax status; and
|
|
[(C) the consumer's investment objectives; and
|
|
[(2)
other relevant information used or considered to
|
|
be reasonable by the agent or that insurer in making
|
|
recommendations to consumers.
|
|
[(b)
In a recommendation to a consumer regarding the
|
|
purchase of an annuity or the exchange of an annuity that results in
|
|
another insurance transaction or series of insurance transactions,
|
|
an agent or the insurer, if an agent is not involved, has reasonable
|
|
grounds for believing that the recommendation is suitable for that
|
|
consumer based on the facts disclosed by the consumer regarding the
|
|
consumer's:
|
|
[(1) investments and other insurance products; and
|
|
[(2) financial situation and needs.
|
|
[(c)
An agent, or an insurer if an agent is not involved, has
|
|
no obligation to a consumer related to a recommendation if the
|
|
consumer:
|
|
[(1)
refuses to provide relevant information
|
|
requested by the agent or insurer;
|
|
[(2)
fails to provide complete or accurate information
|
|
on the request of the agent or insurer; or
|
|
[(3)
decides to enter into a transaction that is not
|
|
based on a recommendation of the agent or insurer.
|
|
[(d)
An agent's or insurer's recommendation subject to
|
|
Subsection (a) must be reasonable under all the circumstances
|
|
actually known to the agent or insurer at the time of the
|
|
recommendation.] |
|
SECTION 10. Section 1115.052, Insurance Code, is amended to |
|
read as follows: |
|
Sec. 1115.052. SUPERVISION [COMPLIANCE] SYSTEM. (a) Each |
|
insurer shall establish supervision [operate a system,] that is |
|
reasonably designed to achieve the insurer's and the insurer's |
|
agents' compliance with this chapter[, to supervise
|
|
recommendations]. |
|
(b) An insurer may comply with Subsection (a) [by complying
|
|
with Subsections (c)-(e) or] by establishing and maintaining the |
|
insurer's own supervision [compliance] system under which, at a |
|
minimum, the insurer [that complies with Subsection (c).
Each
|
|
agent and independent agency shall adopt an insurer's compliance
|
|
system or shall establish and maintain such a system.
|
|
[(c)
A compliance system established under Subsection
|
|
(b)
must include]: |
|
(1) maintains reasonable procedures to inform the |
|
insurer's agents of the requirements of this chapter and |
|
incorporates the requirements of this chapter into relevant agent |
|
training manuals [maintenance of written procedures]; [and] |
|
(2) establishes standards for agent product training |
|
and maintains reasonable procedures to require the insurer's agents |
|
to comply with the requirements of Section 1115.056; |
|
(3) provides product-specific training and training |
|
materials that explain all material features of the insurer's |
|
annuity products to the insurer's agents; |
|
(4) maintains procedures to review each |
|
recommendation electronically, physically, or otherwise before the |
|
issuance of an annuity that: |
|
(A) are designed to ensure that there is a |
|
reasonable basis to determine that a recommendation is suitable; |
|
and |
|
(B) may: |
|
(i) include the application of a screening |
|
system to identify selected transactions for additional review; and |
|
(ii) be designed to require additional |
|
review only of those transactions identified for additional review |
|
by the selection criteria; |
|
(5) maintains reasonable procedures, such as |
|
confirmation of consumer suitability information, systematic |
|
customer surveys, interviews, confirmation letters, and programs |
|
of internal monitoring, to detect recommendations that are not |
|
suitable, which may involve applying sampling procedures or |
|
confirming suitability information after the issuance or delivery |
|
of the annuity; and |
|
(6) annually provides a report to the insurer's senior |
|
management, including to the senior manager responsible for audit |
|
functions, that details a review, with appropriate testing, |
|
reasonably designed to determine the effectiveness of the |
|
supervision system, the exceptions found, and any corrective action |
|
taken or recommended [periodic reviews of the insurer's or agent's
|
|
records in a manner reasonably designed to assist in detecting and
|
|
preventing violations of this chapter]. |
|
(c) This subsection does not prohibit an insurer from |
|
contracting for the performance of a function, including |
|
maintenance of procedures, required by Subsection (b). An |
|
insurer's supervision system under Subsection (b) must include the |
|
supervision of contractual performance under this subsection that |
|
includes, at a minimum [(d)
An agent or insurer may contract with a
|
|
third party, including an agent or independent agency, to establish
|
|
and maintain a compliance system with respect to agents under
|
|
contract with or employed by the third party.
The agent or insurer
|
|
shall make reasonable inquiries sufficient to ensure that the third
|
|
party is performing the functions required under Subsection (a),
|
|
and shall take any action reasonable under the circumstances to
|
|
enforce the contractual obligation to perform those functions.
An
|
|
agent or insurer may comply with the obligation to make reasonable
|
|
inquiries by]: |
|
(1) annually obtaining certification that complies |
|
with Section 1115.053 from a senior manager who represents that the |
|
contracted function is properly performed [of the third party that
|
|
the third party is performing the required functions]; and |
|
(2) monitoring and, as appropriate, conducting audits |
|
to ensure that the contracted function is properly performed |
|
[periodically selecting third parties, based on reasonable
|
|
selection criteria, for a review to determine whether the third
|
|
parties are performing the required functions]. |
|
(d) [(e)
An agent or insurer shall adopt procedures for
|
|
conducting a review under Subsection (d)(2) that are reasonable
|
|
under the circumstances.
An insurer that contracts with a third
|
|
party under Subsection (d) and that complies with the requirements
|
|
to supervise under Subsection (d) is deemed to have complied with
|
|
the insurer's responsibilities under Subsection (b).
|
|
[(f)] An insurer[, agent, or independent agency] is not |
|
required by this section to[:
|
|
[(1)
review, or provide for review of, all
|
|
agent-solicited transactions; or
|
|
[(2)] include in the supervision [compliance] system |
|
an agent's recommendations to consumers of products other than the |
|
annuities offered by the insurer[, agent, or independent agency]. |
|
(e) An agent may not dissuade, or attempt to dissuade, a |
|
consumer from: |
|
(1) truthfully responding to an insurer's request for |
|
confirmation or suitability information; |
|
(2) filing a complaint; or |
|
(3) cooperating with the investigation of a complaint. |
|
SECTION 11. Section 1115.053, Insurance Code, is amended to |
|
read as follows: |
|
Sec. 1115.053. CERTIFICATION REQUIREMENTS. [(a) On
|
|
request by an insurer, an agent or independent agency that
|
|
contracts with an insurer under Section 1115.052(d) shall promptly
|
|
obtain a certification as described under Section 1115.052(d)(1) or
|
|
give a clear statement that it is unable to meet the certification
|
|
criteria.
|
|
[(b)] A person may not provide a certification under Section |
|
1115.052(c)(1) [1115.052(d)(1)] unless the person: |
|
(1) is a senior manager with responsibility for the |
|
delegated functions; and |
|
(2) has a reasonable basis for making the |
|
certification. |
|
SECTION 12. Section 1115.054, Insurance Code, is amended to |
|
read as follows: |
|
Sec. 1115.054. COMPLIANCE WITH CERTAIN NATIONAL STANDARDS. |
|
(a) Subject to Subsection (c), sales made in compliance |
|
[Compliance] with the conduct rules of the Financial Industry |
|
Regulatory Authority (FINRA) relating to suitability and |
|
supervision of annuity transactions, or the rules of another |
|
national organization recognized by the commissioner, satisfy |
|
[satisfies] the requirements of [under] this chapter. This section |
|
applies to FINRA member broker-dealer sales of variable annuities |
|
and fixed annuities if the suitability and supervision conduct |
|
rules are similar to those applied to variable annuity sales [for
|
|
the recommendation of annuities registered under the Securities Act
|
|
of 1933 (15 U.S.C. Section 77a et seq.) or rules or regulations
|
|
adopted under that Act]. |
|
(b) This section does not affect or limit the commissioner's |
|
ability to enforce or investigate under this chapter. |
|
(c) Subsection (a) applies only if the insurer: |
|
(1) monitors the FINRA member broker-dealer using |
|
information collected in the normal course of the insurer's |
|
business; and |
|
(2) provides to the FINRA member broker-dealer |
|
information and reports that are reasonably appropriate to assist |
|
the broker-dealer to maintain the broker-dealer's supervision |
|
system. |
|
SECTION 13. Section 1115.056, Insurance Code, is amended to |
|
read as follows: |
|
Sec. 1115.056. AGENT TRAINING [EDUCATION] REQUIREMENTS. |
|
(a) An agent may not solicit the sale of an annuity product unless |
|
the agent has adequate knowledge of the product to recommend the |
|
annuity and is in compliance with the insurer's standards for |
|
product training. An agent may rely on insurer-provided, |
|
product-specific training standards and materials to comply with |
|
this subsection. |
|
(b) An agent who engages in the sale of annuity products |
|
must complete a one-time training course approved by the department |
|
and provided by a continuing education provider. |
|
(c) The training required by Subsection (b) must be of a |
|
length sufficient to qualify for at least four continuing education |
|
credits, as determined by the commissioner in accordance with |
|
Chapter 4004 and any rules adopted under that chapter, but may be |
|
longer. The training required by Subsection (b) may be used to |
|
satisfy the continuing education requirements under Subchapters B |
|
and E, Chapter 4004, and is not in addition to the continuing |
|
education requirements in Section 4004.202. |
|
(d) The training required by Subsection (b) must include |
|
information on the following topics: |
|
(1) the types of annuities and various classifications |
|
of annuities; |
|
(2) identification of the parties to an annuity; |
|
(3) how fixed, variable, and indexed annuity contract |
|
provisions affect consumers; |
|
(4) the application of income taxation of qualified |
|
and nonqualified annuities; |
|
(5) the primary uses of annuities; and |
|
(6) appropriate sales practices, replacement, and |
|
disclosure requirements. |
|
(e) A provider of a course intended to comply with |
|
Subsection (b) must cover all topics listed in Subsection (d) and |
|
may not present any marketing information, provide training on |
|
sales techniques, or provide specific information about a |
|
particular insurer's products. Additional topics may be offered in |
|
conjunction with and in addition to the required topics. |
|
(f) A provider of a course intended to comply with |
|
Subsection (b) must register as a continuing education provider in |
|
this state and comply with the rules and guidelines applicable to |
|
agent continuing education courses provided by Chapter 4004. |
|
(g) An annuity training course may be conducted and |
|
completed by classroom or self-study methods in accordance with |
|
Chapter 4004. |
|
(h) A provider of annuity training under Subsection (b) must |
|
comply with the reporting requirements and issue certificates of |
|
completion in accordance with Chapter 4004. |
|
(i) The satisfaction of the training requirements of |
|
another state that are substantially similar to the provisions of |
|
this section is considered to satisfy the training requirements of |
|
this section. |
|
(j) An insurer must verify that an agent has completed the |
|
annuity training course required by this section before allowing |
|
the agent to sell an annuity product for that insurer. An insurer |
|
may satisfy the insurer's responsibility under this section by: |
|
(1) obtaining a certificate of completion of the |
|
training course or obtaining an appropriate report provided by the |
|
department; |
|
(2) using a department-sponsored database or vendor; |
|
or |
|
(3) using a reasonably reliable commercial database |
|
vendor that has a reporting arrangement with approved insurance |
|
education providers. [A resident agent that intends to sell,
|
|
solicit, or negotiate a contract for an annuity in this state or to
|
|
represent an insurer in relation to such an annuity must submit
|
|
evidence satisfactory to the department of completion of at least
|
|
four hours of training relating to annuities before soliciting
|
|
individual consumers for the purpose of selling annuities.
|
|
[(b)
The training required under Subsection (a) may be used
|
|
to satisfy the continuing education requirements imposed under this
|
|
code and rules adopted under this code for issuance of a license
|
|
under this code.] |
|
SECTION 14. Section 1115.101, Insurance Code, is amended to |
|
read as follows: |
|
Sec. 1115.101. MITIGATION. An insurer is responsible for |
|
compliance with this chapter. If a violation occurs because of the |
|
action or inaction of the insurer or the insurer's agent, the [The] |
|
commissioner may: |
|
(1) order: |
|
(A) the [(1) an] insurer to take reasonable |
|
appropriate corrective action for any consumer harmed by the |
|
insurer or by the insurer's agent because of a violation of this |
|
chapter; or |
|
(B) a general agency, independent agency, or the |
|
[(2) an] agent to take reasonably appropriate corrective action |
|
for any consumer harmed by the agent's violation of this chapter; |
|
and |
|
(2) impose appropriate sanctions as provided by |
|
Section 1115.102 [(3)
a managing general agent or independent
|
|
agency that employs or contracts with an agent to sell, or solicit
|
|
the sale of, annuities to consumers to take reasonably appropriate
|
|
corrective action for any consumer harmed by the agent's violation
|
|
of this chapter]. |
|
SECTION 15. Section 1115.102(b), Insurance Code, is amended |
|
to read as follows: |
|
(b) The commissioner shall [may] reduce or eliminate a |
|
sanction for a violation of this chapter otherwise applicable if: |
|
(1) corrective action for the consumer was taken |
|
promptly by the agent or insurer after a violation was discovered; |
|
or |
|
(2) the violation was not part of a pattern or |
|
practice. |
|
SECTION 16. Section 1551.255(a), Insurance Code, is amended |
|
to read as follows: |
|
(a) In this section, "viatical settlement" has the meaning |
|
assigned to "life settlement contract" by Section 1111A.002 |
|
[1111.001]. |
|
SECTION 17. Subchapter A, Chapter 1111, Insurance Code, is |
|
repealed. |
|
SECTION 18. (a) Section 541.058(b), Insurance Code, as |
|
amended by this Act, applies only to an exchange of life annuity |
|
contracts on or after the effective date of this Act. An exchange |
|
of life annuity contracts before the effective date of this Act is |
|
governed by the law in effect immediately before the effective date |
|
of this Act, and that law is continued in effect for that purpose. |
|
(b) Section 1114.004(a), Insurance Code, as amended by this |
|
Act, applies only to a transaction involving a life insurance or |
|
annuity policy or contract occurring on or after the effective date |
|
of this Act. A transaction involving a policy or contract occurring |
|
before the effective date of this Act is governed by the law in |
|
effect immediately before the effective date of this Act, and that |
|
law is continued in effect for that purpose. |
|
(c) Except as provided by this section, Chapter 1115, |
|
Insurance Code, as amended by this Act, applies only to a |
|
recommendation to purchase, exchange, or replace an annuity |
|
contract made on or after June 1, 2012, and any transaction arising |
|
from that recommendation. A recommendation made before June 1, |
|
2012, and a transaction arising from that recommendation are |
|
governed by the law in effect immediately before the effective date |
|
of this Act, and that law is continued in effect for that purpose. |
|
(d) An insurance agent who becomes licensed under Chapter |
|
4054, Insurance Code, on or after the effective date of this Act is |
|
subject to Section 1115.056, Insurance Code, as amended by this |
|
Act. An agent licensed under Chapter 4054, Insurance Code, before |
|
the effective date of this Act is not subject to Section 1115.056, |
|
Insurance Code, as amended by this Act, before March 1, 2012. On |
|
and after the effective date of this Act and before March 1, 2012, |
|
an insurance agent licensed under Chapter 4054, Insurance Code, |
|
before the effective date of this Act is subject to Section |
|
1115.056, Insurance Code, as that section existed immediately |
|
before the effective date of this Act, and that law is continued in |
|
effect for that purpose. |
|
SECTION 19. (a) A provider lawfully transacting business |
|
in this state before the effective date of this Act may continue to |
|
do so pending approval or disapproval of the person's application |
|
for a license as long as the application is filed with the |
|
commissioner of insurance not later than 30 days after the date of |
|
the publication by the commissioner of an application form and |
|
instructions for licensure of providers. If the publication of the |
|
application form and instructions is before the effective date of |
|
this Act, then the filing of the application may not be later than |
|
30 days after the effective date of this Act and the applicant may |
|
use any form of life settlement contract that has been filed with |
|
the commissioner pending approval, provided that the form is |
|
otherwise in compliance with the provisions of this Act. A person |
|
transacting business in this state under this provision shall |
|
comply with all other requirements of this Act. |
|
(b) A person who has lawfully negotiated a life settlement |
|
contract between an owner residing in this state and one or more |
|
providers for at least one year immediately before the effective |
|
date of this Act may continue to do so pending approval or |
|
disapproval of the person's application for a license provided that |
|
the application is filed with the commissioner of insurance not |
|
later than the 30th day after the date of publication by the |
|
commissioner of an application form and instructions for licensure |
|
of brokers. If the publication of the application form and |
|
instructions is before the effective date of this Act, then the |
|
filing of the application may not be later than the 30th day after |
|
the effective date of this Act. Any person transacting business in |
|
this state under this provision shall comply with all other |
|
requirements of this Act. |
|
SECTION 20. This Act takes effect September 1, 2011. |
|
|
|
______________________________ |
______________________________ |
|
President of the Senate |
Speaker of the House |
|
|
|
I certify that H.B. No. 2277 was passed by the House on April |
|
26, 2011, by the following vote: Yeas 148, Nays 0, 2 present, not |
|
voting; and that the House concurred in Senate amendments to H.B. |
|
No. 2277 on May 26, 2011, by the following vote: Yeas 134, Nays 7, |
|
2 present, not voting. |
|
|
|
______________________________ |
|
Chief Clerk of the House |
|
|
I certify that H.B. No. 2277 was passed by the Senate, with |
|
amendments, on May 23, 2011, by the following vote: Yeas 30, Nays |
|
0. |
|
|
|
______________________________ |
|
Secretary of the Senate |
|
APPROVED: __________________ |
|
Date |
|
|
|
__________________ |
|
Governor |