Bill Text: CA SB1242 | 2009-2010 | Regular Session | Amended
Bill Title: Insurance: life settlements.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Engrossed - Dead) 2010-06-23 - From committee: Do pass, but first be re-referred to Com. on APPR. (Ayes 12. Noes 0.) Re-referred to Com. on APPR. (Heard in committee on June 23.) [SB1242 Detail]
Download: California-2009-SB1242-Amended.html
BILL NUMBER: SB 1242 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY JUNE 14, 2010
INTRODUCED BY Senator Calderon
FEBRUARY 19, 2010
An act to amend Section 1063.75 Sections
10113.2 and 10113.3 of the Insurance Code, relating to
insurance.
LEGISLATIVE COUNSEL'S DIGEST
SB 1242, as amended, Calderon. Insurance: Guarantee
Association. life settlements.
Existing law prohibits a person from entering into, brokering, or
soliciting life settlements, as defined, unless that person is
licensed by the Insurance Commissioner. The applicant for a license
is required to provide any information the commissioner may require.
This bill would delete the requirement that an applicant provide
any information the commissioner may require, and provide that all
application information be received in confidence, as provided, and
not be subject to the Public Records Act.
Existing law requires that a life settlement broker provide the
owner of a life insurance policy and the insured with at least all of
specified disclosures in writing, prior to the signing of the life
settlement contract by all parties. The disclosures include, but are
not limited to, all estimates of the life expectancy of the insured
which are obtained by the licensee in connection with the life
settlement, unless such disclosure would violate California or
federal privacy laws.
This bill would provide that the broker shall be required to
provide the owner and the insured with only the specified
disclosures, and would delete from the list of required disclosures
the estimate of the life expectancy of the insured.
Existing law authorizes the commissioner to adopt rules and
regulations reasonably necessary to govern life settlement
transactions.
This bill would recast this provision to authorize the
commissioner to adopt rules and regulations reasonably necessary to
implement and enforce the express provisions of the act.
Existing law prohibits these provisions relating to life
settlements from doing certain things, including, but not limited to,
limiting the powers granted elsewhere by the laws of this state to
the commissioner or an insurance fraud unit to investigate and
examine possible violations of law and to take appropriate action
against the wrongdoer.
This bill would clarify that the above-described prohibition is
applicable to insurance law, and would prohibit these provisions,
except as expressly provided, from establishing any authority for the
commissioner to enforce any provision of any state securities law or
any rule, order, or notice issued thereunder, or grant the authority
for the commissioner to regulate the assignment, transfer, sale of a
settled policy, or any other transaction involving a settled policy.
Existing law establishes the California Insurance Guarantee
Association (CIGA) to provide coverage against losses arising from
the failure of an insolvent property, casualty, or workers'
compensation insurer to discharge its obligations under its insurance
policies. Existing law gives CIGA the ability to request the
issuance of bonds by the California Infrastructure and Economic
Development Bank to more expeditiously and effectively provide for
the payment of covered claims arising from the insolvencies of
insurance companies providing workers' compensation insurance.
Existing law requires that any bonds that provide funds for covered
claim obligations for workers' compensation claims be issued, as
specified, prior to January 1, 2011.
This bill would extend the date for those bonds to be issued to
January 1, 2013.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 10113.2 of the
Insurance Code is amended to read:
10113.2. (a) This section applies to any person entering into,
brokering, or soliciting life settlements pursuant to this section
and Sections 10113.1 and 10113.3.
(b) (1) Except as provided in subparagraph (B) or (D), no person
may enter into, broker, or solicit life settlements pursuant to
Section 10113.1 unless that person has been licensed by the
commissioner under this section. The person shall file an application
for a license in the form prescribed by the commissioner, and the
application shall be accompanied by a fee established by the
commissioner. The license fees for a provider license shall be
reasonable and sufficient to cover the costs incurred by the
department to implement this act. The license and renewal fees for a
broker shall be reasonable and sufficient to cover the costs incurred
by the department to implement this act and shall not exceed the
license and renewal fees established for an insurance producer who is
acting as a life settlement broker. The applicant shall
provide any information the commissioner may require. The
commissioner may issue a license, or deny the application if, in his
or her discretion, it is determined that it is contrary to the
interests of the public to issue a license to the applicant. The
reasons for a denial shall be set forth in writing. All
application information shall be received in confidence within the
meaning of subdivision (d) of Section 6254 of the Government Code and
is exempt from disclosure pursuant to the Public Records Act
(Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1
of the Government Code).
(A) An individual acting as a broker under this section shall
complete at least 15 hours of continuing education related to life
settlements and life settlement transactions, as required and
approved by the commissioner, prior to operating as a broker. This
requirement shall not apply to a life insurance producer who
qualifies under subparagraph (D).
(B) 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 a life settlement contract on behalf of
the owner without having to obtain a license as a broker.
(C) A person licensed to act as a viatical settlement broker or
provider as of December 31, 2009, shall be deemed qualified for
licensure as a life settlement broker or provider, and shall be
subject to all the provisions of this article as if the person were
originally licensed as a life settlement broker or provider.
(D) (i) A life insurance producer who has been duly licensed as a
life agent for at least one year or as a licensed nonresident
producer in this state for one year shall be deemed to meet the
licensing requirements of this section and shall be permitted to
operate as a broker.
(ii) Not later than 10 days from the first day of operating as a
broker, the life insurance producer shall notify the commissioner
that he or she is acting as a broker, on a form prescribed by the
commissioner, and shall pay any applicable fee to be determined by
the commissioner.
(iii) The fee established by the commissioner shall be reasonable
and sufficient to cover the costs incurred by the department to
implement this act, but shall not be in excess of the license and
renewal fees paid by a life insurance producer. The fee shall be paid
by the life insurance producer for each license term the producer
intends to operate as a broker. The fee shall be calculated pursuant
to Section 1750. The notification to the commissioner shall include
an acknowledgment by the life insurance producer that he or she will
operate as a broker in accordance with this act.
(iv) The insurer that issued the policy that is the subject of a
life settlement contract shall not be responsible for any act or
omission of a broker or provider arising out of, or in connection
with, the life settlement transaction, unless the insurer receives
compensation for the replacement of the life settlement contract for
the provider or broker.
(E) The commissioner shall review the examination for the
licensing of life insurance agents and may recommend any changes to
the examination to the department's curriculum committee in order to
carry out the purposes of this section and Sections 10113.1 and
10113.3.
(2) Whenever it appears to the commissioner that it is contrary to
the interests of the public for a person licensed pursuant to this
section to continue to transact life settlements business, he or she
shall issue a notice to the licensee stating the reasons therefor.
If, after a hearing, the commissioner concludes that it is contrary
to the interests of the public for the licensee to continue to
transact life settlements business, he or she may revoke the person's
license, or issue an order suspending the license for a period as
determined by the commissioner. Any hearing conducted pursuant to
this paragraph shall be in accordance with Chapter 5 (commencing with
Section 11500) of Part 1 of Division 3 of Title 2 of the Government
Code, except that the hearing may be conducted by administrative law
judges chosen pursuant to Section 11502 or appointed by the
commissioner, and the commissioner shall have the powers granted
therein.
(3) Each licensee shall owe and pay in advance to the commissioner
an annual renewal fee in an amount to be determined by the
commissioner pursuant to paragraph (1) of subdivision (b). This fee
shall be for each license year, as defined by Section 1629.
(4) Any licensee that intends to discontinue transacting life
settlements in this state shall so notify the commissioner, and shall
surrender its license.
(c) A life settlements licensee shall file with the department a
copy of all life settlement forms used in this state. No licensee may
use any life settlement form in this state unless it has been
provided in advance to the commissioner. The commissioner may
disapprove a life settlement form if, in his or her discretion, the
form, or provisions contained therein, are contrary to the interests
of the public, or otherwise misleading or unfair to the consumer. In
the case of disapproval, the licensee may, within 15 days of notice
of the disapproval, request a hearing before the commissioner or his
or her designee, and the hearing shall be held within 30 days of the
request.
(d) Life settlements licensees shall be required to provide any
applicant for a life settlement contract, at the time of application
for the life settlement contract, all of only
the following disclosures in writing and signed by the owner,
in at least 12-point type:
(1) That there are possible alternatives to life settlements,
including, but not limited to, accelerated benefits options that may
be offered by the life insurer.
(2) The fact that some or all of the proceeds of a life settlement
may be taxable and that assistance should be sought from a
professional tax adviser.
(3) Consequences for interruption of public assistance as provided
by information provided by the State Department of Health Care
Services and the State Department of Social Services under Section
11022 of the Welfare and Institutions Code.
(4) That the proceeds from a life settlement could be subject to
the claims of creditors.
(5) That entering into a life settlement contract may cause other
rights or benefits, including conversion rights and waiver of premium
benefits that may exist under the policy or certificate of a group
policy to be forfeited by the owner and that assistance should be
sought from a professional financial adviser.
(6) That a change in ownership of the settled policy could limit
the insured's ability to purchase insurance in the future on the
insured's life because there is a limit to how much coverage insurers
will issue on one life.
(7) That the owner has a right to rescind a life settlement
contract within 30 days of the date it is executed by all parties and
the owner has received all required disclosures, or 15 days from
receipt by the owner of the proceeds of the settlement, whichever is
sooner. Rescission, if exercised by the owner, is effective only if
both notice of 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 shall be deemed to have been
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.
(8) That proceeds will be sent to the owner within three business
days after the provider has received the insurer or group
administrator's acknowledgment that ownership of the policy or the
interest in the certificate has been transferred and the beneficiary
has been designated in accordance with the terms of the life
settlement contract.
(9) The date by which the funds will be available to the owner and
the transmitter of the funds.
(10) The disclosure document shall include 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, 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."
(11) That the insured may be contacted by either the provider or
the broker or its authorized representative for the purpose of
determining the insured's health status or to verify the insured's
address. This contact is limited to once every three months if the
insured has a life expectancy of more than one year, and no more than
once per month if the insured has a life expectancy of one year or
less.
(12) Any affiliations or contractual relations between the
provider and the broker, and the affiliation, if any, between the
provider and the issuer of the policy to be settled.
(13) 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.
(14) The name, business address, and telephone number of the
broker.
(e) Prior to the execution of the life settlement contract by all
parties, the life settlement provider entering into a life settlement
contract with the owner shall provide, in a document signed by the
owner, the gross purchase price the life settlement provider is
paying for the policy, the amount of the purchase price to be paid to
the owner, the amount of the purchase price to be paid to the owner'
s life settlement broker, and the name, business address, and
telephone number of the life settlement broker. For purposes of this
section, "gross purchase price" means the total amount or value paid
by the provider for the purchase of one or more life insurance
policies, including commissions and fees.
(f) The broker shall provide the owner and the insured with
at least all of the following disclosures ,
and no other disclosures, in writing prior to the signing of
the life settlement contract by all parties. The
These disclosures shall be clearly 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 of the
offers, counteroffers, acceptances, and rejections relating to the
proposed life settlement contract.
(3) A 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) All estimates of the life expectancy of the insured which are
obtained by the licensee in connection with the life settlement,
unless such disclosure would violate any California or federal
privacy laws.
(5) The commissioner may consider any failure to provide the
disclosures or rights described in this section as a basis for
suspending or revoking a broker's or provider's license pursuant to
paragraph (2) of subdivision (b).
(g) All medical information solicited or obtained by any person
soliciting or entering into a life settlement is subject to Article
6.6 (commencing with Section 791) of Chapter 1 of Part 2 of Division
1, concerning confidentiality of medical information.
(h) Except as otherwise allowed or required by law, a provider,
broker, insurance company, insurance producer, information bureau,
rating agency, or company, or any other person with actual knowledge
of an insured's identity shall not disclose the identity of an
insured or information that there is a reasonable basis to believe
that could be used to identify the insured or the insured's financial
or medical information to any other person unless the disclosure is
one of the following:
(1) It is 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) It is necessary to effectuate the sale of life settlement
contracts, or interests therein, as investments, 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) It is provided in response to an investigation or examination
by the commissioner or any other governmental officer or agency or
any other provision of law.
(4) It is a term or condition to the transfer of a policy by one
provider to another provider, in which case the receiving provider
shall be required to comply with the confidentiality requirements of
Article 6.6 (commencing with Section 791) of Chapter 1 of Part 2 of
Division 1.
(5) It is necessary to allow the provider or broker or their
authorized representatives to make contacts for the purpose of
determining health status. For the purposes of this section, the term
"authorized representative" shall not include any person who has or
may have any financial interest in the settlement contract other than
a provider, licensed broker; further, a provider or broker shall
require its authorized representative to agree in writing to adhere
to the privacy provisions of this act.
(6) It is required to purchase stop loss coverage.
(i) In addition to other questions an insurance carrier may
lawfully pose to a life insurance applicant, insurance carriers 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.
(1) If the premium finance loan provides funds which 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, the application may be rejected as a prohibited practice
under this act.
(2) If the financing does not violate paragraph (1), the existence
of premium financing may not be the sole criterion employed by an
insurer in a decision whether to reject an application for life
insurance. The insurance carrier may make disclosures to the
applicant, either on the application or an amendment to the
application to be completed no later than the delivery of the policy,
including, but not limited to, the following:
"If you have entered into a loan arrangement where the policy is
used as collateral, and the policy changes 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 insurance on the insured's life because there is a limit
to how much coverage insurers will issue on a life.
"(C) You should consult a professional adviser 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."
(3) In addition to the disclosures in paragraph (2), the insurance
carrier may require the following certifications from the applicant
or the insured:
"(A) I have not entered into any agreement or arrangement under
which I have agreed to make a 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.
"(C) The borrower has an insurable interest in the insured."
(j) Life insurers shall provide individual life insurance
policyholders with a statement informing them that if they are
considering making changes in the status of their policy, they should
consult with a licensed insurance or financial advisor. The
statement may accompany or be included in notices or mailings
otherwise provided to the policyholders.
(k) The commissioner may adopt rules and regulations reasonably
necessary to govern life settlement transactions
implement and enforce the express provisions of this act .
(l) The commissioner may, whenever he or she deems it reasonably
necessary to protect the interests of the public, examine the
business and affairs of any licensee or applicant for a license. The
commissioner shall have the authority to order any licensee or
applicant to produce any records, books, files, or other information
as is reasonably necessary to ascertain whether or not the licensee
or applicant is acting or has acted in violation of the law or
otherwise contrary to the interests of the public. The expenses
incurred in conducting any examination shall be paid by the licensee
or applicant.
(m) The commissioner may investigate the conduct of any licensee,
its officers, employees, agents, or any other person involved in the
business of the licensee, or any applicant for a license, whenever
the commissioner has reason to believe that the licensee or applicant
for a license may have acted, or may be acting, in violation of the
law, or otherwise contrary to the interests of the public. The
commissioner may initiate an investigation on his or her own, or upon
a complaint filed by any other person.
(n) The commissioner may issue orders to licensees whenever he or
she determines that it is reasonably necessary to ensure or obtain
compliance with this section, or Section 10113.3. This authority
includes, but is not limited to, orders directing a licensee to cease
and desist in any practice that is in violation of this section, or
Section 10113.3, or otherwise contrary to the interests of the
public. Any licensee to which an order pursuant to this subdivision
is issued may, within 15 days of receipt of that order, request a
hearing at which the licensee may challenge the order.
(o) The commissioner may, after notice and a hearing at which it
is determined that a licensee has violated this section or Section
10113.3 or any order issued pursuant to this section, order the
licensee to pay a monetary penalty of up to ten thousand dollars
($10,000), which may be recovered in a civil action. Any hearing
conducted pursuant to this subdivision shall be in accordance with
Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of
Title 2 of the Government Code, except that the hearing may be
conducted by administrative law judges chosen pursuant to Section
11502 or appointed by the commissioner, and the commissioner shall
have the powers granted therein.
(p) Each licensed provider shall file with the commissioner on or
before March 1 of each year an annual statement in the form
prescribed by the commissioner. The information that the commissioner
may require in the annual statement shall include , but not
be limited to, only 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 shall also include , and the names of
the insurance companies whose policies have been settled and the
brokers that have settled those policies, and that information shall
be received in confidence within the meaning of subdivision (d) of
Section 6254 of the Government Code and exempt from disclosure
pursuant to the Public Records Act (Chapter 3.5 (commencing with
Section 6250) of Division 7 of Title 1 of the Government Code). The
annual statement shall not include individual transaction data
regarding the business of life settlements or information
that there is a reasonable basis to believe could be used to identify
the owner or the insured .
(q) No person who is not a resident of California may receive or
maintain a license unless a written designation of an agent for
service of process is filed and maintained with the commissioner. The
provisions of Article 3 (commencing with Section 1600) of Chapter 4
of Part 2 of Division 1 shall apply to life settlements
licensees as if they were foreign insurers, their license a
certificate of authority, and the life settlements a policy, and the
commissioner may modify the agreement set forth in Section 1604
accordingly.
(r) No person licensed pursuant to this section shall engage in
any false or misleading advertising, solicitation, or practice. In no
case shall a broker or provider, directly or indirectly, market,
advertise, solicit, or otherwise promote the purchase of a new policy
for the sole purpose of or with a primary emphasis on settling the
policy or use the words "free," "no cost," or words of similar import
in the marketing, advertising, soliciting, or otherwise promoting of
the purchase of a policy. The provisions of Article 6 (commencing
with Section 780) and Article 6.5 (commencing with Section 790) of
Chapter 1 of Part 2 of Division 1 shall apply to life
settlements licensees as if they were insurers, their license a
certificate of authority or producer's license, and the life
settlements a policy, and the commissioner shall liberally construe
these provisions so as to protect the interests of the public.
(s) Any person who enters into a life settlement with a life
settlements licensee shall have the absolute right to rescind the
settlement within 30 days of the date it is executed by all parties
and the owner has received all required disclosures, or 15 days from
receipt by the owner of the proceeds of the settlement, whichever is
sooner, and any waiver or settlement language contrary to this
subdivision shall be void. Rescission, if exercised by the owner, is
effective only if both notice of 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 shall be
deemed to have been 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.
(t) Records of all consummated transactions and
life settlement contracts shall be maintained by the provider for
three years after the death of the insured and shall be available to
the commissioner for inspection during reasonable business hours.
(u) The commissioner may consider any failure to provide the
disclosures or rights described in this section as a basis for
suspending or revoking a broker's or provider's license pursuant to
paragraph (2) of subdivision (b).
(u)
(v) A violation of this section is a misdemeanor.
SEC. 2. Section 10113.3 of the
Insurance Code is amended to read:
10113.3. (a) A provider entering into a life settlement contract
with any owner of a policy, wherein the insured is terminally ill,
shall first obtain the following:
(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.
(2) A document in which the insured consents to the release of his
or her medical records to a provider, settlement broker, or
insurance producer and, if the policy was issued less than two years
from the date of application for a settlement contract, to the
insurance company that issued the policy.
(b) The insurer shall respond to a request for verification of
coverage submitted by a provider, settlement broker, or life
insurance producer not later than 30 calendar days of 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 it is unable to respond. In its response, the insurer shall
indicate whether, based on the medical evidence and documents
provided, the insurer intends to pursue an investigation at this time
regarding the validity of the insurance contract.
(c) Before or at the time of execution of the 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 a full
and complete understanding 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 illness or
condition, acknowledges that the insured has a terminal illness and
that the terminal illness or condition was diagnosed after the policy
was issued.
(d) The insurer shall 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 producer 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 those verification of coverage activities
required of the provider, the provider is deemed to have fulfilled
the requirements of this section.
(g) Within 20 days after 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 subdivision (d) of Section 10113.2.
(h) All medical information solicited or obtained by any licensee
shall be subject to the applicable provision of state law relating to
confidentiality of medical information, if not otherwise provided in
this act.
(i) All life settlement contracts entered into in this state shall
provide that the owner may rescind the contract on or before 30 days
after the date it is executed by all parties thereto, and the owner
has received all required disclosures, or 15 days from receipt by the
owner of the full payment of the proceeds as specified below,
whichever is sooner. 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 within the rescission period. If the
insured dies during the rescission period, the contract shall be
deemed to have been 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) Within three business days after receipt from the owner of
documents to effect the transfer of the insurance policy, the
provider shall pay the proceeds of the settlement to an escrow or
trust account managed by a trustee or escrow agent in a state or
federally chartered financial institution pending acknowledgment of
the transfer by the issuer of the policy. The trustee or escrow agent
shall be required to transfer the proceeds due to the owner within
three business days of acknowledgment of the transfer from the
insurer.
(k) Failure to tender the life settlement contract proceeds to the
owner by 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 hereunder shall toll the
right of rescission until 30 days after the written notice of the
right of rescission has been given.
(l) Any fee paid by a provider, party, individual, or an owner to
a broker in exchange for services provided to the owner pertaining to
a life settlement contract shall be computed as a percentage of the
offer obtained, not the face value of the policy. Nothing in this
section shall be construed as prohibiting a broker from reducing the
broker's fee below this percentage if the broker so chooses.
(m) No 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 commencing with the date of issuance of the policy, shall
enter into a life settlement 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.
(1) This prohibition shall not apply if the owner certifies to the
provider that the policy was issued upon 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.
The 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.
(2) This prohibition shall not apply if the owner submits
independent evidence to the provider that one or more of the
following conditions have been met within the two-year period:
(A) The owner or insured is terminally ill.
(B) The owner or insured disposes of his or her 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 his or her 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.
(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.
(3) (A) Copies of the independent evidence required by paragraph
(2) shall be submitted to the insurer when the provider submits a
request to the insurer for verification of coverage. The copies shall
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. Nothing in this section shall prohibit an insurer from
exercising its right to contest the validity of any policy.
(B) If the provider submits to the insurer a copy of independent
evidence provided for in subparagraph (A) of paragraph (2) when the
provider submits a request to the insurer to effect the transfer of
the policy to the provider, the copy shall be deemed to establish
that the settlement contract satisfies the requirements of this
section.
(4) This prohibition shall apply only to policies issued on or
after the effective date of this section.
(n) An insurer shall not:
(1) Engage in any transaction, act, or practice that restricts,
limits, or impairs the lawful transfer of ownership, change of
beneficiary, or assignment of a policy.
(2) Make any false or misleading statement for the purpose of
dissuading an owner or insured from a lawful life settlement
contract.
(o) No person providing premium financing shall receive any
proceeds, fees, or other consideration from the policy or owner of
the policy that are 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 for the 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 act.
(p) If there is more than one owner on a single policy, and the
owners are residents of different states, the life settlement
contract shall be 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 upon
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
upon a state of residence for jurisdictional purposes.
(q) A provider from 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 regulations governing life settlement
contracts shall be governed in the effectuation of that life
settlement contract by the statutes and regulations of the owner's
state of residence. If the state in which the owner is a resident has
not enacted statutes or regulations governing life settlement
contracts, the provider shall give the owner notice that neither
state regulates the transaction upon which he or she is entering. For
transactions in those states, however, the provider is to maintain
all records required if the transactions were executed in the state
of residence. The forms used in those states need not be approved by
the department.
(r) 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.
(s) It is a fraudulent life settlement act and a violation of this
section for any person to do any of the following, or any of the
acts listed in subdivision (g) of Section 10113.1:
(1) Enter into a life settlement contract if a 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 any transaction, practice, or course of business if
a person knows or reasonably should have known that the intent was to
avoid the notice requirements of this section.
(3) Engage in any fraudulent act or practice in connection with
any transaction relating to any settlement involving an owner who is
a resident of this state.
(4) Fail to provide the disclosures or file the required reports
with the commissioner as required by this act.
(5) Issue, solicit, or market, the purchase of a new life
insurance policy for the purpose of, or with a primary emphasis on,
settling the policy.
(6) Enter into a premium finance agreement with any person or
agency, or any person affiliated with a person or agency that is
prohibited under subdivision (o).
(7) With respect to any settlement contract or insurance policy
and 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 a broker, unless the relationship has
been fully disclosed to the owner.
(8) 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 a life settlement
contract, anything of value will be paid to a broker that is
controlling, controlled by, or under common control with a provider
or the financing entity, or related provider trust that is involved
in a settlement contract, unless the relationship has been fully
disclosed to the owner.
(9) 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 regulation, have been
filed with the commissioner. In no event shall any marketing
materials expressly reference that the insurance is "free" for any
period of time. The inclusion of any reference in the marketing
materials that would cause an owner to reasonably believe that the
insurance is free for any period of time shall be considered a
violation of this act; or with respect to any life insurance
producer, 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.
(t) Life settlement contracts and applications for life settlement
contracts, regardless of the form of transmission, shall contain the
following statement or a substantially similar statement:
"Any person who knowingly presents false information in an
application for insurance or for a life settlement contract may be
subject to criminal or civil liability."
(1) The lack of a statement as required by this subdivision does
not constitute a defense in any prosecution for a fraudulent life
settlement act.
(2) This act shall not:
(A) Preempt the authority or relieve the duty of other law
enforcement or regulatory agencies to investigate, examine, and
prosecute suspected violations of law.
(B) Preempt, supersede, or limit any provision of any state
securities law or any rule, order, or notice issued thereunder.
(C) Prevent or prohibit a person from disclosing voluntarily
information concerning life settlement fraud to a law enforcement or
regulatory agency other than the insurance department.
(D) Limit the powers granted elsewhere by the laws of this state
to the commissioner or an insurance fraud unit to investigate and
examine possible violations of insurance law and to take
appropriate action against wrongdoers.
(E) Except as expressly provided for in this act, establish any
authority for the commissioner to enforce any provision of any state
securities law or any rule, order, or notice issued thereunder, or
grant the authority for the commissioner to regulate the assignment,
transfer, sale of a settled policy, or any other transaction
involving a settled policy.
(u) A provider lawfully transacting business in this state prior
to the effective date of this act may continue to do so, pending
approval or disapproval of that person's application for a license as
long as the application is filed with the commissioner not later
than 30 days after publication by the commissioner of an application
form and instructions for licensure of providers. If the publication
of the application form and instructions is prior to the effective
date of this chapter, then the filing of the application shall not be
later than 30 days after the effective date of this act. During the
time that an application is pending with the commissioner, the
applicant may use any form of life settlement contract that has been
filed with the commissioner pending approval thereof, provided that
the form is otherwise in compliance with the provisions of this act.
Any person transacting business in this state under this provision
shall be obligated to comply with all other requirements of this act.
A person who has lawfully acted as a broker and negotiated life
settlement contracts between any owner residing in this state and one
or more providers for at least one year immediately prior to the
effective date of this act may continue to do so pending approval or
disapproval of that person's application for a license, as long as
the application is filed with the commissioner not later than 30 days
after publication by the commissioner of an application form and
instructions for licensure of brokers. If the publication of the
application form and instructions is prior to the effective date of
this chapter, then the filing of the application shall not be later
than 30 days after the effective date of this act. Any person
transacting business in this state under this provision shall be
obligated to comply with all other requirements of this act.
SEC. 3. The Legislature finds and declares that Section 1 of
this act, which amends Section 10113.2 of the Insurance Code, imposes
a limitation on the public's right of access to the meetings of
public bodies or the writings of public officials and agencies within
the meaning of Section 3 of Article I of the California
Constitution. Pursuant to that constitutional provision, the
Legislature makes the following findings to demonstrate the interest
protected by this limitation and the need for protecting that
interest:
(a) There is a compelling interest in adequately regulating the
life settlement industry to protect consumers.
(b) That interest is promoted by encouraging the life settlement
industry to make full and thorough disclosure of information to the
Insurance Commissioner by providing confidentiality for that
information as specified in subdivision (b) of Section 10113.2 of the
Insurance Code.
SECTION 1. Section 1063.75 of the Insurance
Code is amended to read:
1063.75. Any bonds issued to provide funds for covered claim
obligations for workers' compensation claims shall be issued prior to
January 1, 2013, in an aggregate principal amount outstanding at any
one time not to exceed $1.5 billion, and any bonds issued or issued
to refund bonds shall not have a final maturity exceeding 20 years
from the date of issuance. The bonds shall be issued at the request
of CIGA, shall be in the form, shall bear the date or dates, and
shall mature at the time or times as the indenture authorized by the
request may provide. The bonds may be issued in one or more series,
as serial bonds or as term bonds, or as a combination thereof, and,
notwithstanding any other provision of law, the amount of principal
of, or interest on, bonds maturing at each date of maturity need not
be equal. The bonds shall bear interest at the rate or rates,
variable or fixed or a combination thereof, be in the denominations,
be in the form, either coupon or registered, carry the registration
privileges, be executed in the manner, be payable in the medium of
payment at the place or places within or without the state, be
subject to the terms of redemption, contain the terms and conditions,
and be secured by the covenants as the indenture may provide. The
indenture may provide for the proceeds of the bonds and funds
securing the bonds to be invested in any securities and investments,
including investment agreements, as specified therein. CIGA may enter
into or authorize any ancillary obligations or derivative agreements
as it determines necessary or desirable to manage interest rate risk
or security features related to the bonds. The bonds shall be sold
at public or private sale by the Treasurer at, above, or below the
principal amount thereof, on the terms and conditions and for the
consideration in the medium of payment that the Treasurer shall
determine prior to the sale.
