SENATE BILL NO. 183
AN ACT TO AMEND TITLE 18 OF THE DELAWARE CODE RELATING TO VIATICAL SETTLEMENTS.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE (Three-fifths of all members elected to each house thereof concurring therein):
Section 1. Amend Title 18 of the Delaware Code by adding thereto a new chapter, designated as Chapter 75, which shall read as follows:
“Chapter 75. Delaware Viatical Settlements Act
§ 7501. Short Title
This Act may be cited as the Delaware Viatical Settlements Act.
§ 7502. Definitions
As used in this Chapter:
(a) ‘Financing entity’ means an underwriter, placement agent, lender, purchaser of securities, purchaser of a policy or certificate from a viatical settlement provider, credit enhancer, or any person that may be a party to a viatical settlement contract and that has a direct ownership in a policy or certificate that is the subject of a viatical settlement contract but whose sole activity related to the transaction is providing funds to effect the viatical settlement and who has an agreement in writing with a licensed viatical settlement provider to act as a participant in a financing transaction.
(b) ‘Financing transaction’ means a transaction in which a licensed viatical settlement provider or a financing entity obtains financing for viatical settlement contracts, viaticated policies or interests therein including, without limitation, any secured or unsecured financing, any securitization transaction or any securities offering either registered or exempt from registration under federal and state securities law, or any direct purchase of interests in a policy or certificate, if the financing transaction complies with federal and state securities law.
(c) ‘Person’ means a legal entity, including but not limited to, an individual, partnership, limited liability company, association, trust, corporation or other legal entity.
(d) (1) ‘Viatical settlement agent’ means a person who is an authorized agent of a licensed viatical settlement provider who acts or aids in any manner in the solicitation of a viatical settlement. Viatical settlement agent shall not include:
a. An attorney, an licensed CPA, certified financial planner or any person exercising a power of attorney granted by a viator; or
b. Any person who is retained to represent a viator and whose compensation is paid by or at the direction of the viator regardless of whether the viatical settlement is consummated.
(2) A viatical settlement agent is deemed to represent only the viatical settlement provider.
(e) ‘Viatical settlement broker’ means a person that on behalf of a viator and for a fee, commission or other valuable consideration offers or attempts to negotiate viatical settlements between a viator and one or more viatical settlement providers. Irrespective of the manner in which the viatical settlement broker is compensated, a viatical settlement broker is deemed to represent only the viator and owes a fiduciary duty to the viator to act according to the viator’s instructions and in the best interest of the viator. The term does not include an attorney, licensed CPA, or certified financial planner retained to represent the viator whose compensation is paid directly by or at the direction of the viator.
(f) ‘Viatical settlement contract’ means a written agreement entered into between a viatical settlement provider and a viator. The agreement shall establish the terms under which the viatical settlement provider will pay compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy or certificate, in return for the viator’s assignment, transfer, sale, devise or bequest of the death benefit or ownership of all or a portion of the insurance policy or certificate of insurance to the viatical settlement provider. A viatical settlement contract also includes a contract for a loan or other financial transaction secured primarily by an individual or group life insurance policy, other than a loan by a life insurance company pursuant to the terms of the life insurance contract, or a loan secured by the cash value of a policy.
(g) ‘Viatical settlement provider’ means a person, other than a viator, that enters into a viatical settlement contract. Viatical settlement provider also means a person that obtains financing from a financing entity for the purchase, acquisition, transfer or other assignment of one or more viatical settlement contracts, viaticated policies or interests therein, or otherwise sells, assigns, transfers, pledges, hypothecates or otherwise disposes of one or more viatical settlement contracts, viaticated policies or interests therein. Viatical settlement provider does not include:
(1) A bank, savings bank, savings and loan association, credit union or other licensed lending institution that takes an assignment of a life insurance policy as collateral for a loan;
(2) The issuer of a life insurance policy providing accelerated benefits and pursuant to the contract; or
(3) A natural person who enters into no more than one agreement in a calendar year for the transfer of life insurance policies for any value less than the expected death benefit.
(h) ‘Viator’ means the owner of a life insurance policy or a certificate holder under a group policy insuring the life of an individual with a catastrophic, life-threatening or chronic illness or condition who enters or seeks to enter into a viatical settlement contract.
(i) ‘Viaticated policy’means a life insurance policy or certificate that has been acquired by a viatical settlement provider pursuant to a viatical settlement contract.
§ 7503. License Requirements
(a) A person shall not operate as a viatical settlement provider without first having obtained an agency license in accordance with Chapter 17 of this title.
(b) A person shall not operate as a viatical settlement agent without first having obtained a license as a life agent in accordance with Chapter 17 of this Title. Notwithstanding the above, Chapter 17 appointment requirements shall not apply to viatical settlement agents performing viatical settlement functions.
(c) A person shall not operate as a viatical settlement broker without first having obtained a license as a life broker in accordance with Chapter 17 of this Title.
(d) Applications for viatical settlement provider, agent and broker’s licenses shall be made in accordance with Chapter 17 of this Title.
(e) The Commissioner is authorized, at all times, to require the applicant to disclose the identity of all stockholders, partners, officers, members and employees. The Commissioner may, in the exercise of his or her discretion, refuse to issue a license in the name of a legal entity if not satisfied that any officer, employee, stockholder, partner or member thereof who may materially influence the applicant’s conduct meets the standards of this Chapter.
(f) A license issued to a legal entity authorizes the viatical settlement provider to act within the state of Delaware for transacting viatical settlements as applicable under this Act.
(g) All viatical settlement transactions made on behalf of the viatical settlement provider shall be accomplished by a viatical settlement agent registered with this Department under the viatical settlement provider agency license.
(h) Upon the filing of an application for a viatical settlement providers license, the Commissioner may require a detailed plan of operation and information relating to the applicant’s business reputation.
§ 7505. Approval of Viatical Settlements Contracts and Disclosure Statements
A person shall not use a viatical settlement contract or provide to a viator a disclosure statement form in this state unless filed with and approved by the Commissioner. The Commissioner shall disapprove a viatical settlement contract or disclosure statement form if, in the Commissioner’s opinion, the contract or provisions contained therein are unreasonable, contrary to the interests of the public, or otherwise misleading or unfair to the viator.
§ 7506. Reporting Requirements and Confidentiality
(a) Each viatical settlement provider shall file with the Commissioner on or before April 1 of each year an annual statement containing such information as the Commissioner by rule may prescribe.
(b) Except as otherwise allowed or required by law, a viatical settlement provider, viatical settlement agent, viatical settlement broker, insurance company, insurance agent, insurance broker, information bureau, rating agency or company, or any other person with actual knowledge of a viator’s identity, shall not disclose that identity as a viator to any other person unless the disclosure:
(1) Is necessary to effect a viatical settlement between the viator and a viatical settlement provider and the viator has provided prior written consent to the disclosure;
(2) Is provided in response to an investigation by the Commissioner or any other governmental officer or agency; or
(3) Is a term of or condition to the transfer of a viaticated policy by one viatical settlement provider to another viatical settlement provider or disclosures to reinsurers and in similar situations.
§ 7507. Examination
(a) The Commissioner may, when the Commissioner 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 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.
(b) Names and individual identification data for all viators shall be considered private and confidential information and shall not be disclosed by the Commissioner, unless required by law.
(c) Records of all transactions of viatical settlement contracts shall be maintained by the viatical settlement provider and shall be available to the Commissioner for inspection during reasonable business hours. A viatical settlement provider shall maintain records of each viatical settlement until five (5) years after the death of the insured.
§ 7508. Disclosure
(a) A viatical settlement provider, viatical settlement agent or viatical settlement broker shall disclose the following information to the viator no later than the time of application:
(1) Possible alternatives to viatical settlement contracts for individuals with catastrophic, life threatening or chronic illnesses, including, any accelerated death benefits offered under the viator’s life insurance policy;
(2) Some or all of the proceeds of the viatical settlement may be free from federal income tax and from state franchise and income taxes, and that assistance should be sought from a professional tax advisor;
(3) Proceeds of the viatical settlement may be subject to the claims of creditors;
(4) Receipt of the proceeds of a viatical settlement may adversely effect the viator’s eligibility for Medicaid or other government benefits or entitlements, and that advice should be obtained from the appropriate government agencies;
(5) The viator’s right to rescind a viatical settlement contract fifteen (15) calendar days after the receipt of the viatical settlement proceeds by the viator, as provided in §7509(c);
(6) Funds will be sent to the viator within two (2) business days after the viatical settlement provider has received the insurer or group administrator’s acknowledgment that ownership of the policy or interest in the certificate has been transferred and the beneficiary has been designated pursuant to the viatical settlement contract; and
(7) Entering into a viatical settlement contract may cause other rights or benefits, including conversion rights and waiver of premium benefits that may exist under the policy or certificate, to be forfeited by the viator and that assistance should be sought from a financial adviser.
(b) A viatical settlement provider shall disclose the following information to the viator prior to the date the viatical settlement contract is signed by all parties:
(1) The affiliation, if any, between the viatical settlement provider and the issuer of an insurance policy to be viaticated;
(2) If an insurance policy to be viaticated has been issued as a joint policy or involves family riders or any coverage of a life other than the insured under the policy to be viaticated, the viator shall be informed of the possible loss of coverage on the other lives and be advised to consult with his or her insurance producer or the company issuing the policy for advice on the proposed viatication; and
(3) The dollar amount of the current death benefit payable to the viatical settlement provider under the policy or certificate. The viatical settlement provider shall also disclose the availability of any additional guaranteed insurance benefits, the dollar amount of any accidental death and dismemberment benefits under the policy or certificate and the viatical settlement provider’s interest in those benefits.
§ 7509. General Rules
(a) A viatical settlement provider entering into a viatical settlement contract shall first obtain:
(1) If the viator is the insured, a written statement from a licensed attending physician that the viator is of sound mind and under no constraint or undue influence to enter into a viatical settlement contract;
(2) A witnessed document in which the viator consents to the viatical settlement contract, acknowledges that the insured has a catastrophic, life threatening or chronic illness or condition, represents that the viator has a full and complete understanding of the viatical settlement contract, that he or she has a full and complete understanding of the benefits of the life insurance policy and acknowledges that he or she has entered into the viatical settlement contract freely and voluntarily; and
(3) A document in which the insured consents to the release of his or her medical records to a viatical settlement provider or viatical settlement broker.
(b) 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.
(c) All viatical settlement contracts entered into in this state shall provide the viator with an unconditional right to rescind the contract for at least fifteen (15) calendar days from the receipt of the viatical settlement proceeds. If the insured dies during the rescission period, the viatical settlement contract shall be deemed to have been rescinded, subject to repayment to the viatical settlement provider of all viatical settlement proceeds.
(d) Immediately upon the viatical settlement provider’s receipt of documents to effect the transfer of the insurance policy, the viatical settlement provider shall pay the proceeds of the viatical settlement to an escrow or trust account in a state or federally chartered financial institution whose deposits are insured by the Federal Deposit Insurance Corporation (FDIC). The account shall be managed by a trustee or escrow agent independent of the parties to the contract. The trustee or escrow agent shall transfer the proceeds to the viator immediately upon the viatical settlement provider’s receipt of acknowledgment of the transfer of the insurance policy.
(e) Failure to tender consideration to the viator for the viatical settlement contract within the time disclosed pursuant to §7508(a)(6) renders the viatical settlement contract voidable by the viator for lack of consideration until the time consideration is tendered to and accepted by the viator.
(f) Contacts with the insured for the purpose of determining the health status of the insured by the viatical settlement provider, viatical settlement broker or viatical settlement agent after the viatical settlement has occurred shall only be made by the viatical settlement provider or broker licensed in this state and shall be limited to once every three (3) months for insureds with a life expectancy of more than one year, and to no more than one per month for insureds with a life expectancy of one year or less. The provider or broker shall explain the procedure for these contacts at the time the viatical settlement contract is entered into. The limitations set forth in this subsection shall not apply to any contacts with an insured under a viaticated policy for reasons other than determining the insured’s health status.
§ 7510. Authority to Promulgate Regulations
The Commissioner shall have the authority to:
(1) Promulgate regulations implementing this Act;
(2) Establish standards for evaluating reasonableness of payments under viatical settlement contracts. This authority includes, but is not limited to, regulation of discount rates used to determine the amount paid in exchange for assignment, transfer, sale, devise or bequest of a benefit under a life insurance policy;
(3) Require a bond or other mechanism for financial accountability for viatical settlement providers; and
(4) Adopt rules governing the relationship and responsibilities of insurers and viatical settlement providers, brokers and agents during the viatication of a life insurance policy or certificate.
§ 7511. Unfair Trade Practices
A violation of this Act shall be considered an unfair trade practice under Chapter 23 of this Title and subject to the penalties contained in such Chapter.”
Section 2. Severability
If any provision of this Chapter, or the application of the provision to any person or circumstances, shall be held invalid, the remainder of the Chapter, and the application of the provision to person or circumstances other than those as to which it is held invalid, shall not be affected.
Section 3. Effective Date
This Act shall take effect on November 1, 1999. A viatical settlement provider, viatical settlement agent or viatical settlement broker transacting business in this state may continue to do so pending approval or disapproval of the provider, agent or broker’s application for a license so long as the application is filed with the Commissioner on or before November 30, 1999.
Approved July 02,1999