AB758: Bill Text

Current law requires advertising related to viatical settlements to be truthful and not misleading by fact or implication, in addition to other requirements.

This bill changes the terminology for the sale of a life insurance policy for an amount less than the death benefit but greater than the cash surrender value or accelerated death benefit under the policy to "life settlement." The bill allows any individual in addition to one with catastrophic or life threatening illnesses or conditions to obtain a life settlement. Under the bill, a policy may be the subject of a life settlement within a five-year period commencing with the date of issuance of the policy only under certain conditions; one of these conditions is the terminal or chronic illness of the insured. The bill modifies the definitions of provider, broker, owner, and other terms related to life settlements. The bill also regulates certain aspects of the purchase of a policy that is the subject of a life settlement from a provider. In addition, the bill makes various changes related to life settlement laws, including the following:

1. The bill directs the commissioner to investigate each applicant for a provider's or broker's license and issue a license to an applicant if the applicant meets certain qualifications, including completion of an initial training course. The bill specifies the requirements for training of license applicants and of brokers and providers, including certain topics the training must cover. The bill adds the following to the bases for which the commissioner may suspend, revoke, or refuse to renew a license: that the licensee no longer meets the requirements for licensure; that the licensee, if a provider, has entered into any life settlement contract using a form that was not approved by the commissioner; that the licensee, if a provider, has failed to honor obligations in a life settlement contract; that the licensee, if a provider, has assigned or transferred a settled policy to a person other than a person specified in the bill; and that any officer, partner, member, or key management personnel has violated any of the requirements for life settlements in the bill. The commissioner may examine the business and affairs of licensed providers and brokers and applicants for licenses.

2. Under the bill, the insurer that issued the life insurance policy that was the subject of a life settlement is not responsible for an act or omission of a broker or provider unless the insurer received compensation for the placement of the life settlement contract from the broker or provider or from a purchaser of the life settlement contract.

3. The bill prohibits any person from using a life settlement contract form that has not been approved by the commissioner. In addition, no insurer may require any owner, insured, provider, or broker to sign a form that has not been approved by the commission for use in connection with life settlement contracts.

4. Under the bill, every licensed provider and broker must annually file with the commissioner a statement containing certain information, including any information that the commissioner prescribes by rule about a policy settled within five years of policy issuance. Licensees must keep certain records regarding life settlements and make those records available to the commissioner for inspection.

5. The bill adds disclosures to those that a provider or broker must make to the owner of the policy that is the subject of a life settlement, including that the broker represents the owner exclusively and owes a fiduciary duty to the owner; that the funds from the life settlement will be sent to the owner within three business days after the provider has received acknowledgment that ownership of the policy has been transferred; that entering into a life settlement contract may cause forfeiture of other rights and benefits under the policy; and that medical, financial, or personal information may be disclosed to others to effect the life settlement. The provider must make certain disclosures to the owner, including the affiliation between the provider and the issuer of the policy to be settled; any affiliation or contractual arrangement between the provider and the purchaser; that, if the policy to be subject to a life settlement is a joint policy or involves family riders, the life settlement may result in the loss of coverage to the other family members; the dollar amount of the current death benefit; and that the funds from the life settlement will be escrowed with a third party. The broker must disclose to the owner the name, business address, and telephone number of the broker; a complete and accurate description of all offers, counteroffers, acceptances, and rejections related to the life settlement; the amount of the broker's compensation; the amount of the life settlement offer; and the percentage of the life settlement, if any, comprised by the broker's compensation. If the provider transfers ownership or changes the beneficiary of the policy the provider must communicate that in writing to the insured within 20 days. The provider must disclose certain information to the purchaser of a policy that is the subject of a life settlement. A broker or provider must disclose to the insurer a plan or transaction to originate, renew, continue, or finance a policy for the purpose of engaging in the business of life settlements at any time before, or during the first five years after, issuance of the policy.

6. The bill eliminates the minimum payment requirement for life settlements.

7. The bill requires that, before entering into a life settlement contract, the provider must obtain from the owner's physician, if the owner is the insured under the policy to be settled, a statement that the owner is under no constraint or undue influence to enter into a life settlement contract. Within 20 days of an owner's agreement to settle a policy, the provider must give written notice to the insurer that issued the policy that the policy will be the subject of a life settlement. The provider must also deliver to the insurer that issued the policy a copy of the insured's medical release, the owner's application for the life settlement, and a request for verification of coverage. The insurer must respond to a request for verification of coverage within 30 days after receiving the request and must indicate whether the insurer intends to investigate the validity of the contract or fraud related to the contract.

8. The bill retains the owner's ability to rescind a life settlement contract within the same time as under current law and provides that, if the insured dies during the period in which the owner may rescind a contract, the contract is automatically rescinded subject to repayment by the owner or owner's estate of all proceeds and payments made by the provider or a purchaser.

9. Under the bill, the owner, at the direction of the provider, must send the documents required to change the ownership of the policy directly to the escrow agent. Within three business days of the escrow agent receiving the documents, the provider must pay the proceeds of the life settlement to the escrow agent. If the escrow agent does not pay the proceeds to the owner within three days after receiving acknowledgement that the ownership of the policy was transferred, the owner may void the life settlement contract until the proceeds are tendered to and accepted by the owner.

10. Within 30 days of receiving a request for a change of ownership or beneficiary of a policy, the insurer that issued a policy that is the subject of a life settlement must either acknowledge that the requested change has been made or specify the reasons why the requested change cannot be made.

11. Under the bill, a broker represents only the owner of the policy that will be the subject of a life settlement and owes a fiduciary duty to the owner.

12. The bill prohibits fraudulent life settlement acts, including acts or omissions that are committed by any person for the purpose of pecuniary gain; any acts that a person does in the furtherance of a fraud or to prevent the detection of a fraud; embezzlement, theft, misappropriation, or conversion from a life settlement provider, insurer, insured, owner, or any person engaged in the business of life settlements or insurance; recklessly dealing in a life settlement the subject of which is a policy that was obtained with intent to defraud; attempting, assisting, or conspiring to commit a fraudulent life settlement act; and stranger-originated life insurance. Stranger-originated life insurance is the initiation of a life insurance policy for the benefit of a third-party investor who has no insurable interest in the insured. The bill prohibits various other activities in connection with life settlements, including engaging in a transaction if the person knows that the intent is to avoid notice requirements; issuing or promoting the purchase of a life insurance policy for the purpose of settling the policy under a life settlement; and making a representation to the policy owner in connection with the sale or financing of a policy that the insurance is free unless that is provided in the policy. The bill requires a statement in all life settlement contracts, purchase agreements, and applications for a life settlement that any person who knowingly presents false information in an application for insurance, a life settlement, or a purchase agreement may be subject to civil and criminal penalties. The bill requires a person who engages in the business of life settlements and has knowledge or a reasonable belief that certain violations related to life settlements have been or will be committed to report that to the commissioner. Providers and brokers must have in place antifraud initiatives described in the bill.

13. Relating to advertisement of life settlements, the bill requires providers and brokers to maintain a system of control over the advertising of life settlements; requires that disclosures not be minimized or obscured; prohibits the omission of information or using misleading information about a benefit, covered loss, premium payable, or tax consequences; prohibits the use of the name or title of a life insurance company or policy unless the insurer has approved the advertisement; prohibits use of testimonials, appraisals, or analyses unless they are genuine; prohibits the implication that a life settlement contract or purchase agreement has been endorsed by an organization unless that is the fact; prohibits inaccurate statistical information; prohibits the disparagement of insurers, providers, brokers, producers, policies, services, or methods of marketing; requires the name of the provider or broker to be in all advertisements; prohibits the use of materials that mislead policy owners or prospective purchasers into believing that the advertisement is connected with a government program or agency; prohibits exaggeration of the fact that the provider or broker holds a license so as to suggest that competing licensees are not licensed; prohibits emphasizing the dollar amounts available to an owner except as an average purchase price as a percent of the face value obtained by other policy owners in life settlements with the licensee during the previous six months; and imposes other requirements. The commissioner may require a provider or broker to submit advertising materials.

For further information see the state and local fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB758, s. 1 Section 1. 49.857 (1) (d) 20. of the statutes is amended to read:

AB758,6,3 49.857 (1) (d) 20. A license issued under s. 628.04, 632.68 (2) or (4) 632.69 (2), or 633.14 or a temporary license issued under s. 628.09.

AB758, s. 2 Section 2. 71.05 (1) (f) of the statutes is amended to read:

AB758,6,11 71.05 (1) (f) Income from the sales of certain insurance policies. Income received by the original policyholder or original certificate holder who has a catastrophic or life-threatening illness or condition from the sale of a life insurance policy or certificate, or the sale of the death benefit under a life insurance policy or certificate, under a viatical life settlement contract, as defined in s. 632.68 (1) (d) 632.69 (1) (k). In this paragraph, "catastrophic or life-threatening illness or condition" includes AIDS, as defined in s. 49.686 (1) (a), and HIV infection, as defined in s. 49.686 (1) (d).

AB758, s. 3 Section 3. 71.26 (3) (ag) of the statutes is amended to read:

AB758,7,4 71.26 (3) (ag) Section 61 (relating to the definition of gross income) is modified to exclude income received by the original policyholder or original certificate holder who has a catastrophic or life-threatening illness or condition from the sale of a life insurance policy or certificate, or the sale of the death benefit under a life insurance policy or certificate, under a viatical life settlement contract, as defined in s. 632.68 (1) (d) 632.69 (1) (k). In this paragraph, "catastrophic or life-threatening illness or condition" includes AIDS, as defined in s. 49.686 (1) (a), and HIV infection, as defined in s. 49.686 (1) (d).

AB758, s. 4 Section 4. 71.45 (2) (a) 14. of the statutes is amended to read:

AB758,7,13 71.45 (2) (a) 14. By subtracting from federal taxable income the amount that is included in that income from the sale by the original policyholder or original certificate holder who has a catastrophic or life-threatening illness or condition of a life insurance policy or certificate, or the sale of the death benefit under a life insurance policy or certificate, under a viatical life settlement contract, as defined in s. 632.68 (1) (d) 632.69 (1) (k). In this subdivision, "catastrophic or life-threatening illness or condition" includes AIDS, as defined in s. 49.686 (1) (a), and HIV infection, as defined in s. 49.686 (1) (d).

AB758, s. 5 Section 5. 73.0301 (1) (d) 12. of the statutes is amended to read:

AB758,7,16 73.0301 (1) (d) 12. A license issued under s. 628.04, 632.68 (2) or (4) 632.69 (2), or 633.14 or a temporary license issued under s. 628.09.

AB758, s. 6 Section 6. 321.60 (1) (a) 20. of the statutes is amended to read:

AB758,7,19 321.60 (1) (a) 20. A license issued under s. 628.04, 632.68 (2) or (4) 632.69 (2), or 633.14 or a temporary license issued under s. 628.09.

AB758, s. 7 Section 7. 551.102 (17) (d) of the statutes is amended to read:

AB758,7,23 551.102 (17) (d) With respect to a fractional or pool interest in a viatical life settlement investment, "issuer" means every person who creates the fractional or pool interest for the purpose of offering or selling the interest.

AB758, s. 8 Section 8. 551.102 (17) (e) of the statutes is amended to read:

AB758,8,8 551.102 (17) (e) With respect to a viatical life settlement investment that is not a fractional or pool interest, "issuer" means the viatical settlement provider, as defined in s. 632.68 (1) (e) 632.69 (1) (p), or the person who purchases or otherwise acquires the viatical life settlement from a viatical settlement provider and then offers or sells viatical life settlement investments therein except that, under this paragraph, "issuer" does not include a broker-dealer or agent registered under this chapter and does not include the viator owner of the insurance policy, certificate of insurance, or death benefit underlying the viatical life settlement investment.

AB758, s. 9 Section 9. 551.102 (28) (intro.) of the statutes is amended to read:

AB758,8,22 551.102 (28) (intro.) "Security" means a note; stock; treasury stock; security future; bond; debenture; evidence of indebtedness; limited partnership interest; viatical life settlement investment or similar agreement; certificate of interest or participation in a profit-sharing agreement; collateral trust certificate; preorganization certificate or subscription; transferable share; investment contract; voting trust certificate; certificate of deposit for a security; fractional undivided interest in oil, gas, or other mineral rights; put, call, straddle, option, or privilege on a security, certificate of deposit, or group or index of securities, including an interest therein or based on the value thereof; put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency; or, in general, an interest or instrument commonly known as a "security"; or a certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. The term:

AB758, s. 10 Section 10. 551.102 (32) of the statutes is renumbered 551.102 (17m), and 551.102 (17m) (intro.) and (a), as renumbered, are amended to read:

AB758,9,5 551.102 (17m) (intro.) "Viatical Life settlement investment" means the entire interest or any fractional or pool interest in a life insurance policy or certificate of insurance or in the death benefit thereunder that is the subject of a viatical life settlement, as defined in s. 632.68 (1) (b) 632.69 (1) (j), but does not include any of the following:

AB758,9,8 (a) The assignment, transfer, sale, devise or bequest of a death benefit, life insurance policy, or certificate of insurance by the viator owner to a viatical settlement provider pursuant to s. 632.68 632.69.

AB758, s. 11 Section 11. 601.31 (1) (mm) of the statutes is amended to read:

AB758,9,11 601.31 (1) (mm) For initial issuance of a license as a viatical settlement provider under s. 632.68 (2) 632.69 (2) (b), $750.

AB758, s. 12 Section 12. 601.31 (1) (mp) of the statutes is amended to read:

AB758,9,14 601.31 (1) (mp) For each annual renewal of a license as a viatical settlement provider under s. 632.68 (2) 632.69 (2) (j), $250.

AB758, s. 13 Section 13. 601.31 (1) (mr) of the statutes is amended to read:

AB758,9,17 601.31 (1) (mr) For initial issuance of a license as a viatical settlement broker under s. 632.68 (4) 632.69 (2) (b), $750.

AB758, s. 14 Section 14. 601.31 (1) (ms) of the statutes is amended to read:

AB758,9,20 601.31 (1) (ms) For each annual renewal of a license as a viatical settlement broker under s. 632.68 (4) 632.69 (2) (j), $250.

AB758, s. 15 Section 15. 632.68 of the statutes is repealed.

AB758, s. 16 Section 16. 632.69 of the statutes is created to read:

AB758,9,23 632.69 Life settlements. (1) Definitions. In this section:

AB758,9,25 (a) "Advertisement" means any written, electronic, or printed communication or any communication made by means of recorded telephone messages or transmitted on radio, television, the Internet, or similar communications media, including film strips, motion pictures, and videos, published, disseminated, circulated, or placed, directly or indirectly, before the public in this state for the purpose of creating an interest in or inducing a person to purchase or sell, assign, devise, bequeath, or transfer the death benefit or ownership of a policy or an interest in a policy pursuant to a life settlement contract.

AB758,10,12 (b) "Broker" means a person who, on behalf of an owner and for a fee, commission, or other valuable consideration, offers or attempts to negotiate life settlement contracts between an owner and one or more providers, or one or more brokers. "Broker" does not include an attorney or certified public accountant who is retained to represent the owner and whose compensation is not paid directly or indirectly by the provider or purchaser.

AB758,10,17 (c) "Business of life settlements" means an activity involved in the offering soliciting, negotiating, procuring, effectuating, purchasing, investing in, financing, monitoring, tracking, underwriting, selling, transferring, assigning, pledging, hypothicating, or in any other manner, acquiring an interest in a policy by means of a life settlement contract.

AB758,10,18 (d) "Chronically ill" means any of the following:

AB758,10,20 1. Being unable to perform at least 2 activities of daily living, including eating, toileting, transferring, bathing, dressing, or continence.

AB758,10,22 2. Requiring substantial supervision to monitor the health and safety of the individual due to his or her severe cognitive impairment.

AB758,10,24 3. Having a level of disability similar to that described in subd. 1., as defined by the U.S. department of health and human services.

AB758,11,9 (e) "Financing entity" means a person whose principal activity related to a life settlement is providing funds to effect the life settlement contract or purchase of one or more policies and who has an agreement in writing with one or more providers to finance the acquisition of life settlement contracts, including an underwriter, placement agent, lender, purchaser of securities, purchaser of a policy from a life settlement provider, credit enhancer, or any entity that has a direct ownership in a policy that is the subject of a life settlement contract. "Financing entity" does not include an investor that is not an accredited investor, as defined in 17 CFR 230.501 (a), or a purchaser.

AB758,11,13 (f) "Financing transaction" means a transaction in which a licensed provider obtains financing from a financing entity including any secured or unsecured financing, any securitization transaction, or any securities offering which is either registered or exempt from registration under federal and state securities law.

AB758,11,14 (g) "Fraudulent life settlement act" includes all of the following:

AB758,11,17 1. Acts or omissions that are committed by any person, or that a person permits its employees or its agents to engage in, for the purpose of pecuniary gain, including any of the following:

AB758,12,4 a. Presenting, causing to be presented, or preparing with the knowledge or belief that it will be presented to or by a provider, broker, purchaser, financing entity, insurer, insurance producer, or any other person, false material information, or concealing material information, as part of, in support of, or concerning a fact material to an application for the issuance of a life settlement contract or a policy; the underwriting of a life settlement contract or a policy; a claim for payment or benefit under a life settlement contract or a policy; premiums paid on an insurance policy; payments and changes in ownership or beneficiary made in accordance with the terms of a life settlement contract or a policy; the reinstatement or conversion of a policy; the solicitation, offer, effectuation, or sale of a life settlement contract or a policy; the issuance of written evidence of a life settlement contract or a policy; or a financing transaction.

AB758,12,6 b. Employing any plan, device, scheme, or artifice to defraud in the business of life settlements.

AB758,12,10 c. Failing to disclose to an insurer, if the request for such disclosure has been made by the insurer, that the prospective owner 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.

AB758,12,12 2. Any of the following acts that any person does, or permits its employees or agents to do, in the furtherance of a fraud or to prevent the detection of a fraud:

AB758,12,15 a. Removing, concealing, altering, destroying, or sequestering from the commissioner the assets or records of a licensee or other person engaged in the business of life settlements.

AB758,12,17 b. Misrepresenting or concealing the financial condition of a licensee, financing entity, insurer, or other person.

AB758,12,20 c. Transacting 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.

AB758,12,23 d. Filing with the commissioner or the chief insurance regulatory official of another jurisdiction a document containing false information or otherwise concealing information about a material fact from the commissioner or official.

AB758,13,3 3. Embezzlement, theft, misappropriation, or conversion of monies, funds, premiums, credits, or other property of a life settlement provider, insurer, insured, owner, or any other person engaged in the business of life settlements or insurance.

AB758,13,9 4. Recklessly entering into, negotiating, brokering, or otherwise dealing in a life settlement contract, the subject of which is a life insurance policy that was obtained by presenting false information concerning any fact material to the policy or by concealing for the purpose of misleading another information concerning any fact material to the policy, where the person or persons intended to defraud the policy's issuer, the provider, or the owner.

AB758,13,11 5. Attempting to commit; assisting, aiding, or abetting in the commission of; or conspiring to commit the acts or omissions specified in this paragraph.

AB758,13,14 6. Misrepresenting the state of residence of an owner to be a state that does not have a law substantially similar to this section for the purpose of evading or avoiding the provisions of this section.

AB758,13,15 7. STOLI.

AB758,13,16 (h) "Licensee" means a provider or broker that holds a license under sub. (2).

AB758,13,19 (i) "Life expectancy" means the arithmetic mean, considering medical records and appropriate experiential data, of the number of months an insured under the policy to be settled can be expected to live.

AB758,14,2 (j) 1. "Life settlement" means an agreement regarding the terms under which compensation or any thing of value will be paid, which compensation or thing of value is less than the expected death benefit of the policy but greater than the cash surrender value or accelerated death benefit available under the policy at the time of the application for the life settlement, in return for the owner's present or future assignment, transfer, sale, devise, or bequest of the death benefit or any interest in a policy. "Life settlement" includes all of the following:

AB758,14,6 a. The transfer for compensation or value of ownership or beneficial interest in a trust or other entity that owns a policy that insures the life of a person residing in this state, if the trust or other entity was formed or availed of for the principal purpose of acquiring one or more policies or certificates of insurance.

AB758,14,8 b. A written agreement for a loan or other lending transaction, secured primarily by an individual or group policy.

AB758,14,15 c. A premium finance loan made for a policy on, before, or after the date of issuance of the policy but only if the loan proceeds are not used solely to pay premiums for the policy and any costs or expenses incurred by the lender or the borrower in connection with the financing, or if the owner receives on the date of the premium finance loan a guarantee of the future life settlement value of the policy, or if the owner agrees on the date of the premium finance loan to sell the policy or any interest in its death benefit on any date following the issuance of the policy.

AB758,14,16 2. "Life settlement" does not include any of the following:

AB758,14,19 a. A policy loan by a life insurance company pursuant to the terms of the policy or accelerated death provisions contained in the policy, whether issued with the original policy or as a rider.

AB758,14,24 b. Except as provided in subd. 1. c., a premium finance loan or any loan made by a bank or other licensed financial institution, provided that neither default on such loan nor the transfer of the policy in connection with such default is pursuant to an agreement or understanding with any other person for the purpose of evading regulation under this section.

AB758,14,25 c. A collateral assignment of a policy by an owner.

AB758,15,2 d. A loan made by a lender that does not violate s. 138.12, if the loan is not described in subd. 1. c. and is not otherwise a life settlement contract.

AB758,15,6 e. An agreement where all the parties are closely related to the insured by blood or law, or have a lawful substantial economic interest in the continued life, health, and bodily safety of the person insured, or are trusts or other entities established primarily for the benefit of such parties.

AB758,15,9 f. Any designation, consent, or agreement by an insured who is an employee of an employer in connection with the purchase by the employer, or trust established by the employer, of life insurance on the life of the employee.

AB758,15,17 g. A bona fide business succession planning arrangement 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 or for the benefit of its shareholders; 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 or for the benefit of its partners; or 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 or for the benefit of its members.