Part 1.
TEXAS DEPARTMENT OF INSURANCE
Chapter 3.
LIFE, ACCIDENT AND HEALTH INSURANCE AND ANNUITIES
Subchapter R. VIATICAL AND LIFE SETTLEMENTS
28 TAC §§3.1701 - 3.1717
The Commissioner of Insurance adopts amendments to §§3.1701
- 3.1703, 3.1705, 3.1707 - 3.1715, and new §§3.1704, 3.1706, 3.1716,
and 3.1717 concerning regulation of viatical and life settlements. The sections
are adopted with changes to the proposed text as published in the August 11,
2000, issue of the
Texas Register
(25 TexReg
7465).
The amendments and new sections are necessary to implement the provisions
of Texas Insurance Code Article 3.50-6A, as amended by Acts 1999, 76th Legislature,
in House Bill (HB) 792. Prior to HB 792, Code Article 3.50-6A applied only
to viatical settlements, the sale of a life insurance policy on an individual
with a catastrophic or life-threatening illness or condition. House Bill 792
amended Article 3.50-6A by addressing life settlements, which are defined
as the sale of life insurance policies on individuals who do not have a catastrophic
or life-threatening illness or condition. The adopted rule adds language to
address life settlements, clarifies filing requirements, and requires additional
disclosures, contract provisions, and reporting requirements.
The adopted sections are necessary to provide additional consumer protections;
establish requirements for registration, disclosure, and form approval for
persons engaged in the business of viatical and life settlements; streamline
the process for renewal and registration, disclosure, and form approval; more
clearly define prohibited practices; ensure that a viator's, life settlor's,
and owner's rights remain protected in the event the life insurance policy
or certificate is re-sold or transferred to another person, or when the viatical
or life settlement provider, provider representative, or broker elects to
no longer engage in the business; protect the confidentiality of the personal
information of viators, life settlors, and owners; designate the responsibilities
of viatical or life settlement providers, provider representatives, and brokers;
and provide enforcement mechanisms to ensure compliance with the Insurance
Code and this subchapter.
While all of the adopted sections (§§3.1701 - 3.1717) become
effective 20 days after the date the rule is filed with the office of the
Secretary of State, the department recognizes the need for preliminary actions
to be undertaken by viatical and life settlement providers, provider representatives,
and brokers to implement the reporting requirements of §3.1705, and to
implement other sections of the rule including, but not limited to §§3.1706
- 3.1710, that will require changes to some forms used to effect viatical
or life settlements. Therefore, providers, provider representatives, and brokers
must begin collecting data pursuant to §3.1705 not later than May 1,
2001, and include such data in any report filed on or after May 1, 2001, as
well as file any such report in the format prescribed by §3.1705. Additionally,
any forms used, issued, or delivered on or after May 1, 2001, must comply
with the new regulations. Filings received by the department on or after May
1, 2001 must be accompanied by the completed transmittal checklist prescribed
by the department.
The commissioner held a public hearing on the proposed rule on September
27, 2000, under Docket No. 2460.
In response to comments, the following changes have been made to the sections: §3.1702
- The term "captive broker" has been deleted throughout the rule and has been
replaced with the term "viatical or life settlement provider representative,"
and a definition of that term has been added. This change necessitated deletion
of the term "independent broker" which was previously needed due to the existence
of "captive broker" in the rule. The terms "viatical settlement company" and
"life settlement company" have been changed throughout the rule to "viatical
settlement provider" and "life settlement provider." The definition of "business
of viatical or life settlements" has been changed to include language addressing
persons who perform the acts of a viatical or life settlement provider, provider
representative, or broker. The definition of "catastrophic or life-threatening
illness" was changed to be more consistent with similar definitions relating
to viatical and life settlements in the Internal Revenue Code. The definition
of "certificate holder" was changed for clarification. The definition of "mature
or matured" was changed to remove the word "matured," and to add language
to the definition necessitated by changes in §3.1704(e) - (g). The definition
of "owner" was changed to more accurately describe the rights that an owner
has under a policy or certificate. The definition of "referral agent" was
reinstated and changed to address persons who make viatical or life settlement
referrals, including referrals for a fee. This change also necessitated a
change to §3.1703(a) to recognize that a person is not required to obtain
a certificate of registration with the department when that person's sole
involvement in a viatical or life settlement is restricted to the acts of
a referral agent, and any fee received for the referral consists of a nominal,
fixed, one-time fee that is not contingent upon the purchase or sale of the
product for which the referral is made. The definition of "viatical or life
settlement broker" was changed to include language that indicates that brokers
represent the viator, life settlor, or owner in a viatical or life settlement,
and negotiate the settlement on the viator's, life settlor's or owner's behalf.
Language relating to referring or introducing a viator, life settlor, or owner
was removed. The definition of "viatical or life settlement provider" was
changed to recognize that an authorized or eligible insurer that issues stop
loss coverage to a viatical or life settlement provider is not included within
the definition of "viatical or life settlement provider." A definition of
"provider representative" was added in response to comments to delete the
term "captive broker". Many of the definitions in this section were renumbered
in response to removal and addition of other definitions. §3.1703 - Language
was added to subsection (j) to clarify that the secretary of state is the
applicant's domiciliary secretary of state. Subsections (l) and (m) were changed
to clarify that the secretary of state in those provisions means the Texas
Secretary of State, and to simplify the application process by requesting
a copy of the applicant's certificate of existence from the Texas Secretary
of State. §3.1704 - Subsection (e) was changed to give viatical or life
settlement providers the option to appoint a Texas registered broker or one
of their provider representatives when the provider has viatical or life settlements
that will not mature by the date the provider's current certificate of registration
expires, or is surrendered, and the provider does not intend to renew its
registration. Language was also added where necessary regarding brokers and
provider representatives when they surrender or nonrenew their certificate
of registration. §3.1705 - Subsections (a) and (c) were changed to require
persons submitting a report under §3.1705 to only file an electronic
copy. Subsection (c)(1)(C) was changed to require the A.M. Best rating "at
the time of settlement contract." Subsections (c)(1)(M) and (c)(2)(H) were
changed to require the primary ICD Diagnosis Code "at the time of settlement
contract." Subsection (c)(4) was added to require the name and address of
any person who was given a fee for a referral. Subsection (c)(9) was changed
to allow a viatical or life settlement provider conducting in-house tracking
to use the abbreviation "IH" in the report. §3.1706 - Subsection (g)
was changed to remove language referring to a company or broker being "lawfully
registered in this state to conduct both viatical and life settlement business,"
as such language is no longer necessary since the department will not issue
separate registrations, but will only distinguish between registrations for
providers, provider representatives, and brokers. The phrase "to the best
of their knowledge" was added to this subsection and §3.1709(c)(11) since
it will not always be apparent when some forms are used whether the transaction
will be a viatical settlement or life settlement. §3.1708 - Subsection
(b)(2)(E) was changed to permit a general description or identification of
the type of person to whom confidential information will be released, as opposed
to the specific name or identity of the person to whom such information may
be released. A similar change was made to §3.1714(a) since financing
entities could ultimately obtain confidential information pursuant to a consent
form. Subsection (b)(2)(F) was changed to require disclosure that a medical
release form may be used to track ongoing health status of the viator, life
settlor, or owner, and that the viator, life settlor, or owner may withdraw
their consent pursuant to applicable law. Subsection (b)(2)(M) was changed
to remove language referring to a future increase in the death benefit. This
change was necessary to remain consistent with model laws which allow future
increases in the death benefit to be purchased as part of a viatical or life
settlement. Similar changes were made to §§3.1709(e) and 3.1710(d).
In lieu of a prohibition of the sale of such a benefit, the department opted
for disclosure in paragraph (L) informing a viator, life settlor, or owner
that he/she may wish to inquire if his/her policy contains such a provision,
and whether the price paid for the policy includes the value of the provision.
Remaining paragraphs were renumbered. Paragraph (P) was changed to use language
that is more consistent with the definitions of "viatical or life settlement
broker," and "viatical or life settlement provider representative." §3.1709
- The reference to "executive officer" in subsection (c)(1) was changed to
recognize executive officer "designated in the settlement contract with authority
to bind the provider." Subsection (c)(7) was changed to only require a viatical
or life settlement provider to disclose that the provider has the right to
assign, sell, or otherwise transfer the policy without the viator's, life
settlor's, or owner's consent. Language was added to subsection (f) to clarify
that viatical and life settlement contracts must contain the name of the insurance
company underwriting the policy "at the time of contract." A similar change
was made to subsection (g) in relation to escrow/trust agreements. §3.1710
- Subsection (c)(2) was changed to recognize that a viatical or life settlement
provider, provider representative, or broker may need to obtain the name of
a viator's, life settlor's, or owner's family member (for later use to obtain
a death certificate) by removing the prohibition against obtaining such information.
In lieu of an outright prohibition against obtaining such information, the
department instead prohibited use of the information to directly or indirectly
contact such family members unless the family member is designated as a contact
person under §3.1709(c)(5). A change was made to subsection (c)(6) to
clarify that the criteria used to determine if a payment is "just" includes
data that is submitted in the reports required by §3.1705. Subsection
(c)(12) was changed to allow use of a power-of-attorney form if the form is
a special or limited power-of-attorney and is restricted only to purposes
related to the settlement. §3.1712 - A change was made to subsection
(b) to remove reference to the language "as determined at the time of viatical
or life settlement contract" since a viator's or life settlor's life expectancy
may change. §3.1713 - Language was added to subsection (b) to allow providers
to continue to track a viator's or life settlor's health status, even after
assigning, selling, or otherwise transferring its interest in a policy. §3.1714
- Subsection (b) was changed to remove a restriction prohibiting written consent
forms from providing for the release of information for any period greater
than 12 months, and prohibiting the use of such forms for tracking purposes.
In lieu of a prohibition, the department has opted for a disclosure requirement
in this section and in §3.1708(b)(2)(F). §3.1715 - The prohibitions
in subsections (b) and (c) concerning escrow agent licensure were deleted. §3.1717
- Subsection (b) was changed to require providers, provider representatives,
and brokers to maintain records of each viatical or life settlement in which
it participates, until three years after the "date the viatical or life settlement
has matured."
The department has determined that the following grammatical or clarification
changes are also necessary.§3.1702 - The definition of "escrow agent
or trustee" was changed to more accurately address persons who are licensed
to provide escrow or trust services. §3.1703 - Language was added to
subsection (e) to clarify that any name, not just such persons' assumed names,
used by a viatical or life settlement provider, provider representatives,
or broker is subject to the requirement of §19.901. §3.1706 - The
date of December 1, 2000 was changed to May 1, 2001. §§3.1708(b)
and 3.1709(c) - Changes were made to clarify that if the viator or life settlor
dies at any time prior to the end of the rescission period, the viatical or
life settlement contract will be deemed to have been rescinded. §3.1709
- The word "owner" was added to subsection (c)(10) where it had been inadvertently
omitted. §3.1710 - A change was made to subsection (c)(8) to clarify
that a provider, provider representative, or broker is prohibited from entering
into any settlement with a viator, life settlor, or owner in this state in
which any form used to effect the settlement contains a provision requiring
or limiting such person to specify a particular city, county, or locality
in Texas or elsewhere as the legal forum for resolving a dispute. As elderly
persons and sick persons are commonly solicited for viatical and life settlements,
it was the department's intent to prohibit forms that contain clauses that
require viators, life settlors, or owners to resolve a legal dispute in a
locality far removed from their residence at the time of contract. Other non-substantive
changes were made throughout the rule for grammar, consistency, or clarity.
Contemporaneous with the adoption of these amendments and new sections, the
repeal of §§3.1704, 3.1706, and 3.1716 - 3.1718 is published elsewhere
in this issue of the Texas Register.
Section 3.1701 applies the subchapter to life settlors, life settlements,
and owners. Section 3.1702 adds, deletes, or modifies various definitions.
The definition of "owner" in this section clarifies that, in some situations,
the owner, viator, or life settlor are separate persons under an insurance
policy. Section 3.1703 sets forth requirements for obtaining a certificate
of registration to operate as a viatical or life settlement provider, provider
representative, or broker, including doing business under an assumed name,
or having more than one business location. Amendments to this section create
a new structure for paying fees to obtain a certificate of registration, and
change the certificate of registration from a one-year certificate to a two-year
certificate. Prior to the amendment fees were paid annually at a rate of $250.00
for company registrations and $125.00 for broker registrations. Under the
amendments, the same fee is charged, but payment of the fee is made every
two years since the certificate will be valid for two years. As such, a provider
will pay $500.00 every two years and a provider representative or broker will
pay $250.00 every two years. The amendment also sets forth requirements for
notifying the department of a change in information both during the application
process and any time a change occurs in the application thereafter. Section
3.1704 sets forth the requirements for renewing, nonrenewing, or surrendering
a certificate of registration. Amendments to §3.1705 modify the content
and format of the reports required to be filed with the department.
Section 3.1706 sets forth the requirements for the filing of viatical or
life settlement forms, and the process for departmental action on forms filed
with the department. Section 3.1707 addresses life settlements in the filing
requirements for advertising, sales, and solicitation materials. Section 3.1708
modifies existing requirements, and adds new required disclosure materials.
The amendments to §3.1709 both modify existing, and add new, mandatory
contract and application provisions, including those provisions that allow
the owner of a policy to retain an interest in the policy. The section also
addresses acknowledgement forms, escrow and/or trust agreements, and the provisions
that must be contained in those forms.
Additional prohibitions are added in §3.1710 to the current list of
prohibited practices related to advertising and solicitation of applications
and contracts for viatical and life settlements. The amendments to §3.1711
address prohibited practices relating to the payment of commissions and other
forms of compensation, modify the section to add life settlement terminology,
and create a fiduciary duty between a viatical or life settlement broker and
the viator, life settlor, or owner whom the broker represents.
Section 3.1712 sets forth new guidelines outlining prohibited practices
when contacting a viator, life settlor, or owner for personal information,
including contacts for health status inquiries after the settlement contract
has been entered into and the proceeds have been paid to viators, life settlors,
or owners. Section 3.1713 is amended to address the assignment, sale, or transfer
of insurance policies subsequent to the initial purchase of the policy by
the viatical or life settlement provider. Amendments to §3.1714 set forth
the limits and practices relating to obtaining confidential information, such
as prohibiting the disclosure of an owner's, viator's, or life settlor's confidential
information without first obtaining proper written consent.
Section 3.1716 sets forth the authority and the procedures for the commissioner
to deny, suspend, or revoke a certificate of registration, or take other enforcement
action. Section 3.1717 authorizes the department to examine the business and
affairs of any provider, provider representative, or broker engaged in the
business of viatical or life settlements in this state, with expenses for
such examinations to be paid by such persons.
In conjunction with these amendments and new sections, the commissioner
is repealing existing §§3.1704, 3.1706 and 3.1716 - 3.1718. Adoption
of the repeal is published elsewhere in this issue of the Texas Register.
General
Comment: Two commenters requested additional time to submit additional
comments.
Agency Response: The 30-day comment period ended September 11, 2000, and
a hearing on the rules was held September 27, at which time additional comments
were received. It is not appropriate to extend the comment deadline past the
time already provided.
Comment: Commenters supported the proposed rule generally, and appreciated
the work done by the department. A commenter requested the department consider
providing an exemption from regulations for life settlements for policies
with a face value in excess of $250,000 as these policies are usually owned
by financially sophisticated individuals or by corporations as "key-man" policies.
The commenter believed these persons may not require the same level of protection
as individuals with policies below the suggested amount, and may desire more
flexibility than is permitted under the proposed rule.
Agency Response: The department disagrees, as it is the department's position
that Article 3.50-6A does not provide regulatory authority to exempt certain
policies or persons from the consumer protection provisions of the statute.
Comment: A commenter suggested that the rule contain a provision requiring
a non-captive broker to present an offer to the seller within a reasonable
time (five to seven days). The commenter also suggested a provision requiring
a non-captive broker to seek counter-offers from lower bidders to ensure that
the viator, life settlor, or owner is receiving the highest offer from the
market.
Agency Response: The department understands the commenter's concerns regarding
brokers, but disagrees with the commenter's suggested remedy. The department
agrees that brokers must present all offers to the owner, viator, or life
settlor within a reasonable time after the offer is made, which will vary
depending upon circumstances. The department has not received, and is not
aware of, any complaints regarding this issue and does not agree that a specific
time frame be established at this time. The department will monitor this matter,
and if a time frame is needed, one will be proposed. Section 3.1711(c) imposes
a fiduciary duty upon brokers. The department interprets this fiduciary duty
to require brokers to exercise due diligence to obtain the best offer possible
for the owners, viators, or life settlors, and to present all offers to viators,
life settlors, or owners in a timely manner.
Comment: A commenter urged the department to adopt a program or procedure
for extensive searching into the background of companies' officers and directors,
including the parent and ultimate parent of all applicant companies.
Agency Response: All applicants, including all officers, directors, and
shareholders with 10% or more ownership interest who are required to be listed
in the application for a certificate of registration provided to the department,
are submitted for a criminal background check through both the Texas Crime
Information Center and the National Crime Information Center. The department
will continue to research the potential use of any other background searches
as they are made available.
Public Benefit/Cost Note
Comment: A commenter, referencing §3.1706, stated that the projected
costs of $9 - $11 for annual report preparation and filing are highly understated,
and estimated the number of hours required per year for form filing activities
to be 200 hours.
Agency Response: As stated in the preamble to the proposed rule, the hourly
projected costs of $9 - $11 were in relation to submitting reports pursuant
to §3.1705 and not form fillings under §3.1706. The estimated cost
to file forms was $1 - $5 per page. Article 3.50-6A requires the commissioner
to adopt rules relating to approval of contract forms. The form filing requirement
has been in effect since initial adoption of the viatical settlement rule
in 1996. This rule will reduce the costs associated with form approval by
streamlining the process for filing and approval, setting forth provisions
which must be included in each settlement contract, and providing certain
sample forms for use which will reduce form development time and which are
not required to be filed for approval.
§3.1701
Comment: A commenter questioned whether deletion of the word "scope" in
the title of this section affects the rule. The commenter also questioned
the difference between "enacting rules" and "implementing subchapters" and
whether these phrases have different significance in Texas.
Agency Response: The word "purpose" in the title encompasses "scope" and
thus does not substantively affect the rule. There is no difference between
the two phrases regarding "implementing" and "enacting". The department made
the changes to conform to Texas Register general style and format requirements.
§3.1701(a)(1)
Comment: A commenter stated that the death benefit assigned by the owner
is the entire gross benefit, not a "net" benefit. The commenter also stated
that the reference to "life" insurance policy should not be deleted, and suggested
addition of the following language: "transfers a life insurance policy or
certificate issued pursuant to a group life insurance policy, or who attempts
to do so."
Agency Response: The department understands the commenter's reasoning behind
the suggested language, but the commenter's concerns are addressed in the
definitions of "net death benefit" and "policy" when read in conjunction with §3.1701(a).
The benefit assigned is not a gross amount, but rather the amount or value
of the policy less any outstanding debts or liens already encumbering the
policy amount that could be viaticated or sold. The intent is to address the
actual amount assignable.
§3.1701(a)(3)
Comment: A commenter asked what effect the broader meaning of the phrase
"or life" has on the scope of this regulation.
Agency Response: The intent of this subsection is to include "life settlements"
as added by Acts 1999, 76th Legislature, HB 792.
§3.1701(a)(4) and (5)
Comment: A commenter believed that although the insured has a continuing
right to privacy and to reasonable tracking parameters, the owner has no further
rights in the policy after it is sold, and is in fact giving up all rights
in the policy for an agreed upon cash amount.
Agency Response: The department disagrees, as Article 3.50-6A provides
for consumer protection for a person who may sell or otherwise transfer the
person's life insurance policy including maintenance of appropriate confidentiality
of personal and medical information. This section addresses the purpose of
the subchapter and summarizes the requirements of Article 3.50-6A. §§3.1701(a)(6),
3.1703(n), and 3.1710(a)
Comment: Several commenters suggested that the department delete the phrase,
"or the United States," because the department does not have authority to
enforce a federal law. A few commenters requested that the reference to "other
applicable law" specify the applicable laws so that industry participants
may comply. Another commenter requested that the department replace the phrase,
"...or any other applicable law," with "or any other State of Texas applicable
law."
Agency Response: The department disagrees with the commenters' suggested
changes. The phrase "other applicable law" is needed to encompass new laws
or modifications to existing laws that affect the viatical or life settlement
industry. Reference to "laws of the United States" and "other applicable law"
both in the sections referenced by the commenters and elsewhere in the rule
are included to address those state and federal laws, both present and future,
which may apply to the viatical and life settlement industry. Additionally,
the department notes that these types of phrases are commonly used in statutes
and regulations. §3.1702(a)(1)
Comment: Three commenters questioned the definition of "advertisement,"
and requested that the questioned language be deleted. One commenter stated
that prepared sales talks are often created with limited notice. Another commenter
questioned the meaning of the phrase, "and those representations made to members
of the public." Another commenter asked what constitutes "direct or indirect
communications."
Agency Response: The department disagrees that the questioned language
should be deleted. The definition of "advertisement" is almost identical to
the definition of "advertisement" in the department's advertising rules, 28
TAC Chapter 21, Subchapter B, and has been applicable to the viatical settlement
industry since 1996. The use of this definition is also appropriate because
Chapter 21, Subchapter B is written under the authority of Insurance Code
Article 21.21 which is made expressly applicable to the viatical and life
settlement industry by Article 3.50-6A, §3. The adopted definition, as
compared to the definition in Chapter 21, varies only by those changes necessary
to apply to the viatical and life settlement industry, and to confirm applicability
of the term to the Internet and Internet advertisements. The meaning of the
phrase for which the commenters requested clarification will vary depending
upon the facts of a given situation. The department does not believe the phrases
are ambiguous, over-broad, or vague. This definition is also necessary to
provide adequate consumer protection, a requirement of Article 3.50-6A. To
apply a lesser definition to the viatical or life settlement industry than
to the insurance industry would result in an unequal application of the law.
Comment: A commenter stated that for clarity, the language, "materials
used to solicit policies for viatical or life settlements" should read, "materials
used to solicit viatical or life settlements."
Agency Response: The department agrees and has made the commenter's suggested
change.
Comment: Another commenter stated that the phrase, "material included with
a viatical or life settlement," should be "material included with the solicitation
of a viatical or life settlement."
Agency Response: The department disagrees. The rule's subsequent language,
"or any application for a viatical or life settlement, when the settlement
is solicited or when the contract is delivered," clarifies that this material
is not limited solely to material utilized during the solicitation of the
settlement, but also to material utilized in the delivery of the settlement
contract. §3.1702(a)(2) and (26)
Comment: A few commenters believed that the definitions for "business of
viatical or life settlements" and "viatical or life settlement brokers" contain
language that includes persons that should not otherwise be required to obtain
a certificate of registration. One commenter believed the language includes
persons engaged in "tracking" services. By way of example, the commenter asked
if a viatical or life settlement company that does tracking must be licensed
as a broker as well. If not, the commenter believed tracking entities must
be expressly excluded. Similarly, a few commenters stated that it should be
sufficient if the contact person is a full-time employee of the company or
broker under an administrative contract to perform tracking services on behalf
of the viatical or life settlement company.
A few commenters suggested adding language to the definition of "business
of viatical or life settlements" to include those companies that track the
health status of viators or life settlors for companies. Another commenter
believed this definition is unnecessary and confusing, because it is a restatement
of definitions covered by other definitions in the rule. These commenters
stated that under the National Association of Insurance Commissioners (NAIC)
model act, these aforementioned activities are included within the definition
of the "business of viatical or life settlements" because they are integral
to it. A commenter pointed out that the Texas definition of "viatical settlement
broker" delegated the "tracking services" tasks to brokers, which is inconsistent
with the NAIC model definition.
Agency Response: The department understands the commenters' concerns, and
has made a change to address tracking in the definitions of "business of viatical
or life settlements," and "viatical or life settlement provider representative."
The department clarifies that the definition of "viatical or life settlement
broker" at §3.1702(a)(26) does not limit the performance of tracking
functions to persons who do broker activities. Providers, provider representatives,
and brokers are all permitted to perform tracking in accordance with the rule. §§3.1702(a)(26)
and (28); 3.1703(h) and (i); 3.1708(b)(2)(P); and 3.1710(c)(1)
Comment: Several commenters expressed concern with the use of the term,
and the concept of, "captive broker" in the proposed rule. These commenters
stated that inherent in the industry is the idea that a "broker" represents
the owner and has a fiduciary duty to the owner in his or her effort to sell
a policy. The commenters stated that this is the national model, and that
the Texas rules will confuse Texas consumers regarding their representation
and rights. These commenters suggested use of the term "representative" instead.
Two commenters stated that if a captive broker is to only deal with one company,
these brokers should operate under the company's license. One commenter stated
these individuals should not have to hold individual broker licenses as this
would not only prevent confusion between captive and independent brokers,
but would also reduce a regulatory burden on both the captive broker and TDI.
A commenter felt the provision at §3.1708(b)(2)(P) would be unnecessary
if the commenter's suggestions regarding removing the concept of "captive
broker" are implemented.
Agency Response: The department agrees in part and disagrees in part. The
department has changed the term "captive broker" to "provider representative"
in this section and throughout the rule as necessary. The definition of "independent
broker" has also been deleted because it is encompassed by the definition
of "broker." The department does not agree that a captive broker (now provider
representative) should operate under the viatical or life settlement provider's
license. Article 3.50-6A requires TDI to provide consumer protection, which
is accomplished in part by registering individuals engaged in the business
of viatical or life settlements. The department has made no other changes
to §3.1708(b)(2)(P) because disclosures are needed for consumer protection.
Viators, life settlors, and owners need to understand the difference between
brokers and provider representatives, in that brokers have a duty to offer
the policy to more than one provider, whereas representatives secure an offer
exclusively from the provider with whom they are employed or contracted.
Comment: A commenter asked: Does a captive broker become an independent
broker when an appointment is terminated or withdrawn, and then revert back
to a captive broker upon another appointment? When a designation is terminated,
does the captive broker lose the registration and thus require such reporting
to other states?
Agency Response: If a person holds a certificate of registration as a captive
broker (now provider representative), and the provider he or she exclusively
represents terminates his/her contract or appointment, the certificate of
registration is considered "in suspense" until either the individual submits
a new notice of exclusive representation with another registered viatical
or life settlement provider, or the person submits a change to his or her
certificate of registration to reflect registration as a broker, as required
by §3.1703.
§3.1702(a)(3)
Comment: A few commenters stated that the definition of "catastrophic or
life-threatening illness" is ambiguous, and suggested that it be modified.
One commenter suggested using a definition relating to the inability to perform
two activities of daily living to indicate "catastrophic illness," and death
within 24 months to indicate "terminal illness." Another commenter suggested
that the definition be altered to correspond to the federal tax code definition.
Agency Response: The department agrees in part and disagrees in part. Article
3.50-6A uses the terminology "catastrophic or life-threatening illness," whereas
the Internal Revenue Code (26 USC §101(g)(4)) (IRC) uses "terminally
ill" and "chronically ill." The department has changed the definition for
"catastrophic or life-threatening illness" to be consistent with the IRC.
As a result of changing the definition of "catastrophic or life-threatening
illness," and in an effort to streamline the licensing process, the department
has combined registration for doing both the business of viatical and life
settlements.
§3.1702(a)(4)
Comment: Two commenters stated that the certificate holder of a group life
insurance policy is the only person with the power to dispose of the certificate,
and that including dependents in the definition complicates the categories.
One of the commenters suggested a definition.
Agency Response: The department agrees with the commenters' suggestion,
and has changed the definition to include the commenter's language with modification.
§3.1702(a)(5)
Comment: A commenter expressed concern that the definition of "confidential
information" is in conflict with recent federal privacy legislation. The commenter
suggested removing the current wording and relying on the more detailed federal
requirements.
Agency Response: The department recognizes that non-public personal information
is a category of information that must be afforded specific treatment by financial
institutions subject to Title V of the Gramm Leach Bliley Act (GLBA). However,
the department has the authority, as a result of the consumer protection provisions
of Article 3.50-6A, to protect the confidentiality of medical and personal
information utilized in viatical and life settlement transactions. The department
will continue to monitor GLBA and other developments in state and federal
law for any potential impact on the viatical and life settlement industry.
§3.1702(a)(10)
Comment: A few commenters stated that the definition of "financing entity"
should be revised to include the possibility of financing transactions involving
certificates under a group policy, and suggested that the correct phrasing
would be "purchaser of a policy or a certificate issued pursuant to a group
insurance policy." Another commenter stated that the definition of "financing
entity" is extremely broad and wanted to confirm that the definition does
not create a large loophole for individual non-accredited investors.
Agency Response: The department disagrees because the language pertaining
to group certificates is included within the definition of "policy." The definition
of "financing entity" is designed to comply with Article 3.50-6A's prohibition
that the commissioner may not adopt rules that regulate the actions of an
investor providing funds to a viatical or life settlement provider. The department
believes the definition is adequate.
§3.1702(a)(16) and (30)
Comment: Several commenters stated that the definitions of "life settlor"
and "viator" must be modified to reflect the fact that the owner enters into
the life settlement contract, and suggested "insured under" should be replaced
with "owner of."
Agency Response: The department disagrees. The definition of "owner" takes
into consideration the fact that the owner and life settlor may not always
be the same person under the policy.
§3.1702(a)(17)
Comment: Some commenters stated that it was confusing to have two different
definitions for the words "mature and matured," depending on whether or not
the words are used in connection with brokers or companies, and suggested
using a single definition to address when the insured under the subject policy
has died and the proceeds are payable.
Agency Response: The department agrees that both words are unnecessary,
and has deleted the words "or matured" from the definition. The department
disagrees with the suggestion to use a different single definition because
"mature" has different meanings depending upon where the term is used in the
rule. The department has also made other changes to the definition to avoid
any confusion with use of the terms in §§3.1704(e) and 3.1717(b).
§3.1702(a)(19)
Comment: A commenter suggested that, for clarification, the definition
of "owner" should read: "The person who has the right to assign, sell or otherwise
transfer the life insurance policy or certificate issued pursuant to a group
life insurance policy." The commenter also stated that the exclusionary language
in the definition should be clearer, and noted that the definition contains
the statement, "the definition recognizes that, in some cases, the owner and
viator or life settlor may not be the same person," but does not allow for
differentiation of the treatment of individuals who fall into one category
or the other.
Agency Response: The department agrees that owners under a policy have
the right to assign, sell, or transfer their rights and benefits, and has
clarified the definition by using the commenter's suggested language, with
modification. The department notes that the differentiation between owners
and viators or life settlors is addressed throughout the rule, and is not
needed in the definition.
§3.1702(a)(22)
Comment: Several commenters stated that the removal of the definition of
"referral agent," when read in conjunction with the proposed definition of
"viatical or life settlement broker," will require a person (a neighbor or
a life insurance agent assisting their customer) who refers just one owner
for a settlement (with or without a fee being paid) to be licensed as a broker.
Several suggestions were submitted to address this issue, including: (1) reinstating
the definition of "referral agent;" (2) allowing life insurance agents to
make referrals without requiring a broker's license; and (3) allowing life
insurance agents to broker less than five transactions in a calendar year
without being required to obtain a broker's license. One of these commenters
suggested that the life insurance agent be required to submit a report to
the department within 30 days of each transaction.
Agency Response: The department agrees in part and disagrees in part. The
department has reinstated the definition of "referral agent" with deletion
of the limitation of five "free" referrals, and has added language to §3.1703(a)
to recognize the allowance of payment of nominal, fixed, one-time referral
fees not contingent on the purchase or sale of the product. The department
does not agree with providing for an outright exclusion of any person, including
a life insurance agent, who actually negotiates a transaction because the
department believes that such an exclusion is in conflict with the consumer
protection provisions of Article 3.50-6A. In addition, the life insurance
agent's licensing law does not authorize an agent to conduct the business
of viatical or life settlements as a line of business under that license.
Therefore, all persons performing the acts of a broker or provider representative,
whether licensed as an insurance agent or not, are required to obtain a certificate
of registration from the department.
§3.1702(a)(25)
Comment: A commenter stated that the definition of "trust" is too narrow
and excludes other more common trust documents involved in a viatical or life
settlement. The commenter suggested that the defined term be "viatical or
life settlement trust" to avoid this confusion. The commenter believed that
this concept is amply covered in the "escrow account" definition.
Agency Response: The department disagrees, and directs the commenter to
the definition of "escrow account," which is almost identical to the definition
of "trust," both of which are broad enough to address the commenter's concerns.
§§3.1702(a)(26) and 3.1712(a) and (b)
Comment: Several commenters stated that the process for licensing a life
insurance agent as a broker should be streamlined. One commenter stated that
if a life insurance agent wishes to become a broker, the procedure should
be simple and require only completion of an application and payment of necessary
fees. Another commenter stated that, when applying for a life insurance agent's
license, if one pays the fees and provides the required information to the
department, a broker's license could be issued at the same time. Commenters
stated this would be consistent with the current policy of the department
to streamline licensing procedures and consolidate licenses. One commenter
stated that this would draw qualified insurance professionals into the broker's
market, and that any conflict-of-interest or fraud concerns could be dealt
with under current law. A few commenters suggested the department consider
consolidation of viatical and life settlement licenses as is being "done with
agent licenses in Texas. " One of these commenters also requested clarification
of when a person is acting as a referral agent and when a person is acting
as a broker.
Agency Response: The department agrees that the process of applying for
a viatical or life settlement certificate of registration should be simple,
and believes part of the commenters' concerns are already addressed in the
rule and application process. A Texas life insurance agent may obtain registration
as a broker by completing applicable sections of the viatical/life settlement
application provided by the department, and by paying the necessary fee(s).
An agent, like any person doing the acts of a viatical or life settlement
broker or provider representative, is required to comply with applicable requirements
of the rule (e.g. obtain registration, have forms approved by the department,
provide required disclosures, etc.). The department disagrees that life insurance
agents should be exempt from these requirements. Although life insurance agents
have knowledge about the needs and concerns of consumers purchasing life insurance,
viators and life settlors do not have the same financial or insurance needs
as persons purchasing insurance. Therefore, persons acting as brokers and
provider representatives are required to obtain registration and meet the
applicable rule requirements before engaging in the business of viatical or
life settlements. The department is committed to amending the application
process to allow for application of both agents licensure and viatical/life
settlement registration at the same time. The difference between a referral
agent and a broker is outlined in the definitions of each.
Comment: A commenter noted that the definition of "viatical and life settlement
broker" is triggered by the word "hope" which is ambiguous. Additionally,
the commenter noted that subparagraphs (A) through (D) are not identified
by either "and" or "or." The commenter stated that if it is the intent to
have the definition apply only when any of these items apply, the word "or"
should be inserted.
Agency Response: The department has changed "hope" to "intent," along with
other grammatical changes. In response to other comments to retain a definition
of referral agent, the department has deleted proposed paragraph (26)(C) to
avoid any confusion between the definition of "viatical or life settlement
broker," and the definition of "referral agent." As such, the commenter's
concerns about "and" and "or" are no longer applicable.
Comment: A few commenters expressed concern that the definition of "viatical
and life settlement broker" excludes from the definition attorneys or accountants
representing the viator, life settlor, or owner in relation to the viatical
or life settlement, who receive a contingent fee from the viator, life settlor,
or owner. These commenters believed that such an exclusion will allow attorneys
and/or accountants who receive a contingent fee to perform all of the functions
of a viatical or life settlement broker without being required to obtain a
certificate of registration, nor comply with all other consumer protection
requirements imposed on non-attorney/non-accountant persons who perform viatical
or life settlement broker functions.
Agency Response: The department does not believe the section requires changing,
nor has this language been problematic in the past. The language excluding
attorneys and accountants has been in the rule since 1996. This exclusion
merely encompasses those persons who are representing their own clients in
the context of a viatical or life settlement transaction where their primary
role is that of representing the legal or financial interests of the viator,
life settlor, or owner, and where their fees are paid by the viator, life
settlor, or owner, not by the viatical or life settlement provider, provider
representative, or broker. Neither an attorney nor an accountant, for example,
could ethically accept a fee from a viatical or life settlement provider while
at the same time representing his or her client in the transaction, as this
would constitute a conflict of interest. As such, the exclusions in the rule
merely recognize traditional professional relationships that exist separate
and apart from the viatical or life settlement transaction, so that viators,
life settlors, and owners may seek the legal or financial representation they
may need when conducting legal and business affairs. The department clarifies
that attorneys and accountants who are performing the functions of a broker
or provider representative in a transaction, and not the functions of an attorney
or an accountant, are required to obtain a certificate of registration for
the viatical or life settlement business to avoid violation of the rule.
Comment: A commenter stated that there is a conflict between the proposed
definition of "viatical or life settlement broker" and the existing definition
of "viatical broker."
Agency Response: No conflict exists since the adopted definition replaces
the definition in effect at the time these sections were proposed.
§3.1702(a)(27)
Comment: A commenter suggested that in lieu of "viatical and life settlement
company" the department use the more commonly used industry term "viatical
or life settlement provider" throughout the rule to avoid confusion.
Agency Response: The department agrees, and has changed the term from "company"
to "provider" throughout the rule where appropriate.
Comment: A few commenters suggested that, in addition to the existing exclusions
from the definition, the following exclusions which are a part of the NAIC
model regulations should be added: "(E) an authorized or eligible insurer
that provides stop loss coverage to a viatical and/or life settlement company;"
and "(F) a natural person who enters into or effectuates no more than one
(1) agreement in a calendar year for the transfer of a life insurance policy
for any value less than the expected death benefit."
Agency Response: The department agrees, and has added the commenters' suggested
language as subparagraph (E), with modification; however, the department has
not added the suggested subparagraph (F). It is the department's position
that any person performing the acts of a broker or provider representative
in this state must obtain a certificate of registration because the statute
and rule provide various consumer safeguards (e.g. consumer disclosures) which
serve as the basis for requiring registration in this state.
§3.1703(b)
Comment: A few commenters questioned whether the language of this subsection
was meant to prevent a company or individual from registering under two different
entities or names at the same time, and stated that if that is the intent,
this is not what the rule says.
Agency Response: This section is meant to prevent persons from obtaining
duplicate registrations from the department. The department offers the following
example for clarification: John Doe could not obtain two certificates of registration
to operate as a life settlement broker, so that, if the department revoked
one, he could attempt to rely on the other one and continue doing life settlement
business even though the other registration has been revoked. This provision
is consistent with 28 TAC §19.902 (One Agent, One License).
§3.1703(j), (l) and (m)
Comment: A few commenters stated that subsection (j) appears to offer licensing/registration
reciprocity, and requested that the section be clarified to explain specifically
how Texas will apply reciprocity to licensees from other states through use
of these documents. Another commenter requested clarification of the requirement
that a letter of good standing from the secretary of state must be sent to
the department. The commenter asked whether "secretary of state" means the
Texas Secretary of State, or the state of formation for the applicant's resident
state.
Agency Response: The department clarifies that the rule does not provide
for reciprocity. Subsection (j) sets forth the procedures that an applicant
domiciled in another state needs to follow to obtain a certificate of registration
in this state. The applicant is required to submit the documentation (i.e.
certificate of good standing) from the applicant's domiciliary state's secretary
of state. To clarify, the department has made a change to subsection (j).
The department also recognizes that the least intrusive and least costly method
to verify compliance with Texas business and corporations law under §3.1703(l)
and (m) (i.e. certificate of authority, articles of incorporation, etc.) is
to require applicants to submit a copy of their certificate of existence from
the Texas Secretary of State, and the department has made a change to paragraphs
(l) and (m) to accomplish this.
§3.1703(o)
Comment: A commenter suggested that the requirements of subsection (o)
should apply to "any material information," not necessarily any change in
information.
Agency Response: The department disagrees. The department has developed,
and will continue to develop, applications for a certificate of registration
that ask only for information that the department believes is material. As
such, any change in the information submitted in the application is a material
change that must be reported to the department.
§3.1703(p)
Comment: A commenter stated that the reference to a copy of "any applicable
judgment" is not adequately defined. Another commenter stated that while notification
of any suspension or revocation of the right to do business in any state should
be reported to the department, it is not appropriate for a show cause order
because at the point a show cause order is issued, there has been no determination
as to any wrongdoing by the licensed person.
Agency Response: The department does not believe that it is necessary to
define "judgment." Words not defined in a regulation are given their ordinary
meaning and common usage, including any meanings of a trade or profession
in which they are used. Some jurisdictions commence their enforcement actions
with a preliminary order known as a "show cause" order. Failure of the party
to appear pursuant to a show cause order operates as a default, allowing the
ordering party to take an action. It is the department's understanding that
these orders are based upon evidence that the licensee or registrant has engaged
in conduct which violates the law. Any information or evidence of wrongdoing
is necessary for consumer protection and should be reported to the department.
§3.1703(q)
Comment: A commenter believed that the fingerprint card requirements of
28 TAC Chapter 19 do not apply to the viatical or life settlement industry,
and also believed this requirement does not address who should be fingerprinted
if an applicant is a business entity instead of an individual. The commenter
believed the department's requirements are very broad and should be clarified
so as not to require dozens of officers or directors of a company to furnish
fingerprint cards. Another commenter was pleased that the rule includes a
fingerprint requirement.
Agency Response: The department clarifies that the provision expressly
makes Chapter 19 applicable to the business of viatical and life settlements.
The department also clarifies that if the applicant is a business entity (i.e.
partnership or corporation, etc.) each person listed in the application for
certificate of registration as key personnel or a shareholder with 10% or
more control is required to submit a fingerprint card unless the officer/shareholder
has previously submitted a fingerprint card as specified in §§19.1804
and 19.1805.
§3.1704(e) - (g)
Comment: A commenter stated that the renewal requirements are too stringent,
and suggested allowing a viatical or life settlement company which chooses
not to renew its registration to retain an administrative company which is
registered to perform these functions for the viatical or life settlement
company until the remaining transactions reach final maturity or are transferred
to a new broker. Some commenters stated that this language is complicated
and can be simplified. Another commenter stated that this section is inconsistent
with the provision requiring a broker's registration to perform tracking duties.
Agency Response: The requirements of subsections (e) - (g) are needed to
protect consumers when viatical or life settlement providers, provider representatives,
or brokers cease doing the business of viatical or life settlements in Texas.
The department has changed the sections to clarify that viatical and life
settlement providers and brokers are permitted under the rule to retain a
provider, broker, or one of their own provider representatives to perform
tracking services. A viatical or life settlement provider conducting tracking
services is permitted to do so under its existing certificate of registration.
§3.1705
Comment: Several commenters stated that the information required in the
annual reports constitutes trade secrets and should be protected from public
access. Another commenter stated that the information required by this section
serves no useful purpose, and should not be required except in an on-site
audit by the department. The commenter stated that requiring this information
is onerous, expensive, and results in significantly lower offers to viators,
life settlors, or owners. A commenter stated that the requirement to file
annual reports in both electronic and paper formats is burdensome and wasteful.
The commenter requested that the department reconsider this requirement.
Agency Response: The department recognizes that the commenters are concerned
that the information submitted to the department in the annual reports could
be accessible by the general public under the Texas Public Information Act.
However, the information received in §3.1705 reports is necessary to
assist the department in complying with the consumer protection requirements
of Article 3.50-6A. The reporting requirements are based upon model statutes
and regulations and for nearly identical information to that which is required
in those model laws. The information contained in the reports will be helpful
to the department in addressing consumer protection issues by providing data
to study market trends, ascertain fairness of settlement amounts, and estimate
the volume of business in this state. The department believes that there is
adequate statutory protection to safeguard information alleged to constitute
trade secrets, and directs the commenters to the Texas Public Information
Act, Tex. Gov't Code Ann. §§552.110 and 552.305, and other applicable
provisions of that act for information on seeking to protect information that
is alleged to be a trade secret. The department has changed the language to
require only electronic filing, with an option to file in paper format if
filing electronically is not feasible for the provider, provider representative,
or broker.
§3.1705(c)(1)(C)
Comment: A commenter stated that the A.M. Best rating on the report should
clarify that the rating is the rating of the insurer at the time of the settlement
transaction.
Agency Response: The department agrees and has changed the language.
§3.1705(c)(1)(E)
Comment: A commenter stated the answer to "viator's or life settlor's state
of residence" at the time of application can only be Texas.
Agency Response: The department understands the commenter's suggestion,
but has made no change in case there are situations where the information
may vary.
§3.1705(c)(1)(M) and (c)(2)(H)
Comment: Several commenters objected to the use of International Classification
of Disease (ICD) codes in the annual reports, and suggested the use of a disease
category. Reasons given for not including ICD codes included: too costly;
difficult to report due to lack of trained medical staff; and difficulty in
obtaining from providers. The commenters also believed it serves no useful
purpose, and appears to be outside the scope of the legislation. A commenter
stated that the prevailing ICD code at the time of death is not usually the
prevailing ICD code at the time of settlement.
Agency Response: The department disagrees with the recommended change,
as ICD codes have been included in the reports since the department first
adopted the viatical settlement rules. This information is one of the data
elements needed by the department to monitor pricing trends in the sale of
settlements. The method of determining ICD codes is a business choice, whether
by hiring or contracting with staff with expertise in this area, or by obtaining
such information from the health care provider when requesting a copy of the
medical records for underwriting review. The department is not concerned with
the ICD code at the time of death, but only at the time of purchase of the
viator's, life settlor's, or owner's policy, and has clarified this in the
rule.
§3.1705(c)(9)
Comment: A commenter requested that paragraph (9) be clarified to reflect
that "any person" does not apply to a company which performs its own in-house
tracking and monitoring.
Agency Response: The department agrees that providers that perform in-house
tracking should not be required to list their own employees, and has added
the code "IH" to indicate in-house tracking,. The department has also made
a change to clarify that providers should list brokers, providers, or provider
representatives that perform these functions for them.
§3.1705(d)
Comment: A commenter believed this section, which allows the department
to request any additional information, is too broad and needs to be stricken.
Agency Response: The department clarifies that any additional information
required under this section would generally be related to the information
submitted in the report. Even without the rule, TDI has the authority pursuant
to Article 3.50-6A, §3, to request additional information.
§3.1706
Comment: A commenter stated that pre-approval of forms and advertising
materials does not serve a legitimate purpose. Two commenters stated that
the filing requirements are costly. One of the commenters stated that the
requirements are contrary to the current trend of file and use.
Agency Response: The department disagrees. Article 3.50-6A, §2(c)
requires the commissioner to adopt reasonable rules for approval of contract
forms. Approval of contract forms fulfills other statutory requirements, including
but not limited to consumer protection and maintenance of confidentiality
of personal and medical information. Advertising materials are not listed
as a type of form that must be approved, but are required to be filed for
informational purposes only and may be used prior to review by the department
pursuant to §3.1707. Filing of forms and advertising materials is not
a new requirement. There are no filing fees associated with the filing of
forms, and the rule does not change the types of forms that must be filed
with the department. The requirements are not contrary to file and use because
the rules provide a provision which will enable providers, provider representatives,
or brokers to use forms upon receipt of the filing by the department (i.e.,
file and use).
Comment: A commenter proposed an annual submission of forms at the time
of license renewal. It was also suggested that the form filing and approval
requirements be limited to forms which must be signed by the viator, life
settlor, and/or owner. The commenter further stated that Florida uses "signature
by seller" criteria in its recent law as did the NAIC in its most recent version.
Agency Response: The department disagrees, as this suggestion would not
allow the department to fulfill the requirements of Article 3.50-6A, including
but not limited to providing consumer protection through disclosure, approval
of contract forms, and confidentiality of personal and medical information.
Additionally, an annual submission requirement would be problematic because
the rules provide for biennial renewal of registration in lieu of annual renewal.
The department has reviewed the most recent versions of the NAIC model act
and regulations and was unable to locate a "signature by seller" provision.
The department has also reviewed the Florida "signature by seller criteria,"
and notes that the Florida forms include those listed in §3.1706(b),
except for subsection (b)(7). Therefore, it appears that the Texas filing
requirements are nearly identical to those used in Florida. Subsection (b)(7)
is necessary to address future modifications or changes to forms required
by law or for purposes of consumer protection.
§3.1706(d), (m), and (q)
Comment: A commenter stated that the rule no longer allows modification
of forms on a case-specific basis, which it said is problematic, time-consuming,
and costly. Several commenters expressed concern where modification of a form
is required after the form has been issued. A commenter noted that viatical
and life settlement changes are different from changes in a life insurance
policy because once the policy is purchased, the money is paid to the viator
or life settlor up front, and the transaction is ended. Another commenter
expressed concern that if the department decides, after the contract or other
form is approved and issued, that something in the contract or form needs
to be changed or amended, the viator or life settlor may refuse to accept
the change to the contract or may refuse to agree to the modification, which
could cause problems such as renegotiation of the contract or litigation.
One commenter stated that this issue may be partially resolved by the department
adding the terminology "may request"; however, the form approval process may
still be problematic.
Agency Response: The rule replaces the case-specific filing with a file
and use system. File and use allows providers, provider representatives, and
brokers flexibility to modify their forms so they can be quickly used in the
marketplace so long as the forms comply with rule requirements. Under the
current rule, even if a form is a case-specific filing, the form still must
be filed with the department and must comply with the minimum requirements
of the regulations. This requirement has not changed in the adopted rules.
The department understands the commenters' concerns regarding amending or
reissuing existing contracts, and notes that requests for corrections or for
replacing a form previously issued will be based upon the severity of the
deficiency identified and will be handled on a case-by-case basis.
§3.1706(d)(2)
Comment: A commenter suggested that the department approve or disapprove
forms within a reasonable time frame, such as 10 business days. The commenter
further suggested that failure to meet this time frame should result in automatic
approval of the form.
Agency Response: The department understands the commenter's concerns but
has made no change. As part of the department's overall regulatory requirements,
it is required by statute to perform many functions such as form review, data
collection and analysis, consumer protection, licensing and registration.
The department continually strives to expedite the review of forms and to
search for more efficient ways of improving the filing process. Since the
rules have separated the registration and form filing processes, this should
improve the time frame for registration, as well as for form review. The department
also directs the commenters to §3.1706, addressing file and use, if the
commenter has remaining concerns about review and approval time frames.
§3.1706(e)(6)
Comment: A commenter stated that the turnaround time for corrections is
too long, will be costly to the company, and may even result in business failure.
Agency Response: The commenter's concern is based upon a misunderstanding
of the filing process. The department clarifies that the 30-day time frame
for corrections is not a time frame for the department to review corrections,
but instead is the time frame set for providers, provider representatives,
and brokers to submit their corrections to the department. The department
welcomes and encourages providers, provider representatives, and brokers to
expedite submission of corrections.
§§3.1706(g) and 3.1709(c)(11)(A)
Comment: A commenter requested that companies and brokers be allowed to
delineate which type of settlement is being entered into at the time of contract,
because it is not always known until it is underwritten which kind of settlement
will be entered into. A few commenters requested addition of the phrase "to
the best of their knowledge" in this provision since, at the time the form
is used, it may not be evident whether the person has a catastrophic or life-threatening
illness if a medical evaluation has not yet been performed.
Agency Response: The department agrees, and has added the words "to the
best of their knowledge" to these sections.
§3.1707
Comment: A commenter stated that filing of advertising and/or marketing
materials is appropriate.
Agency Response: The department agrees.
§§3.1708(b)(2)(E) and 3.1714(a)
Comment: Several commenters stated that all confidential information obtained
for the sale of the policy must be available to possible future owners of
the policy, or the policy will become illiquid. Another commenter requested
insertion of "or potential financing entity" after "financing entity" in §3.1714(a).
Agency Response: The department agrees that confidential information may
be needed for future sales of the policy and has revised the sections accordingly.
The department's intent is not to require identification of the specific person
to whom confidential information will be released, but rather to require general
identification of those persons or entities to whom the viatical or life settlement
provider, provider representative, or broker will release the confidential
information, so that the viator, life settlor, or owner will know, upon signing
the release, who might have access to their confidential information. Therefore,
the department has deleted the words "specifically" and "the person," and
changed the word "will" to "may." The department has also removed the words
"financing entity" from §3.1714(a)(2). The department has changed the
rule in all sections, where appropriate, to remove the limitation that the
information may only be given in the form of statistical data.
§§3.1708(b)(2)(I) and 3.1711(a)
Comment: A commenter stated that the requirements to disclose commission
information may be impossible to comply with if brokers are sharing commissions
or paying referral fees, and that disclosure of this information may be outside
the scope of the statute. Another commenter stated that such provisions produce
no ascertainable benefit to the client. Another commenter requested that the
language be changed to reflect policy owner rather than the insured, because
the commenter believed the insured should have no right to be informed of
the amount or terms of commission unless the viator or life settlor is also
the policy owner.
Agency Response: Viators and life settlors, even if they are not owners
of the policy, have consumer protection interests in the transaction as provided
by statute, and have the right to information, upon request, regarding commissions.
The viator or life settlor is an integral part of the transaction since he
or she provides medical consent information, and commission(s) information
could affect a viator's or life settlor's decision to release such information.
§§3.1708(b)(2)(M), 3.1702(a)(21), 3.1709(e), and 3.1710(d)
Comment: Several commenters expressed concerns about provisions that would
prohibit the sale of future increases in the death benefit, as well as accidental
death and dismemberment benefits. Some commenters noted that future increases
in benefits, such as cost of living increases, double indemnity, etc., may
be negotiated as part of the payment amount and should be transferred with
ownership of the policy. A few commenters expressed concern that prohibiting
the transfer of future benefits would create problems with the law of absolute
assignment and could cloud the title to the insurance policy. These commenters
believed that disclosure to the viator, life settlor, or owner of these benefits
would be adequate.
Agency Response: The department agrees in part and disagrees in part. The
department has changed the language throughout the rule to be consistent with
the NAIC model act and regulations on viatical and life settlements, such
that purchasing of accidental death benefits (ADB) will still be disallowed,
but the purchase of other increases and benefits will be permitted, with adequate
disclosure as added in §3.1708(b)(2)(L). The department clarifies that
spousal and dependent coverage could not be purchased without a settlement
on the spouse or dependent, and multiple assignments are possible under any
life insurance policy. The department does not agree with the commenters'
assertions that limiting the purchase of the ADB rider affects the ownership
of the policy, or creates problems with clouding of title.
§3.1709(a)
Comment: A commenter stated that the inclusion of insurance agents as a
class of persons to consult regarding the impact of a viatical or life settlement
upon a viator's or life settlor's eligibility for public assistance, is not
appropriate. This commenter believed that persons on public assistance would
not have the range of advisers available to them that are listed in this provision.
The commenter suggested keeping the current language, as it is simpler, more
direct, and more useful to the consumer.
Agency Response: The department disagrees. A person's socio-economic status
does not preclude access to various types of advisors. The required disclosure
language does not specify that the viator, life settlor, or owner must contact
all the advisors named. The viator, life settlor, or owner has freedom of
choice. The fact that the viator, life settlor, or owner has a life insurance
policy to sell to a viatical or life settlement provider indicates access
to either an insurer or an insurance agent, and these persons often discuss
such issues in marketing a life insurance policy.
Comment: A commenter stated that standard Spanish language for this industry
has not been developed but believes the proper phrase is "en Vida" rather
than "Pago en Vida."
Agency Response: The department contacted a court-certified Spanish interpreter
who stated "Pago en Vida" is more precise.
§3.1709(c)(1)
Comment: Two commenters stated that the company's executive officer should
be allowed to appoint someone to act with his or her authority to approve
changes to the viatical or life settlement contract.
Agency Response: The department agrees in part and disagrees in part. The
department has changed the language to recognize that a person other than
the executive officer may make a change, but only if that person is properly
identified in the form. The department also clarifies that this section does
not affect the provider's duty to comply with the filing requirements of §3.1706.
§3.1709(c)(4)
Comment: A commenter stated that in some instances, the owner desires to
hold transfer documents until he or she can verify that funds are in escrow,
and then send them to the insurance company. The commenter believed that the
forms are meaningless until they are presented to the insurance company, and
suggested the following language: "a provision that, within three business
days, upon receipt by the insurance carrier of documents to effect the transfer
of the policy." The commenter believed that this common time frame would be
more accommodating and still provide adequate assurance of availability of
funds.
Agency Response: The department disagrees. In situations where an owner
is reticent to sign transfer documents until funds are in the escrow account,
the provider can direct the owner to the contract language required by this
section. Also, there is nothing in §3.1709(c)(4) which prohibits the
provider from appeasing this type of owner by placing funds in the escrow
account, or providing some other arrangement that will satisfy the owner's
need to be assured of the security of the transaction prior to the transfer
documents being sent to the owner for completion.
§3.1709(c)(5)
Comment: A commenter believed the rule should include a provision for tracking
if the designated person or the viator or life settlor cannot be located.
Agency Response: The department recognizes the commenter's concerns, but
disagrees, as such a provision could result in the provider, provider representative,
or broker being able to contact individuals other than the viator or life
settlor or their designated contact persons (i.e. family members), which is
prohibited by the rule.
§3.1709(c)(7)
Comment: Several commenters expressed concern with the requirement that
the viatical or life settlement company notify the viator, life settlor, or
owner of any subsequent assignment, sale, or transfer of the policy. One commenter
stated that this provision will present logistical difficulties in subsequent
transfers by one or more financing entities. The commenter agreed with disclosing
to the viator, life settlor, or owner that the ownership of the policy after
it is originally purchased is subject to change; however, the commenter believed
that there should be an exemption from disclosing a change in ownership if
the original company continues to track the entity. Another commenter stated
that such notification to an owner is not appropriate; but agreed it would
be appropriate to notify the insured that a policy insuring his or her life
has been transferred by the original company.
Agency Response: The department agrees and has deleted the requirement
to notify the viator, life settlor, or owner of subsequent assignments, sales,
or transfers.
§3.1709(c)(10)
Comment: A commenter requested that this paragraph be reworded to reflect
that only the owner of a policy has the right to conversion. Another commenter
expressed concern that disclosure of pass-throughs of additional policies
or coverages does not eliminate the possibility that a policyholder may be
surrendering coverage without reimbursement.
Agency Response: The department has added the word "owner" to this provision.
The department acknowledges the second commenter's concern, but clarifies
that policy owners are able to negotiate the sale of their policies, and believes
that disclosure to the viator, life settlor, or owner that they may be surrendering
coverage without reimbursement is sufficient.
§3.1709(f)
Comment: A commenter suggested that the department develop a clearly worded
glossary of key terms for use as an appendix to eliminate any confusion as
to the identity of key terms.
Agency Response: The department believes a prescribed glossary from the
department is not necessary. Providers should be allowed the opportunity to
develop their own glossaries for use in the context of a settlement, ensuring
that consumers know the meanings of the words contained in their contracts.
§3.1709(f)(5)
Comment: Several commenters requested addition of the phrase "at the time
of the contract" when identifying the insurance company underwriting the policy
due to frequent transfers of blocks of business. One of the commenters requested
modification of subsection (f)(5) to clarify that such a name does not include
any entity reinsuring a portion of the policy.
Agency Response: The department agrees with the first comment and has made
the suggested change, with modification. The department disagrees with the
second comment because subsection (f)(5) does not require inclusion of any
reinsurance entity, only the insurance company underwriting the policy which
serves as the basis for the contract. The underwriter and reinsurer are not
synonymous.
§3.1709(g)
Comment: A few commenters expressed concerns about limiting the company
to use of one escrow or trust account for reasons including, but not limited
to, instances where a company receives funding from more than one investor,
and each investor requires a separate escrow or trust account for accounting
reasons.
Agency Response: The department agrees and has deleted the limitation.
§3.1709(h)
Comment: A commenter stated that the time for providing these materials
is uncertain, and requests clarification.
Agency Response: The department clarifies that the timing of the delivery
of each of these materials will vary with each document, since they are presented
to the viator, life settlor, or owner at different times during the viatical
or life settlement transaction.
§3.1710(c)(2)
Comment: A commenter stated that information relating to a viator's or
life settlor's family is often necessary in connection with the filing of
a death claim.
Agency Response: The department recognizes the commenter's concerns and
has changed subsection (c)(2) to allow family member information to be obtained
since the name of the viator's, life settlor's or owner's mother and father
is often needed to obtain a certificate of death for submission to the life
insurance company for payment of the death benefit. However, to protect consumer
confidentiality as required by Article 3.50-6A, the department has made other
changes to subsection (c)(2) to prohibit a viatical or life settlement provider,
provider representative, or broker from contacting by any method, the viator's,
life settlor's, or owner's family members, including a spouse and significant
other, unless such person(s) have been designated as a contact person under §3.1712.
In making this change, the department specifically notes that some viators,
life settlors, or owners may have financial or medical issues of a sensitive
nature that they wish to keep private from their family members.
§3.1710(c)(5)
Comment: A commenter stated that these provisions deprive the owner of
certain rights to pledge or assign a policy as the owner sees fit, and the
commenter is uncertain of the legislative authority for these provisions.
Agency Response: The department disagrees that the provisions deprive the
owner of certain rights. Before any viatical or life settlement contract is
completed, the viatical or life settlement provider requires medical information
about the viator or life settlor to evaluate the viator's or life settlor's
health status for settlement purposes. To review this information, the provider,
provider representative, broker, or policy owner, by law, must obtain the
viator's or life settlor's written consent in situations where the owner and
viator or life settlor are different persons under the policy. This provision
ensures that the owner has not unlawfully obtained or released the viator's
or life settlor's confidential information without his or her knowledge. Statutory
authority for this provision exists in Article 3.50-6A, §2(c)(7) which
requires rules adopted by the commissioner to include rules governing the
maintenance of appropriate confidentiality of personal and medical information.
§3.1710(c)(6)
Comment: Two commenters suggested including other factors to better define
the criteria the department will utilize, such as current interest rates,
term of policy, premium costs, risks associated with policy (e.g. caps on
conversion), cost of money, existence of risk for the class of policy, the
type of policy, and outstanding loans, among others. One commenter stated
that the factors used to determine unjust payments are open-ended, and that
it may be difficult, or even impossible, for a company to determine if its
payments would be considered "just" by the department.
Agency Response: The department disagrees with some of the items the commenters
suggested and notes that much of the criteria suggested is included in the
data submitted in the report(s) required by §3.1705. The department has
deleted items from §3.1710(c)(6) that are also listed in §3.1705,
and has added a reference to §3.1705. The department will use the data
in §§3.1705 and 3.1710(c)(6) as the norm to monitor payments in
Texas, but also believes that, in some instances, other information might
be considered when determining if a payment is just. The department has kept
the phrase "among other factors."
Comment: A commenter stated concerns that this provision may lead to elaborate
administrative procedures, and requested an explanation of how the department
intends to implement this section.
Agency Response: This provision will not lead to elaborate administrative
procedures because viatical and life settlement providers currently assess
life insurance policies to determine the fair market value they are willing
to pay to purchase a viator's, life settlor's, or owner's policy. Such a provision
is allowed in the rule pursuant to Article 3.50-6A(e). The department plans
to evaluate these criteria annually, and as needed in response to any consumer
complaints. If any review reflects a substantial difference in payment amounts
between risks of the same class, the department will contact the provider
to obtain information, including other factors that may have affected the
purchase price.
§3.1710(c)(12)
Comment: Several commenters expressed concerns with a prohibition on use
of power-of-attorney forms. These commenters stated that the language requiring
the viator, life settlor, or owner to execute a power-of-attorney in favor
of a viatical or life settlement company or broker is at times essential to
the transaction. Some commenters urged removal of this as a prohibited practice.
Other commenters suggested the department allow use of limited or special
power-of-attorney forms.
Agency Response: The department agrees in part and disagrees in part. For
consumer protection purposes, the power-of-attorney should not be so general
or broad as to potentially allow a provider, provider representative, or broker
to use the power-of-attorney for purposes unrelated to the viatical or life
settlement transaction. However, the department recognizes that the form serves
a valuable purpose in the course of the viatical or life settlement transaction.
Therefore, the department has changed the language to allow a limited or special
power-of-attorney only when it explicitly states the occasions in which the
power-of-attorney may be invoked, and is limited to purposes related to the
viatical or life settlement transaction.
§3.1712
Comment: A commenter stated that the provision relating to contacting the
viator, life settlor, or owner for health status inquiries may resolve other
difficulties, but is poorly placed, and suggested that all provisions regarding
tracking should be in one single place or refer to other relevant sections.
Agency Response: Various provisions throughout the rule apply to tracking,
including registration, renewal, and prohibited practices, among others. The
department believes the provisions are appropriately placed.
Comment: A few commenters stated that because life expectancy may change
at certain stages of the viatical or life settlement contract, limiting a
company's ability to inquire about a viator's or life settlor's life expectancy
based on information obtained at the time of the contract is unworkable and
potentially confusing for the company. Another commenter stated that the frequency
of contacts in the proposed rule is based upon life expectancy at the time
of contract, and requested that monthly contacts should be allowed in the
final expected year. Another commenter stated that it is unreasonable to limit
the number of contacts based on life expectancy because the company has a
large investment in the policy, and a contact of once per month is not unreasonable
if it is disclosed at the time of purchase of the policy. A commenter supported
the concept of a contact person, but suggested the provision be amended to
require three contact persons at the time of contract, one of whom must be
an attending physician.
Agency Response: The department disagrees with contacting a viator, life
settlor, or owner more than once per month, but agrees that life expectancy
may change at certain stages of the viatical or life settlement process, and
has removed the phrase "as determined at the time of contract." Nothing in
this section prohibits the viator or life settlor from designating more than
one contact person, but the department believes the number should be kept
within a reasonable limit.
§3.1713(b)
Comment: A commenter stated that the provision prohibiting a viatical or
life settlement company from continuing to track a policy that the company
sells is completely unreasonable. The commenter believed the issue could be
resolved by replacing the word "must" with "may" in the fourth line, and by
concluding with language that indicates that if the company does not wish
to track the policy, it must designate another licensed company for the tracking.
The commenter stated that this entire section is further confused by earlier
language requiring persons who perform tracking to be licensed brokers. The
commenter encourages the department to further review this concept.
Agency Response: The department agrees that clarification is needed, and
has changed the subsection to allow a viatical or life settlement provider
to continue to track or appoint one of their provider representatives, another
Texas provider, or a broker to track the viator's or life settlor's health
status. Any person appointed for this purpose must hold a Texas certificate
of registration.
§3.1714(a)(4) and (b)
Comment: Several commenters expressed concern with the 12-month expiration
of the medical consent form and recommended that the consent form be allowed
to remain in effect for the duration of the insured's life, as it is used
to track the health status of the viator and life settlor. A commenter stated
that this requirement could place the broker or company in conflict with §3.1712.
A few commenters stated that limitation of the consent form affects the funder's
ability to obtain updated medical data necessary for secondary sales, and
believed the insured should have the option to waive "expiration of consent
forms" with appropriate disclosures. A commenter stated that this will result
in higher offers and less intrusive post-settlement monitoring. Two commenters
stated that stop loss insurers require a valid authorization to release medical
information so that a re-review may take place to provide a current valuation.
One of the commenters stated that institutional investors also require accurate
and timely health information.
Agency Response: The department agrees with removal of the 12-month expiration
period, and has changed subsection (b) to remove the language that limited
the duration of medical release forms and prohibited the use of confidential
information to track the on-going health status of any viator or life settlor
after the owner and the viatical or life settlement provider have entered
into the viatical or life settlement contract, and require disclosure of this
fact and of the person's right to withdraw consent pursuant to applicable
law.
§3.1715
Comment: A commenter stated that this subsection unfairly places liability
on properly licensed entities for the failure of others to adhere to applicable
regulations, and that the department can adequately police violations through
annual broker reports.
Agency Response: The department disagrees. Article 3.50-6A requires the
department to develop rules to adequately address consumer protection. The
article also requires providers, provider representatives, and brokers that
conduct viatical or life settlement business in Texas to be properly registered.
Registration is necessary to ensure that consumers are dealing with persons
who are aware of the requirements of Article 3.50-6A and this subchapter.
Allowing properly registered entities to pay or share commissions with unregistered
entities may harm consumers, and thus contravenes these consumer protection
provisions. The department believes that reporting information would not adequately
address this goal because a broker could do business with many different providers,
each of whom will be submitting a separate report under §3.1705 long
after the non-registered entity has engaged in the unlawful practice.
Comment: Several commenters stated that requiring an escrow agent or trustee
who pays premium to be a licensed insurance agent is a burdensome restriction.
These commenters stated that other states only require escrow agents to be
financial institutions protected by the FDIC and suggested that Texas propose
similar regulations. One commenter suggested deletion of the requirement.
One commenter stated that the nature of the escrow agent is to serve as an
independent party to the transaction and to preserve the interest of the parties
and as such, believed that the definition of "escrow agent or trustee" is
sufficient to maintain the integrity and conformity with the intent and purpose
of the act. A commenter stated that requiring an escrow agent or trustee to
obtain a life insurance license is not related to their involvement in the
settlement industry and suggested that the requirement that any individual
that performs services relating to the gathering, organization, analysis of
confidential information, etc., be expanded to include the handling of funds.
A commenter stated that the responsibility of paying premiums has nothing
to do with the business of insurance and that escrow agents, who are licensed
by the Texas Department of Banking (TDB), are routinely audited and must meet
substantial requirements. This commenter urged the department to prohibit
any person or entity not subject to the regulatory authority of TDI or TDB
from acting as an escrow agent.
Agency Response: The department recognizes the commenters' concerns and
has accordingly deleted the language.
§3.1716(a)
Comment: A commenter stated that this subsection appears to require viatical
and life settlement companies and brokers to be responsible for entities completely
out of their control, such as escrow agents, and urged modification or deletion
of this section to only include those entities under the direct control of
the company or broker.
Agency Response: The department disagrees. The provision addresses acts
or omissions that are committed through various entities. Therefore, this
provision does not hold the provider, provider representative, or broker responsible
for acts committed by a person acting independently of the provider, provider
representative, or broker.
§3.1717(b)
Comment: A commenter stated that viatical or life settlement brokers may
not know of the death of the viator or life settlor, and that it was important
to note this fact. The commenter believed that the appropriate file retention
period should be three years after the closing of the sale of the policy,
and that this concept is contained in the NAIC model of which the commenter
approves.
Agency Response: The department agrees and has replaced the phrase, "death
of the viator or life settlor" with "date the viatical or life settlement
has matured."
For, with changes: Accelerated Benefits Corporation; Affirmative Lifestyle
Corporation; American Viatical Services; Coventry Capital, LLC; Coventry Financial
LLC; Life Partners, Inc.; Montgomery Capital, LLC; Mutual Benefits Corporation;
National Viatical Association; National Viatical and Life Settlement Association
of America; Office of Public Insurance Counsel; Texas Association of Insurance
and Financial Advisors; Viatical Benefactors, LLC; ViatiCare Financial Services,
LLC; ViatiCare Financial Services, LLC; Viaticus.
Against: None.
The sections are adopted under the Insurance Code Article 3.50-6A
and Section 36.001. Article 3.50-6A provides that the commissioner shall adopt
reasonable rules to implement this article as it relates to viatical and life
settlements. Section 36.001 provides that the Commissioner of Insurance may
adopt rules to execute the duties and functions of the Texas Department of
Insurance only as authorized by statute.
§3.1701.Purpose and Severability.
(a)
Purpose. This subchapter implements the provisions of Insurance
Code Article 3.50-6A. The commissioner implements this subchapter for the
following purposes:
(1)
to provide consumer protection in a viatical or life settlement
transaction for a viator or life settlor and owner who assigns, sells, or
otherwise transfers a policy or its net death benefit, or who attempts to
do so;
(2)
to establish requirements for registration, disclosure,
and form approval for persons engaged in the business of viatical or life
settlements;
(3)
to define prohibited practices for persons engaged in or
involved in transactions relating to the business of viatical or life settlements;
(4)
to ensure that a viator's or life settlor's and owner's
rights under the Insurance Code and this subchapter remain protected if a
viatical or life settlement provider assigns, sells, or otherwise transfers
a policy or net death benefit under the policy which served as the basis for
a viatical or life settlement transaction;
(5)
to protect the confidential information of viators or life
settlors and owners who assign, sell, or otherwise transfer their policies
or net death benefits under such policies, or who seek to do so; and
(6)
to provide enforcement mechanisms to ensure that persons
engaged in, or involved in transactions relating to the business of viatical
or life settlements comply with the Insurance Code, this subchapter, or any
other applicable law of this state or the United States.
(b)
Severability. If a court of competent jurisdiction holds
that any provision of this subchapter is inconsistent with any statutes of
this state, is unconstitutional or for any other reason is invalid, the remaining
provisions shall remain in full effect. If a court of competent jurisdiction
holds that the application of any provision of this subchapter to particular
persons, or in particular circumstances, is inconsistent with any statutes
of this state, is unconstitutional or for any other reason is invalid, the
provision shall remain in full effect as to other persons or circumstances.
§3.1702.Definitions.
(a)
The following words and terms, when used in this subchapter,
have the following meanings, unless the context clearly indicates otherwise.
(1)
Advertisement -- Includes, but is not limited to:
(A)
printed and published material, audio-visual material,
and descriptive literature of a viatical or life settlement provider, provider
representative, or broker, including materials used in direct mail, newspapers,
magazines, the internet, radio, telephone and television scripts, billboards,
and similar displays;
(B)
descriptive literature and sales aids of all kinds used
by a viatical or life settlement provider, provider representative, or broker
and distributed to members of the public, including circulars, leaflets, booklets,
depictions, illustrations, and form letters;
(C)
prepared sales talks, presentations, and materials for
use by a viatical or life settlement provider, provider representative, or
broker, and those representations made to members of the public;
(D)
materials used to solicit viatical or life settlements;
(E)
material included with a viatical or life settlement or
an application for a viatical or life settlement, when the settlement is solicited
or when the contract is delivered, including materials used in connection
therewith;
(F)
lead card solicitations, which are communications that,
regardless of form, content, or stated purpose, are used to compile a list
containing names or other personal information regarding individuals who have
expressed a specific interest in a product and are used to solicit persons
in this state for a viatical or life settlement; and
(G)
any other communication directly or indirectly related
to a viatical or life settlement or application for a viatical or life settlement,
and used in the eventual sale or solicitation of a viatical or life settlement
or application for a viatical or life settlement.
(H)
The term "advertisement" does not include:
(i)
communications or materials used within a viatical or life
settlement provider's, provider representative's, or broker's own organization,
not used as sales aids and not disseminated to members of the public;
(ii)
communications with individuals, other than materials
urging individuals to purchase or inquire into the potential purchase of a
viatical or life settlement;
(iii)
materials used solely for the recruitment, training,
and education of a viatical or life settlement provider's, provider representative's,
or broker's personnel, provided it is not also used to induce individuals
to inquire into the potential purchase of a viatical or life settlement or
application for a viatical or life settlement.
(2)
Business of viatical or life settlements -- The making
of, or proposing to make, as a viatical or life settlement provider, provider
representative, or broker, a viatical or life settlement contract, or taking
or receiving any application for a viatical or life settlement, or doing the
acts of a viatical or life settlement provider, provider representative, or
broker.
(3)
Catastrophic or life-threatening illness -- An illness
or physical condition which, as certified by a physician, can reasonably be
expected to result in death in 24 months or less after the date of the certification.
(4)
Certificate holder -- A member or employee eligible for
coverage under a certificate issued pursuant to a group policy.
(5)
Confidential information -- A viator's, life settlor's,
or owner's name, address, telephone number, facsimile number, electronic mail
address, photograph or likeness, employer, employment status, social security
number, genetic information, medical information, financial information, or
any other information that is likely to lead to the identification of a viator,
life settlor, or owner, including the identity of any family member, spouse,
or significant other.
(6)
Control -- As defined in Insurance Code Article 21.49-1, §2.
(7)
Escrow account -- An account established by a viatical
or life settlement provider for the sole purpose of entering into viatical
or life settlements wherein the funds payable to the owner are placed with
an independent third party to be paid to the owner on the fulfillment of the
conditions of the viatical or life settlement contract.
(8)
Escrow agent or trustee -- An attorney, certified public
accountant, financial institution, or other person licensed in a capacity
under the authority of a regulatory body to provide escrow or trust services.
(9)
Escrow or trust agreement -- An agreement establishing
an escrow account or a trust.
(10)
Financing entity -- An underwriter, placement agent, lender,
purchaser of securities, purchaser of a policy from a viatical or life settlement
provider, credit enhancer, reinsurer, or any person whose sole activity related
to the viatical or life settlement is providing funds to effect the viatical
or life settlement, and who has an agreement in writing with a registered
viatical or life settlement provider to act as a participant in financing
the viatical or life settlement.
(11)
Genetic information -- Information derived from the results
of a genetic test.
(12)
Genetic test -- A laboratory test of an individual's DNA,
RNA, proteins, or chromosomes to identify by analysis of the DNA, RNA, proteins,
or chromosomes, the genetic mutations or alterations in the DNA, RNA, proteins,
or chromosomes that are associated with a predisposition for a clinically-recognized
disease or disorder. The term does not include:
(A)
a routine physical examination or a routine test performed
as part of a physical examination;
(B)
a chemical, blood, or urine analysis;
(C)
a test to determine drug use; or
(D)
a test for the presence of the human immunodeficiency virus.
(13)
Insured -- An individual covered by a policy.
(14)
Life expectancy -- The mean number of months a viator
or life settlor can be expected to live as determined by the viatical or life
settlement provider considering medical records and appropriate experiential
data.
(15)
Life settlement -- A transaction whereby a written agreement
is solicited, negotiated, offered, entered into, delivered, or issued for
delivery in this state, under which a life settlement provider acquires, through
assignment, sale, or transfer, a policy insuring the life of an individual
who does not have a catastrophic or life-threatening illness or condition
by paying the owner or certificate holder compensation or anything of value
that is less than the net death benefit of the policy.
(16)
Life settlor -- An individual who:
(A)
is the insured under an individual policy or a certificate
holder under a group policy, and who does not have a catastrophic or life-threatening
illness or condition; and
(B)
enters into a life settlement contract with a life settlement
provider or attempts to do so through inquiry to, negotiation with, or by
providing or consenting to the provision of confidential information to, a
life settlement provider, provider representative, or broker. The term does
not include a life settlement provider that assigns, sells, or otherwise transfers
a policy that it has purchased from a life settlor and owner.
(17)
Mature --
(A)
as it relates to viatical or life settlement brokers, occurs
when the owner has received full payment of the settlement for the assignment,
sale, or transfer of the policy that served as the basis for the viatical
or life settlement; or
(B)
as it relates to viatical or life settlement providers,
occurs when the viator or life settlor has died; or
(C)
as it relates to viatical or life settlement provider representatives
or brokers who have been appointed to continue to track a viator's or life
settlor's health status pursuant to §3.1704(e) of this subchapter (relating
to Renewal; Fees), occurs when the viator or life settlor has died.
(18)
Net death benefit -- The amount of the death benefit under
a policy to be purchased, less any outstanding debts or liens.
(19)
Owner -- The person who has the right to assign, sell,
or otherwise transfer a policy, or a certificate issued pursuant to a group
policy. This definition recognizes that, in some instances, the owner and
viator or life settlor may not be the same person under the policy.
(20)
Person -- An individual, corporation, trust, partnership,
association, or any other legal entity.
(21)
Policy -- An individual life insurance policy, a rider
to an individual life insurance policy, or a certificate or a rider to a certificate
evidencing coverage under a group life insurance policy.
(22)
Referral agent -- A person who refers or introduces a
viator, life settlor, or owner to a viatical or life settlement provider,
provider representative, or broker, but does not advertise his or her services
as a referral agent, nor advertises the availability of viatical or life settlements
on behalf of any viatical or life settlement provider, provider representative,
or broker; nor performs services or takes part in any negotiations effecting
a viatical or life settlement. This definition shall not be construed to allow
a person making a referral to perform the acts of a viatical or life settlement
provider, provider representative, or broker in this state without first obtaining
a certificate of registration as required by §3.1703 of this title (relating
to Application for Certificate of Registration for Viatical or Life Settlement
Providers, Provider Representatives, or Brokers; Fees).
(23)
Settlement application -- A written form provided by a
viatical or life settlement provider, provider representative, or broker to
be completed by a viator or life settlor and owner for the purpose of applying
to a viatical or life settlement provider, provider representative, or broker
to be considered by the provider, provider representative, or broker for the
sale of the policy insuring the life of a viator or life settlor.
(24)
Settlement contract -- The written document evidencing
the agreement entered into between a viatical or life settlement provider
and a viator or life settlor and owner that establishes the terms under which
the viatical or life settlement provider will pay compensation or anything
of value in return for the viator's or life settlor's and owner's assignment,
sale, or transfer of the net death benefit or ownership of all or a portion
of the policy or benefit which served as the basis for the viatical or life
settlement.
(25)
Trust -- An account or trust established by a viatical
or life settlement provider for the sole purpose of entering into viatical
or life settlements wherein the funds payable to the owner are placed with
a trustee to be paid to the owner on the fulfillment of the conditions of
the viatical or life settlement contract.
(26)
Viatical or life settlement broker -- A person who is
not a viatical or life settlement provider representative, and who for a commission
or other form of compensation, or with the intent of obtaining such compensation:
(A)
offers or attempts to negotiate a viatical or life settlement
between a viator or life settlor and owner and one or more viatical or life
settlement providers by representing the viator, life settlor, or owner in
such negotiation(s) to obtain the best offer or sale price for the viator's,
life settlor's, or owner's policy; or
(B)
performs services related to the gathering, organization,
or analysis of confidential information about a viator, life settlor, or owner
for purposes of entering into a settlement contract, or contacts a viator,
life settlor, or owner, or a viator's or life settlor's designee as provided
in §3.1712 of this subchapter (relating to Contacting the Viator, Life
Settlor, or Owner for Health Status Inquiries: Limits and Prohibited Practices)
for the purpose of tracking the viator's or life settlor's health status after
a viatical or life settlement has been signed by all necessary parties and
payments have been made to the owner.
(C)
The term does not include: an owner of a policy insuring
the life of a viator or life settlor; a family member of a viator or life
settlor who does not receive, or expect to receive, any form of compensation
from a viatical or life settlement provider, provider representative, or broker
for referring a family member; an attorney, accountant, estate planner, financial
planner, or individual acting under power of attorney from the viator, life
settlor, or owner, who is retained to represent the viator, life settlor,
or owner and whose compensation is paid entirely by the viator, life settlor,
or owner or at the direction and on behalf of the viator, life settlor, or
owner without regard to whether a viatical or life settlement is effected;
an attorney or accountant representing the viator, life settlor, or owner
in relation to the viatical or life settlement, who receives a contingent
fee from the viator, life settlor, or owner; a person who solicits only potential
investors in viatical or life settlements, and who does not in any way advertise,
solicit, or promote viatical or life settlements in a manner that reasonably
could attract viators, life settlors, or owners; or any physician acting within
the scope of the physician's medical license who provides medical analysis
for the physician's own patient or who, on a contract or employment basis,
performs medical analysis for a person who performs services for a viatical
or life settlement provider, provider representative, or broker related to
the gathering, organization, or analysis of confidential information about
a viator or life settlor for the purpose of effecting a viatical or life settlement.
(27)
Viatical or life settlement provider -- A person, other
than a viator, life settlor, or owner of an individual policy or certificate
holder under a group policy insuring the life of a viator or life settlor,
who enters into a viatical or life settlement with a viator or life settlor
and owner or certificate holder, or who attempts to do so through negotiation,
solicitation, or acquisition of confidential information from or about a viator,
life settlor, or owner, or who performs services as described in paragraphs
(26) or (28) of this subsection. The term does not include:
(A)
a bank, savings bank, savings and loan association, credit
union, or other licensed lending institution that takes an assignment of a
policy as collateral for a loan;
(B)
the issuer of a policy that makes a loan or pays benefits,
including accelerated benefits, under the policy or in exchange for surrender
of the policy;
(C)
a financing entity;
(D)
a trustee or escrow agent; or
(E)
an insurer that provides stop loss coverage to a viatical
or life settlement provider.
(28)
Viatical or life settlement provider representative --
A person who is not a viatical or life settlement broker, and who is employed
by, or contracts exclusively with, a viatical or life settlement provider,
and who by nature of the person's employment or contract does one or more
of the following on behalf of the viatical or life settlement provider with
whom the person is employed or contracted:
(A)
offers or attempts to negotiate a viatical or life settlement
with a viator, life settlor, or owner by representing the viatical or life
settlement provider with whom the person is employed or contracted; or
(B)
performs any of the services described in paragraph (26)(B)
of this subsection.
(C)
The term does not include those persons listed in paragraph
(26)(C) of this subsection.
(29)
Viatical settlement -- A transaction whereby a written
agreement is solicited, negotiated, offered, entered into, delivered, or issued
for delivery in this state, under which a viatical settlement provider acquires
through assignment, sale, or transfer, a policy insuring the life of an individual
who has a catastrophic or life-threatening illness or condition by paying
the owner or certificate holder compensation or anything of value that is
less than the net death benefit of the policy.
(30)
Viator -- An individual who:
(A)
is the insured under an individual policy or a certificate
holder under a group policy, and who has a catastrophic or life-threatening
illness or condition; and
(B)
enters into a viatical settlement contract with a viatical
settlement provider or attempts to do so through inquiry to, negotiation with,
or by providing or consenting to the provision of confidential information
to a viatical settlement provider, provider representative, or broker. The
term does not include a viatical settlement provider that assigns, sells,
or otherwise transfers a policy that it has purchased from a viator and owner.
(b)
Insurance Code §§31.001, 31.002, 31.003, and
31.007 which include definitions of "department" and "commissioner" and describe
the structure and duties of the Texas Department of Insurance, apply to this
subchapter and to Insurance Code Article 3.50-6A.
§3.1703.Application for Certificate of Registration for Viatical or Life Settlement Providers, Provider Representatives, or Brokers; Fees.
(a)
Any person engaging in the business of viatical or life
settlements in this state must hold a certificate of registration issued by
the department as required by this subchapter unless:
(1)
the person's involvement in a viatical or life settlement
transaction is limited solely to that of a referral agent; and
(2)
any fee received by such person for making the referral
consists of a nominal, fixed, one-time fee, that is not contingent upon the
purchase or sale of the product for which the referral is made.
(b)
A viatical or life settlement provider, provider representative,
or broker may hold no more than one certificate of registration of the same
type in the same legal name at the same time.
(c)
A viatical or life settlement provider, provider representative,
or broker doing viatical or life settlement business subject to the provisions
of this subchapter shall have the viatical or life settlement provider's,
provider representative's, or broker's certificate of registration issued
in the provider's, provider representative's, or broker's legal name, and
may only act within the scope of authority granted by the certificate of registration.
If a person holds a certificate of registration authorizing the person to
act as:
(1)
a viatical or life settlement broker or provider representative,
that person need not obtain an additional certificate of registration to participate
in a registered partnership or corporate entity of the same type in this state,
but the partnership or corporate entity with which the person participates
must hold, in its own legal name, a separate certificate of registration to
conduct business as a viatical or life settlement broker or provider representative
in this state.
(2)
a viatical or life settlement provider, that person need
not obtain an additional certificate of registration to participate in a registered
partnership or corporate entity of the same type in this state, but the partnership
or corporate entity with which the person participates must hold, in its own
legal name, a separate certificate of registration to conduct business as
a viatical or life settlement provider in this state.
(d)
Any registered viatical or life settlement provider, provider
representative, or broker may have additional offices or do business under
assumed names as that term is defined in §19.901 of this title (relating
to Definitions Concerning Conduct of Licensed Agents) without obtaining an
additional certificate of registration; provided, each viatical or life settlement
provider, provider representative, or broker shall furnish the department
with a list identifying any and all offices from which the viatical or life
settlement provider, provider representative, or broker will conduct viatical
or life settlement business, and show any and all assumed names which the
viatical or life settlement provider, provider representative, or broker will
utilize in conducting viatical or life settlement business at each of those
offices.
(1)
Where such a filing is required under the Assumed Business
or Professional Name Act, Texas Business and Commerce Code §36.01, et
seq., or any similar statute, the viatical or life settlement provider, provider
representative, or broker shall provide the department with a copy of the
valid assumed name certificate reflecting proper registration of each assumed
name utilized by the viatical or life settlement provider, provider representative,
or broker.
(2)
The assumed name shall comply with subsection (e) of this
section.
(e)
The legal name, including an assumed name, used by a viatical
or life settlement provider, provider representative, or broker in the conduct
of viatical or life settlement business under a certificate of registration
shall be subject to the requirements of §19.902 of this title (relating
to One Agent, One License) except that a separate application shall not be
required for a viatical or life settlement provider, provider representative,
or broker who conducts business under a single assumed name and registers
that name with the department on the viatical or life settlement provider's,
provider representative's, or broker's initial application for certificate
of registration.
(f)
Each person engaging in, or desiring to engage in, business
as a viatical or life settlement provider, provider representative, or broker
in this state shall file with the department a completed application for certificate
of registration in such form as the department may require. The application
shall be signed and sworn to by the person. Persons may obtain forms for application
for a certificate of registration by making a request to the Texas Department
of Insurance, P.O. Box 149104, Austin, Texas, 78714-9107 or 333 Guadalupe,
Austin, Texas, 78701, or by accessing the department's website at www.tdi.state.tx.us.
(g)
Each completed application for certificate of registration,
when filed with the department, shall be accompanied by a two-year registration
fee in the amount of $500 if the applicant is a viatical or life settlement
provider, and $250 if the applicant is a viatical or life settlement provider
representative or broker. All registration fees are non-refundable and non-transferable,
except as otherwise provided in §3.1704(f) of this subchapter (relating
to Renewal; Fees).
(h)
In addition to submitting the application and two-year
registration fee required by subsection (g) of this section, a person engaging
in, or desiring to engage in, business as a provider representative in this
state shall submit to the department with his or her application for certificate
of registration, a notice of exclusive representation from the viatical or
life settlement provider on whose behalf the applicant, as a provider representative,
will solicit business. The notice shall include a certification from the viatical
or life settlement provider stating that the viatical or life settlement provider
desires to designate the applicant as its provider representative.
(i)
A designation made under subsection (h) of this section
continues in effect until it is terminated or withdrawn by the viatical or
life settlement provider. Such termination and withdrawal shall be in writing,
a copy of which shall be sent to the department, no later than 10 calendar
days after the date the designation is terminated and withdrawn.
(j)
If the applicant is domiciled in another state, and if:
(1)
the domiciliary state licenses or registers persons engaged
in the business of viatical or life settlements, the applicant shall attach
to the application for certificate of registration either:
(A)
a current copy of a letter of good standing obtained from
the regulatory body which issued the license or certificate of registration;
or
(B)
a copy of the applicant's current license or certificate
of registration issued by the domiciliary state.
(2)
the domiciliary state does not license or register persons
engaged in the business of viatical or life settlements, the applicant shall
attach to the application for certificate of registration, a current copy
of a letter of good standing obtained from the domiciliary secretary of state
or other regulatory body, as applicable, which maintains records relating
to incorporation.
(k)
If the applicant is domiciled in another state, the applicant
shall complete and execute forms as required by the department for appointment
of agent for service of process and for irrevocable consent to jurisdiction
of the commissioner of insurance and Texas courts. Both forms shall be attached
to the application for certificate of registration. The agent for service
of process must be a person with a Texas address who has an established place
of business and who can be easily located and served with notices, legal process,
and papers.
(l)
A partnership may file an application for certificate of
registration to engage in business as a viatical or life settlement provider,
provider representative, or broker provided that all persons having control
in the affairs of any such partnership are named in the application for certificate
of registration, and the partnership submits with its application for certificate
of registration, a current copy of its certificate of existence as a registered
partnership from the Texas Secretary of State.
(m)
A corporation may file an application for certificate of
registration to engage in business as a viatical or life settlement provider,
provider representative, or broker provided that the corporation submits with
its application for certificate of registration, a current copy of its certificate
of existence as a registered corporation from the Texas Secretary of State.
(n)
If an applicant for a certificate of registration to operate
as a viatical or life settlement provider, provider representative, or broker
has complied with all application procedures in this section, and the department
is satisfied that the applicant meets all legal requirements, the department
shall issue the applicant a certificate of registration to engage in business
as a viatical or life settlement provider, provider representative, or broker
unless the department determines that the application should be denied based
on any one or more of the factors set forth in Insurance Code Article 3.50-6A,
or other applicable law. If the department denies the application, or if,
at any time, the applicant no longer meets the requirements for registration,
the procedure for the grant, denial, renewal, revocation, suspension, annulment,
or withdrawal of a certificate of registration shall be governed by §1.32
of this title (relating to Licenses).
(o)
If there is a change to any information provided in an
application for certificate of registration by an applicant, the viatical
or life settlement provider, provider representative, or broker shall submit
written notification of the change to the department within 30 days of the
change. This requirement includes changes in information that occur after
the certificate of registration has been issued and during which time the
certificate of registration remains valid and unexpired. Such notifications
of change in information shall be separate from any other submission of information
to the department and:
(1)
each applicant shall at all times keep the department informed
of both the applicant's current mailing and physical addresses;
(2)
the mailing and physical addresses on the most recent application
or notification shall be considered the viatical or life settlement provider's,
provider representative's, or broker's last known addresses for purposes of
notice to the viatical or life settlement provider, provider representative,
or broker by the department.
(3)
Nothing in paragraphs (1) and (2) of this subsection releases
a registered viatical or life settlement provider, provider representative,
or broker relocating outside of Texas from complying with subsections (j)
- (m) of this section.
(p)
A viatical or life settlement provider, provider representative,
or broker shall notify the department, and shall deliver a copy of any applicable
order or judgment to the department not later than the 30th day after the
date of the:
(1)
suspension or revocation of the viatical or life settlement
provider's, provider representative's, or broker's right to transact business
in another state;
(2)
receipt of an order to show why the viatical or life settlement
provider's, provider representative's, or broker's license or certificate
of registration in another state should not be suspended or revoked; or
(3)
imposition of a penalty, forfeiture, or sanction on the
viatical or life settlement provider, provider representative, or broker for
the violation of the laws of this state, any other state, or the United States.
(q)
An applicant shall comply with the requirements of Chapter
19, Subchapter S of this title (relating to Fingerprint Card Requirements
for Applicants for License).
(r)
In addition to the information required in this section,
the department may ask for other information necessary to determine whether
the applicant complies with the requirements of Insurance Code Article 3.50-6A
and this subchapter for purposes of issuing a certificate of registration
to the applicant.
§3.1704.Renewal; Fees.
(a)
Unexpired certificates of registration may be renewed every
two years by filing with the department a completed application for renewal
in such form as the department may require. Each renewal application, when
filed, shall be accompanied by a two-year renewal fee of $500 if the renewal
applicant is a viatical or life settlement provider, and $250 if the renewal
applicant is a viatical or life settlement provider representative or broker.
All renewal fees are nonrefundable and non-transferable, except as otherwise
provided in subsection (f) of this section.
(b)
If an applicant subsequently adds additional certificates
of registration, the department may designate one expiration date per applicant
to apply to all certificates of registration held by the applicant. The designated
date shall be the date on which the initial certificate of registration would
normally expire. For certificates of registration which would normally expire
after the designated expiration date, renewal fees shall be adjusted pro rata
on a monthly basis. The fee adjustment shall be for the renewal immediately
following the institution of the designated expiration date. On each subsequent
renewal, the applicant shall pay the full registration fee for each certificate
of registration.
(c)
If the renewal applicant is domiciled in another state,
the renewal applicant shall comply with the requirements of §3.1703(j)
- (m) of this subchapter (relating to Application for Certificate of Registration
for Viatical or Life Settlement Providers, Provider Representatives, or Brokers;
Fees).
(d)
Upon filing the completed renewal application and payment
of the proper fee, the viatical or life settlement provider's, provider representative's,
or broker's current certificate of registration shall continue in force until
the renewal certificate is issued by the department or until the department
has refused, for cause, to issue such renewal certificate as provided in Insurance
Code Article 3.50-6A, or §3.1716 of this subchapter (relating to Denial,
Suspension, or Revocation of Certificate of Registration; Enforcement), or
other applicable law, and has given notice of such refusal in writing to the
renewal applicant.
(e)
If a viatical or life settlement provider, provider representative,
or broker does not intend to renew or elects to surrender its certificate
of registration, the viatical or life settlement provider, provider representative,
or broker shall notify the department in writing. The provider's, provider
representative's, or broker's written notification of nonrenewal or surrender
shall be mailed not later than the 60th day before the date its current certificate
of registration expires or is to be surrendered. The viatical or life settlement
provider, provider representative, or broker that is nonrenewing or surrendering
its certificate of registration shall comply with paragraph (1) or (2) of
this subsection.
(1)
A viatical or life settlement provider that has viatical
or life settlements that will not mature by the date the current certificate
of registration expires or is to be surrendered shall take one of the following
actions:
(A)
renew its current certificate of registration, subject
to subsection (f) of this section, or not surrender the certificate of registration
until the date the last viatical or life settlement has matured and file the
report required by §3.1705 of this subchapter (relating to Reporting
Requirements);
(B)
sell the viatical or life settlements that have not matured
and file the report required by §3.1705 of this subchapter; or
(C)
appoint in writing one of its provider representatives,
another provider, or a broker to continue to track the viator's or life settlor's
health status for purposes of continuing the administration of the viatical
or life settlement. Appointments shall comply with the following:
(i)
The appointed viatical or life settlement provider, provider
representative, or broker must agree in writing to make all inquiries to the
viator or life settlor or the viator's or life settlor's designee in accordance
with §3.1712 of this subchapter (relating to Contacting the Viator, Life
Settlor, or Owner for Health Status Inquiries: Limits and Prohibited Practices),
and include the transferred viatical or life settlement information in the
annual report required by §3.1705(c) of this subchapter.
(ii)
The viatical or life settlement provider making the appointment
shall transfer all records pertaining to its viatical or life settlements
to the appointed viatical or life settlement provider, provider representative,
or broker; obtain written confirmation from the appointed viatical or life
settlement provider, provider representative, or broker that the records for
all transferred viatical or life settlements have been received; file the
report required by §3.1705 of this subchapter; and provide the viator
or life settlor and owner with the appointed provider's, provider representative's,
or broker's name, address, telephone number, and contact person.
(iii)
Copies of the written agreements, confirmations, and
reports required by clauses (i) and (ii) of this subparagraph shall be filed
with the department no later than the date of expiration or surrender.
(2)
A viatical or life settlement broker or provider representative
who elects to surrender, or not renew, their current certificate of registration,
shall file the reports required by §3.1705 of this subchapter. A broker
appointed by a viatical or life settlement provider or broker, or a provider
representative appointed by its viatical or life settlement provider, to provide
tracking services who is nonrenewing or surrendering his/her certificate of
registration shall:
(A)
renew its current certificate of registration, subject
to subsection (f) of this section;
(B)
appoint in writing a Texas registered viatical or life
settlement provider or broker to continue to track the viator's or life settlor's
health status for purposes of continuing the administration of the viatical
or life settlement. Appointments shall comply with the following:
(i)
The appointed viatical or life settlement provider or broker
must agree in writing to make all inquiries to the viator or life settlor
or the viator's or life settlor's designee in accordance with §3.1712
of this subchapter, and include the transferred viatical or life settlement
information in the annual report required by §3.1705 of this subchapter.
(ii)
The viatical or life settlement broker or provider representative
making the appointment shall transfer all records pertaining to its viatical
or life settlements to the appointed viatical or life settlement provider
or broker; obtain written confirmation from the appointed viatical or life
settlement provider or broker that the records for all transferred viatical
or life settlements have been received; file the report required by §3.1705
of this subchapter; and provide the viator or life settlor and owner with
the appointed provider's or broker's name, address, telephone number, and
contact person.
(iii)
Copies of the written agreements, confirmations, and
reports required by clauses (i) and (ii) of this subparagraph shall be filed
with the department no later than the date of expiration or surrender.
(f)
In the event that a viatical or life settlement provider,
provider representative, or broker taking one of the actions required by subsection
(e)(1) or (e)(2) of this section is not able to fully complete one of the
actions before its certificate of registration expires, the viatical or life
settlement provider, provider representative, or broker shall pay its full
two-year renewal fee, and comply fully with subsection (e)(1) or (e)(2), as
applicable, and thereafter surrender its certificate of registration to the
department. Upon return of the certificate of registration, the viatical or
life settlement provider, provider representative, or broker shall be eligible
for a pro rata, monthly-based refund of its renewal fee.
(g)
The surrender of any viatical or life settlement provider's,
provider representative's, or broker's certificate of registration to the
department shall not operate to negate any offense committed prior to the
effective date of the surrender. In addition, transmitting to the department
any or all viatical or life settlement certificates of registration shall
in no way affect any disciplinary proceedings by the department or by the
commissioner of insurance in respect to any viatical or life settlement provider,
provider representative, or broker.
(h)
Nothing in this section shall require the department to
issue a renewal of a certificate of registration to any person.
§3.1705.Reporting Requirements.
(a)
On or before March 1 of each year, each viatical or life
settlement broker shall submit to the department, for the previous calendar
year, a complete and accurate annual report containing the name and address
of each viatical or life settlement provider and any other brokers with whom
the broker transacted the business of viatical or life settlements in Texas,
and the number of transactions for each viatical or life settlement provider
or other broker. A viatical or life settlement broker who is non-renewing
or surrendering the certificate of registration, shall file, upon nonrenewal
or surrender, a complete and accurate report containing the information required
by this subsection for the period from the latter of the last reporting period
or the date of initial registration through the date of nonrenewal or surrender.
The report shall be submitted in electronic format as a text file in a comma-delimited
format, unless prior to filing the report, the viatical or life settlement
broker submits a written request and receives approval from the department
to file the report in hard copy. The report and/or written request to file
the report in hard copy shall be submitted to the department's Filings Intake
Division at the address specified in §3.1703(f) of this subchapter (relating
to Application for Certificate of Registration for Viatical or Life Settlement
Providers, Provider Representatives, or Brokers; Fees).
(b)
On or before March 1 of each year, each viatical or life
settlement provider registered to conduct business in this state shall submit
to the department for the previous calendar year, a complete and accurate
annual report of all viatical or life settlement transactions in Texas, and
a separate complete and accurate annual report of all viatical or life settlement
transactions for all states in the aggregate. A viatical or life settlement
provider that is nonrenewing or surrendering its certificate of registration,
upon nonrenewal or surrender shall file a complete and accurate report containing
the information required by subsection (c) of this section for the period
from the latter of the last reporting period or the date of initial registration
through the date of nonrenewal or surrender.
(c)
The viatical or life settlement provider's reports required
by this section shall be submitted in electronic format as a text file in
a comma-delimited format, unless prior to filing the report, the viatical
or life settlement provider submits a written request and receives approval
from the department to file only a hard copy. The reports and/or written request
to file the report in hard copy shall be submitted to the department's Filings
Intake Division at the address specified in §3.1703(f) of this subchapter.
The reports shall contain the information set forth in paragraphs (1) - (9)
of this subsection as follows:
(1)
For each viatical or life settlement contracted during
the reporting period:
(A)
a unique identifying number or other consistent identifier
that corresponds to each viator, life settlor, or owner in the report, as
a means of identifying the viator, life settlor, or owner, in a manner that
does not reveal any confidential information;
(B)
date (month and year) the settlement contract was signed
by all necessary parties;
(C)
insurance carrier's name and, if available, A.M. Best or
other rating at the time of settlement contract;
(D)
age and mean life expectancy (in months) of the viator
or life settlor at the time of contract;
(E)
viator's or life settlor's and owner's state of residence
at the time of contract;
(F)
face amount of policy purchased;
(G)
net death benefit purchased;
(H)
estimated total premiums to keep policy in force for mean
life expectancy, and/or WP-Waiver of Premium in effect, or NA-not applicable
because policy is paid up or no premiums are due;
(I)
net amount paid to the owner (less any outstanding debts
or liens);
(J)
source of policy (B-Broker; D-Direct Purchase; SM-Secondary
Market, i.e., previously purchased by another person);
(K)
type of policy (I-Individual or G-Group);
(L)
age of the policy at the time the viatical or life settlement
contract was effected;
(M)
primary ICD Diagnosis Code at the time of settlement contract,
in numeric format, as defined by the International Classification of Diseases,
as published by the U.S. Department of Health and Human Services (for life
settlors with no diagnosis code, use N/A);
(N)
type of funding (I-Institutional - e.g. a bank, corporation,
company, non-individual entity; P-Private - e.g. an individual); and
(O)
status as of ending date (The allowable status codes are:
Death, if applicable; N/A, if the date of death has not been determined or
verified; Sold, if the settlement contract has been sold; or Appoint, if the
settlement contract has been appointed to another registered settlement provider,
provider representative, or broker.
(2)
For each viatical or life settlement where death has occurred
during the reporting period:
(A)
a unique identifying number or other consistent identifier
that corresponds to each viator, life settlor, or owner in the report, as
a means of identifying the viator, life settlor, or owner, in a manner that
does not reveal any confidential information;
(B)
date (month and year) the settlement contract was signed
by all necessary parties;
(C)
age and mean life expectancy (in months) of the viator
or life settlor at time of contract;
(D)
viator's or life settlor's and owner's state of residence
at the time of contract;
(E)
net death benefit collected under the policy;
(F)
amount of total premiums paid, and/or WP-Waiver of Premium
in effect, or NA-not applicable because policy is paid up or no premiums are
due;
(G)
net amount paid to the owner (less any outstanding debts
or liens);
(H)
primary ICD Diagnosis Code at the time of settlement contract,
in numeric format, as defined by the International Classification of Diseases,
as published by the U.S. Department of Health and Human Services (for life
settlors with no diagnosis code, use N/A);
(I)
date of death;
(J)
amount of time (in months) between the date the viatical
or life settlement contract was signed by all necessary parties, and the date
of death;
(K)
difference between the actual number of months the viator
or life settlor lived after the date the contract was signed by all necessary
parties, and the mean life expectancy used by the reporting viatical or life
settlement provider.
(3)
the name and address of each viatical or life settlement
provider, provider representative, or broker from which the reporting provider
was referred a policy;
(4)
the name and address of any other person from which the
reporting provider was referred a policy for which a fee was given for the
referral;
(5)
the name and address of each viatical or life settlement
provider, provider representative, or broker to whom the reporting provider
referred a policy;
(6)
the number of policies reviewed and rejected;
(7)
the number of policies purchased in the secondary market
as a percentage of total policies purchased;
(8)
the name and address of any person whom the provider utilizes
to perform medical evaluations of any kind relating to viators or life settlors;
and
(9)
the name and address of any provider, provider representative,
or broker that the viatical or life settlement provider utilizes to track
a viator's or life settlor's health status after a settlement contract has
been signed by all necessary parties, and payment has been made to the owner,
or the code "IH" to indicate tracking performed by in-house employees.
(d)
In addition to the information required in this section,
the department may request any other information the department deems necessary
to conduct a complete review of the viatical or life settlement provider's,
provider representative's, or broker's conduct of business related to the
assignment, negotiation, purchase, sale, or other business related to viatical
and life settlements.
(e)
In complying with the reporting requirements of this section,
a viatical or life settlement provider, provider representative, or broker
shall not include any confidential information, or in any other way compromise
the anonymity of any viator, life settlor, or owner, or the viator's, life
settlor's, or owner's family members, spouse, or significant other.
(f)
Any viatical or life settlement provider, provider representative,
or broker that fails or refuses to submit any information required by this
section is subject to disciplinary action under §3.1716 of this subchapter
(relating to Denial, Suspension, or Revocation of Certificate of Registration;
Enforcement).
§3.1706.Form Filing Requirements and Approval, Disapproval, or Withdrawal of Forms.
(a)
Upon issuance of a viatical or life settlement certificate
of registration by the department, a viatical or life settlement provider,
provider representative, or broker shall file, for review or approval, any
form it uses, or intends to use, to effect a viatical or life settlement contract
in this state, prior to any use, issuance, or delivery of the form. A provider,
provider representative, or broker conducting both viatical and life settlement
business in this state may file a form for use in both the viatical and life
settlement markets in accordance with subsection (g) of this section.
(b)
Forms which must be filed include, but are not limited
to, the following:
(1)
settlement applications;
(2)
settlement contracts, and any amendments thereto;
(3)
disclosures, except as provided in subsection (f)(8) and
(9) of this section;
(4)
escrow or trust agreements;
(5)
documents used to obtain or release confidential information,
including documents used by the viatical or life settlement provider, provider
representative, or broker which in any way refer to, affect, request, or relate
to a viatical or life settlement provider's, provider representative's, or
broker's obtaining or releasing confidential information;
(6)
acknowledgment forms, except as provided in subsection
(f)(8) of this section; and
(7)
any other form used by a viatical or life settlement provider,
provider representative, or broker to effect a viatical or life settlement
contract in this state.
(c)
All forms filed pursuant to this section shall be accompanied
by a transmittal checklist, a copy of which is available from the department
at the address specified in §3.1703(f) of this subchapter (relating to
Application for Certificate of Registration for Viatical or Life Settlement
Providers, Provider Representatives, or Brokers; Fees). The transmittal checklist
shall be completed and signed by a duly authorized representative or attorney
of the viatical or life settlement provider, provider representative, or broker,
and shall include the following information:
(1)
the name of the submitting viatical or life settlement
provider, provider representative, or broker and its registration number;
(2)
a designated contact person for the filing, including the
individual's name, address, phone number, and if available, fax number and
e-mail address. If the form filing is submitted by anyone other than the viatical
or life settlement provider, provider representative, or broker, the filing
shall be accompanied by an attachment executed by an officer of the viatical
or life settlement provider, provider representative, or broker, designating
the person submitting the filing as the contact for that filing;
(3)
a statement indicating the type(s) of settlement for which
the form is used (i.e. viatical, life, or both);
(4)
a list of all submitted forms, and an explanation of the
purpose and use of each form including, if applicable, a designation of any
prototype form(s) used;
(5)
if applicable, a list of the form numbers and approval
dates of all previously approved forms with which the submitted form will
be used, and a statement explaining when the submitted form will be used;
(6)
a designation indicating whether the form is file and use
or review and approval prior to use as those categories are described in subsection
(d) of this section;
(7)
a designation indicating whether the form is new, informational,
substantially similar to a previously approved form, exact copy, substitution
of a previously approved form, correction to a pending form, or a resubmission
of a previously disapproved form, as those types are described in subsection
(e) of this section; and
(8)
any applicable information, attachments, and certifications
specified in this section.
(d)
Categories for viatical or life settlement form filings
are file and use or review and approval prior to use, as follows:
(1)
File and Use. A form filed under this category may be immediately
used and delivered in this state until a request for corrections has been
made, or the form has been disapproved by the department. A filing under this
category shall include the information and certifications specified in subsection
(f)(1) and (2) of this section. Any form that has been previously disapproved
by the department pursuant to subsection (k) of this section is not eligible
for filing under this category.
(2)
Review and approval prior to use. A form filed under this
category must be filed with the department not less than 60 days prior to
the viatical or life settlement provider's, provider representative's, or
broker's intended use or delivery of such form. A filing under this category
prohibits the viatical or life settlement provider, provider representative,
or broker from using or delivering such form prior to the end of 60 days from
the date the form is received by the department, unless the department approves
the form during the 60-day period. If the form has not been approved by the
60th day after the date the form is received by the department, the viatical
or life settlement provider, provider representative, or broker may use the
form:
(A)
when the form is approved by the department; or
(B)
if the form has not been previously disapproved, or corrections
have not been requested by the department at any time, and the viatical or
life settlement provider, provider representative, or broker submits to the
department the certifications specified in subsection (f)(3) of this section.
(e)
The types of viatical or life settlement form filings are
new, informational, substantially similar to a previously approved form, exact
copy, substitution of a previously approved form, corrections to a pending
form, and resubmission of a previously disapproved form, as follows:
(1)
New. A form which has not been previously reviewed or approved
by the department under Insurance Code Article 3.50-6A and this subchapter,
except for a form withdrawn by a viatical or life settlement provider, provider
representative, or broker pursuant to paragraph (6) of this subsection.
(2)
Informational. A form which is submitted for informational
purposes only.
(3)
Substantially similar to a previously approved form. A
form which is substantially similar to a form that was approved by the department
on or after May 1, 2001. This type of form filing requires the information
and certification specified in subsection (f)(1) and (4) of this section.
(4)
Exact copy. A form which, except for the viatical or life
settlement provider's, provider representative's, or broker's name, address,
phone number, or other similar viatical or life settlement provider's, provider
representative's, or broker's identification information, is an exact copy
of a form approved by the department on or after May 1, 2001. This type of
form filing requires the information and certifications specified in subsection
(f)(1) and (4)(A) and (C) of this section, and will be approved as of the
date of receipt by the department.
(5)
Substitution of a previously approved form. A form which
substitutes a form previously approved by the department on or after May 1,
2001, for the same viatical or life settlement provider, provider representative,
or broker wherein the previously approved form has not been issued, or otherwise
used in Texas, and will not be used in Texas at any time. This type of form
filing requires the information and certifications specified in subsection
(f)(1) and (4) of this section.
(6)
Correction to a pending form. A form containing corrections
to a pending form submitted subsequent to the viatical or life settlement
provider, provider representative, or broker receiving notification of the
form's deficiencies from the department. This type of form filing requires
the information and certifications specified in subsection (f)(1) and (5)
of this section, and shall be received by the department no later than 30
days following the date the viatical or life settlement provider, provider
representative, or broker receives oral or written notification from the department
of the form's deficiencies. If a corrected form is not received by the department
within the 30 days following the date the viatical or life settlement provider,
provider representative, or broker receives notification of the form's deficiencies,
the form shall be considered withdrawn by the viatical or life settlement
provider, provider representative, or broker, and will receive no further
consideration until it is refiled as a new form filing.
(7)
Resubmission of a previously disapproved form. A form containing
corrections to a form subsequent to the viatical or life settlement provider,
provider representative, or broker receiving a disapproval letter from the
department. This type of form filing requires the information and certifications
specified in subsection (f)(1) and (7) of this section.
(f)
A viatical or life settlement provider, provider representative,
or broker shall include the certification(s), attachments(s), and other information
referred to in this section as follows:
(1)
A viatical or life settlement provider, provider representative,
or broker, or its duly authorized representative or attorney filing any form
with the department shall certify on the transmittal checklist that it has
reviewed, and is familiar with, all applicable statutes and regulations of
this state and of the United States, has reviewed the form filing, and to
the best of their knowledge and belief, states that the filed form complies
in all respects with the applicable statutes and regulations of this state
and of the United States.
(2)
A viatical or life settlement provider, provider representative,
or broker filing a form under subsection (d)(1) of this section shall, in
addition to providing the certification specified in paragraph (1) of this
subsection, certify to the following:
(A)
that no corrections to the form have been requested by
the department; and
(B)
that the form has not been previously disapproved by the
department.
(3)
A viatical or life settlement provider, provider representative,
or broker filing a form under subsection (d)(2) of this section shall, in
addition to providing the certification specified in paragraph (1) of this
subsection, certify that the form will not be used until the form is approved
by the department. If, following the 60th day from the date the form is received
by the department, the viatical or life settlement provider, provider representative,
or broker elects to use, issue, or deliver such form prior to receiving approval
from the department, the viatical or life settlement provider, provider representative,
or broker shall provide the certifications specified in paragraphs (1) and
(2) of this subsection.
(4)
A viatical or life settlement provider, provider representative,
or broker submitting a form under subsection (e)(3), (4) or (5) of this section,
shall provide the certification specified in paragraph (1) of this subsection,
and shall provide the following information and certification(s):
(A)
the form number and approval date of the previously approved
form, including the provider's, provider representative's, or broker's name
if different from the submitting provider, provider representative, or broker;
(B)
a summary of the difference(s) between the previously approved
form and the submitted form, including a description of any deleted text.
The submitted form shall clearly identify all changes. New or modified text
shall be underlined; and
(C)
a certification that no changes have been made to the form
other than those identified.
(5)
A viatical or life settlement provider, provider representative,
or broker submitting a form pursuant to subsection (e)(6) of this section
shall provide the certification specified in paragraph (1) of this subsection,
and shall provide the following information and certification(s):
(A)
the form number of the pending form;
(B)
the name of the department's form review specialist who
reviewed the form;
(C)
the date of notification of any form deficiencies;
(D)
the tracking number of the pending form as assigned by
the department;
(E)
a summary of the difference(s) between the previously reviewed
form and the corrected form, including a description of any deleted text.
The corrected form shall clearly identify all changes. New or modified text
shall be underlined; and
(F)
a certification that no changes have been made to the form
other than those identified.
(6)
A viatical or life settlement provider, provider representative,
or broker submitting a form pursuant to subsection (e)(5) of this section
shall provide the certification specified in paragraph (1) of this subsection,
and a certification that the original version of the form has not been issued
in Texas, or otherwise used in Texas, and will not be used in Texas at any
time.
(7)
A viatical or life settlement provider, provider representative,
or broker submitting a form pursuant to subsection (e)(7) of this section
shall provide the certification specified in paragraph (1) of this subsection,
and shall provide the following information and certification(s):
(A)
the form number of the disapproved form;
(B)
the date of disapproval by the department; and
(C)
the information and certification(s) specified in paragraph
(5)(B), (D), (E), and (F) of this subsection.
(8)
A viatical or life settlement provider, provider representative,
or broker utilizing either the prototype viatical or life settlement disclosure
described in §3.1708(c) of this subchapter (relating to Required Disclosure),
or the prototype viatical or life settlement acknowledgment form described
in §3.1709(d) of this subchapter (relating to Application and Contract
Forms: Required Provisions and Escrow/Trust Agreements), is not required to
file the form under this section if the viatical or life settlement provider,
provider representative, or broker certifies on the transmittal checklist
that no changes have been, or will be made, to the department's language.
(9)
A viatical or life settlement provider, provider representative,
or broker shall certify on the transmittal checklist either that the English/Spanish
application disclosure:
(A)
appearing on the submitted application is an exact copy
of the language specified in §3.1709(a) of this subchapter and that no
changes have been or will be made to the application disclosure; or
(B)
will be attached as a supplement to the front of the submitted
application and that no changes have been or will be made to the English/Spanish
application disclosure. A viatical or life settlement provider, provider representative,
or broker making this certification is not required to file the supplement
with the department.
(g)
A provider, provider representative, or broker conducting
both viatical and life settlement business in this state, and who submits
a form for use in both the viatical and life settlement business shall certify
that the provider, provider representative, or broker will, to the best of
their knowledge, when issuing the form to viators, life settlors, or owners,
clearly delineate on the form itself, whether the form is being used to effectuate
a viatical settlement or whether the form is being used to effectuate a life
settlement.
(h)
Any form filed pursuant to this section shall be:
(1)
filled in with specimen language and specimen fill-in material,
and shall not contain the confidential information of any viator, life settlor,
or owner;
(2)
submitted on 8 1/2 by 11-inch paper. Bound forms will not
be accepted;
(3)
submitted in typewritten, computer generated, or printer's
proof format and be clearly legible. Handwritten forms or handwritten corrections
will not be accepted;
(4)
designated by a unique form number sufficient to distinguish
it from all other forms used by the viatical or life settlement provider,
provider representative, or broker. The form number shall be located in the
lower left-hand corner of the cover page or on the first page of the form,
if visible with the cover closed.
(i)
A form filed under this section may contain variable language,
provided that the variable language is:
(1)
bracketed; and
(2)
accompanied by a clear explanation of how the material
will vary and how it will be used.
(j)
Form filings that are not accompanied by a completed transmittal
checklist, or which do not contain all required information and/or certifications,
will not be accepted for review by the department, and will be returned to
the viatical or life settlement provider, provider representative, or broker
as incomplete.
(k)
The department may disapprove any form filed pursuant to
this section, or withdraw previous approval of any form, if:
(1)
the form fails to comply with any applicable statutes or
regulations of this state or the United States; or
(2)
the content of the form is unjust, encourages misrepresentation,
or is in any way deceptive.
(l)
The department may request that corrections be made to
a form to bring the form into compliance with the provisions of this subchapter,
Article 3.50-6A, or any law of this state or the United States.
(m)
When the department makes a request for corrections, disapproves
a form, or withdraws approval of a form pursuant to subsection (k), (l), or
(q) of this section, the department may request that the viatical or life
settlement provider, provider representative, or broker replace the form previously
used, issued, or delivered, with a corrected form, or correct the form by
amendment. The department may also request that the viatical or life settlement
provider, provider representative, or broker discontinue using the form, if,
prior to receiving approval from the department, any form has been used, issued,
or delivered.
(n)
The department shall send written notification of any approval
or disapproval of any form filed under this section.
(o)
The department may request any additional information necessary
for a comprehensive review of any form.
(p)
The viatical or life settlement provider, provider representative,
or broker may make a written request for hearing to the department's Chief
Clerk at the address specified in §3.1703(f) of this subchapter upon
receiving notification under subsection (k) of this section of any disapproval
of a form by the department.
(q)
The commissioner may, after notice and opportunity for
hearing, withdraw any previous approval of a form, if any form violates or
does not comply with Insurance Code Article 3.50-6A, this subchapter, or any
law of this state or the United States. The commissioner may require the viatical
or life settlement provider, provider representative, or broker to either
replace the form previously used or delivered with a corrected form, or correct
the form by amendment.
§3.1707.Advertising, Sales and Solicitation Materials; Filing Prior to Use.
(a)
Upon issuance of a certificate of registration, each viatical
or life settlement provider, provider representative, or broker shall file
with the department all advertising or other solicitation materials used to
market viatical or life settlements or the viatical or life settlement provider's,
provider representative's, or broker's services in this state, on or before
the date such materials are disseminated. Advertising filings should be filed
with the department's Advertising Unit at the address specified in §3.1703(f)
of this subchapter (relating to Application for Registration for Viatical
or Life Settlement Providers, Provider Representatives, or Brokers; Fees).
(b)
The filings required by this section are for informational
purposes only. Viatical and life settlement providers, provider representatives,
or brokers may use or disseminate the materials referenced in this section
without the prior review of the department.
§3.1708.Required Disclosure.
(a)
With each application for a viatical or life settlement,
the viatical or life settlement provider, provider representative, or broker
shall deliver to the viator or life settlor and owner written disclosures
required by this section.
(b)
The written disclosures shall:
(1)
prominently display the viatical or life settlement provider's,
provider representative's, or broker's full name, home office address, and
telephone number; and
(2)
disclose the following information:
(A)
that individuals wishing to sell their policies may have
alternatives to viatical or life settlements. These alternatives may include
accelerated benefits offered by the issuer of the policy, loans secured by
the policy, and surrender of the policy for cash value.
(B)
that an individual may incur tax consequences by entering
into a viatical or life settlement.
(C)
that a viatical or life settlement may affect an individual's
ability to receive supplemental social security income, public assistance
and public medical services, including Medicaid.
(D)
that the proceeds of a viatical or life settlement may
not be exempt from creditors, personal representatives, trustees in bankruptcy,
and receivers in state or federal court.
(E)
that all confidential information solicited or obtained
by a viatical or life settlement provider, provider representative, or broker
about a viator, life settlor, or owner, including the viator's, life settlor's,
or owner's identity or the identity of family members, a spouse or significant
other, if obtained in accordance with §3.1710(c)(2) of this subchapter
(relating to Prohibited Practices Relating to Advertising and Solicitation;
Applications and Contracts), is confidential, and shall not be disclosed in
any form to any person, unless disclosure has been given by prior written
consent from the viator, life settlor, or owner on a form which identifies
to whom the confidential information may be released, and the purpose for
releasing the confidential information.
(F)
that the medical release form may be used to track ongoing
health status and that the viator, life settlor, or owner may withdraw their
consent pursuant to applicable law.
(G)
how viatical or life settlements operate.
(H)
the owner's right to rescind a viatical or life settlement
contract at any time, but not later than the 15th day after the date the owner
receives the viatical or life settlement proceeds. If the viator or life settlor
dies at any time prior to the end of the rescission period, the viatical or
life settlement contract shall be deemed to have been rescinded. The viatical
or life settlement provider shall refund the death benefit to the owner or
beneficiaries designated by the owner in the viatical or life settlement contract
for this purpose, and the death benefit returned to such beneficiary or beneficiaries
shall be subject to the deduction of all viatical or life settlement proceeds
previously paid, and if applicable, any premiums paid by the viatical or life
settlement provider.
(I)
the viator's, life settlor's, or owner's right to know,
upon request, the identity of any person who will receive or has received
a commission or other form of compensation from the viatical or life settlement
provider, provider representative, or broker with respect to their viatical
or life settlement and the amount and terms of such compensation.
(J)
the limits and options regarding contacts for determination
of health status set forth in §3.1709(c)(5) and (6) of this subchapter
(relating to Application and Contract Forms: Required Provisions and Escrow/Trust
Agreements).
(K)
that if the policy which is the subject of a viatical or
life settlement is a joint policy, or contains riders or other provisions
insuring the lives of a spouse , dependents, or anyone else other than the
viator or life settlor, there may be a possible loss of coverage.
(L)
that the individual may wish to inquire if the policy which
is the subject of a viatical or life settlement contains a provision or rider
for future increases in the death benefit, and the amount paid by the viatical/life
settlement provider for the purchase of the future increase.
(M)
that if the policy which is the subject of the viatical
or life settlement contains a rider to, or a provision of, the policy providing
an additional death benefit for accidental death, such death benefit remains
payable by the insurance company to the beneficiary last named by the viator,
life settlor, or owner, not including the viatical or life settlement company,
or in the absence of a beneficiary, to the estate of the viator, life settlor,
or owner.
(N)
that entering into a viatical or life settlement contract
will have an effect on payment of premiums and dispositions of proceeds, cash
values, and dividends, and may cause other rights or benefits, including conversion
rights and waiver of premium benefits that may exist under the policy, to
be forfeited by the individual.
(O)
that the individual may wish to contact an attorney, accountant,
estate planner, financial planning advisor, their insurer, insurance agent,
tax advisor, or social services agency regarding potential consequences resulting
from entering into a viatical or life settlement.
(P)
that the individual may wish to inquire if the person marketing,
offering, or negotiating the viatical or life settlement is a viatical or
life settlement broker, or is a provider representative, and explain that
a provider representative does not actively market the viator's, life settlor's,
or owner's policy to various viatical or life settlement providers to find
the best competitive offer, but instead only offers and negotiates a viatical
or life settlement between a viator, life settlor, or owner and the viatical
or life settlement provider with whom the provider representative is employed
or contracted.
(Q)
that the viator, life settlor, or owner may file a complaint
by contacting the Texas Department of Insurance, Consumer Protection Division,
Mail Code 111-1A, P. O. Box 149104, Austin, Texas 78714-9104 or 333 Guadalupe,
Austin, Texas 78701, or by calling the department's Consumer Help Line between
8 a.m. and 5 p.m., Central Time, Monday-Friday at 1-800-252-3439; by faxing
a complaint to the department at 1-512-475-1771; by completing a complaint
on-line at www.tdi.state.tx.us; or by e-mailing a complaint to consumer.protection@tdi.state.tx.us;
and
(3)
comply with the plain language requirements prescribed
in §3.602(b)(1)(A)-(C) of this title (relating to Plain Language Requirements),
and shall contain the appropriate text required by this section, but shall
not contain any material of an advertising nature, except for the viatical
or life settlement provider's, provider representative's, or broker's logo-type.
(c)
A viatical or life settlement provider, provider representative,
or broker may either develop and file for approval its own disclosure or utilize
the applicable disclosure available from the department which may be obtained
by making a request to the Life/Health Division at the address specified in §3.1703(f)
of this subchapter (relating to Application for Certificate of Registration
for Viatical or Life Settlement Providers, Provider Representatives, or Brokers;
Fees).
§3.1709.Application and Contract Forms: Required Provisions and Escrow/Trust Agreements.
(a)
With each application for a viatical or life settlement,
the viatical or life settlement provider, provider representative, or broker
shall deliver to the viator or life settlor and owner, the following information
in English and in Spanish, which either must be displayed prominently and
in bold print on the front page of the application, or on a supplement attached
to the front of the application:
(1)
In English: "Receipt of a (INSERT: viatical* or life,**
as applicable) settlement may affect your eligibility for public assistance
programs such as medical assistance (Medicaid), Aid to Families with Dependent
Children (AFDC), supplementary social security income (SSI), and drug assistance
programs. The money you receive for your life insurance policy also may be
taxable. Before completing a (INSERT: viatical or life, as applicable) settlement
contract, you are urged to consult with an attorney, accountant, estate planner,
financial planning advisor, your insurer or insurance agent, tax advisor,
or a social service agency concerning how receipt of a payment will affect
you, your family, and your spouse's eligibility for public assistance. For
more information about (INSERT: viatical or life, as applicable) settlements
generally, contact the Texas Department of Insurance at 1-800-252-3439."
(Insert either or both, as applicable: *Viatical settlement -- A transaction
whereby a written agreement is solicited, negotiated, offered, entered into,
delivered, or issued for delivery in this state, under which a viatical settlement
provider acquires, through assignment, sale, or transfer of a policy insuring
the life of an individual who has a catastrophic or life-threatening illness
or condition, by paying the owner or certificate holder compensation or anything
of value that is less than the net death benefit of the policy. **Life settlement
-- A transaction whereby a written agreement is solicited, negotiated, offered,
entered into, delivered, or issued for delivery in this state, under which
a life settlement provider acquires, through assignment, sale, or transfer
of a policy insuring the life of an individual who does not have a catastrophic
or life-threatening illness or condition, by paying the owner or certificate
holder compensation or anything of value that is less than the net death benefit
of the policy.)
(2)
In Spanish: "El aceptar una liquidación tipo (INSERT:
viáticos* or pago en vida**) podría afectar que usted pueda
inscribirse en los programas de asistencia pública, tales como los
de Asistencia Médica de Medicaid, Ayuda para Familias con Hijos Menores
(AFDC), Ingreso Suplementario del Seguro Social (SSI) y otros programas de
ayuda para la compra de medicamentos. Es posible que también tenga
que pagar impuestos por el dinero que usted reciba por su seguro de vida.
Antes de firmar cualquier acuerdo tipo (INSERT: viáticos or pago en
vida) lo exhortamos que consulte con un abogado, contador, planeador de patrimonios,
consejero económico, su aseguradora o agente de seguros, consejero
(perito) en materia de impuestos o con (y con) una agencia (las agencias)
de servicios sociales para que se informe cómo el recibo de dichos
pagos podría afectar su capacidad, la de su familia y la de su cónyuge
para recibir asistencia pública. Para más información
en general respecto a los acuerdos tipo (INSERT: viáticos or pago en
vida) llame al Departamento de Seguros de Texas al 1-800-252-3439." *Pago
Tipo Viáticos - Una transacción en la cual por medio de un contrato
por escrito a cumplir en este estado se solicita, negocia, ofrece, compromete,
establece o expide, que bajo dicho contrato un proveedor de liquidación
tipo viáticos adquiera, por medio de asignación, venta o transferencia,
la póliza de seguro de vida de un individuo que padece de una enfermedad
o padecimiento catastrófico o que amenaza la vida, al pagar al propietario
o tenedor de la póliza una compensación o cualquier cosa de
valor de menos cuantía que la suma neta del beneficio de muerte que
estipula la póliza. or **Pago en Vida - Una transacción en la
cual por medio de un contrato por escrito a cumplir en este estado se solicita,
negocia, ofrece, compromete, establece o expide, que bajo dicho contrato un
proveedor de liquidación tipo pago en vida adquiera, por medio de asignación,
venta o transferencia, la póliza de seguro de vida de un individuo
que no padece de una enfermedad o padecimiento catastrófico o que amenaza
la vida, al pagar al propietario o tenedor de la póliza una compensación
o cualquier cosa de valor de menos cuantía que la suma neta del beneficio
de muerte que estipula la póliza.
(b)
All application and medical release forms signed by the
viator, life settlor, or owner at the time of application shall contain the
name, address, and phone number of the viatical or life settlement provider,
provider representative, or broker to whom the application is being made,
and copies of the forms, including the Spanish/English disclosure, shall be
given to the viator, life settlor, or owner at the time of application.
(c)
All contracts used to effect viatical or life settlements
shall contain the following:
(1)
a provision that the viatical or life settlement contract
together with the application, including any amendments and attached papers,
if any, constitutes the entire viatical or life settlement contract between
the parties to the contract, and no change to the viatical or life settlement
contract shall be valid until approved by an executive officer of the viatical
or life settlement provider designated in the contract with authority to bind
the provider, and unless such approval be endorsed thereon or attached to
the viatical or life settlement contract. The provision shall also state that
no person, other than an executive officer of the provider, has the authority
to change the viatical or life settlement contract, or to waive any of its
provisions, and that in the absence of fraud, all statements made by the viator
or life settlor and owner shall be deemed representations and not warranties.
(2)
a provision that the owner may rescind the viatical or
life settlement contract at any time, but not later than the 15th day after
the date that the owner receives the proceeds of the viatical or life settlement.
If the viator or life settlor dies at any time prior to the end of the rescission
period, the viatical or life settlement contract shall be deemed to have been
rescinded, and the viatical or life settlement provider shall refund the death
benefit to the owner or beneficiaries designated in the viatical or life settlement
contract for this purpose. A refund of the death benefit to a beneficiary
or beneficiaries under this paragraph is subject to repayment of all viatical
or life settlement proceeds, and if applicable, any premium paid by the viatical
or life settlement provider.
(3)
a provision that, at the option of the viatical or life
settlement provider, the proceeds may be placed into an escrow or trust account
to effect payment to the owner.
(4)
a provision that, within three business days, upon receipt
from the owner of documents to effect the transfer of the policy, the viatical
or life settlement provider may at its option either:
(A)
make unconditional payment to the owner, either in a lump
sum or in installment payments in a manner not prohibited by §3.1710(c)(7)
of this subchapter (relating to Prohibited Practices Relating to Advertising
and Solicitation; Applications, and Contracts); or
(B)
place the proceeds of the settlement with a trustee or
escrow agent, to be placed into an escrow or trust account in a financial
institution that is a member of the Federal Deposit Insurance Corporation
(FDIC), where such proceeds shall remain until:
(i)
the proceeds are disbursed to the owner within three business
days, upon acknowledgment of the transfer of the policy by the issuer of the
policy;
(ii)
the proceeds are transferred to purchase an instrument
used to effect installment payments in a manner not prohibited by §3.1710(c)(7)
of this subchapter; or
(iii)
the proceeds and premium paid by the viatical or life
settlement provider are returned to the viatical or life settlement provider
by the escrow agent or trustee upon notice of the owner's rescission, including
rescission due to the death of the viator, life settlor, or owner within the
rescission period.
(5)
a provision that the viator or life settlor may designate
any individual of legal age, in regular contact with the viator or life settlor,
as a contact for inquiries about the viator's or life settlor's health status
upon written notice providing the name, address and telephone number of the
individual. The provision shall include:
(A)
the limitations on inquiry set forth in §3.1712 of
this subchapter (relating to Contacting the Viator, Life Settlor, or Owner
for Health Status Inquiries: Limits and Prohibited Practices); and
(B)
a statement that the viator or life settlor may change
a designation at any time upon written notice to the viatical or life settlement
provider.
(6)
a provision that the viatical or life settlement provider
shall provide to the viator or life settlor and owner, the name, address,
and telephone number of the viatical or life settlement provider, provider
representative, or broker that will contact the viator or life settlor or
his or her designee as provided in §3.1712 of this subchapter, and shall
notify the viator or life settlor and owner of any change in such information.
(7)
a provision disclosing that the viatical or life settlement
provider has the right to assign, sell, or otherwise transfer the policy that
is the subject of the viatical or life settlement to a person unknown to the
viator, life settlor, or owner, without the viator's, life settlor's, or owner's
consent.
(8)
a provision defining how any notice required or permitted
under the contract shall be given and delivered.
(9)
a provision disclosing what effect the viatical or life
settlement will have on payment of premiums and disposition of proceeds, cash
values and dividends.
(10)
a provision disclosing that if the policy that is the
subject of the viatical or life settlement is a joint policy, or contains
riders or other provisions insuring the lives of a spouse, dependents, or
anyone else other than the viator or life settlor, there may be a possible
loss of coverage, and the viator, life settlor, or owner should contact their
insurance company or their agent to determine if the coverage may be converted
in order to avoid losing the coverage.
(11)
an acknowledgment form, which a viator or life settlor
and owner shall sign before a notary, stating that:
(A)
to the best of their knowledge, either the viator has a
catastrophic or life-threatening illness, or the life settlor does not have
a catastrophic or life-threatening illness;
(B)
the written disclosures required by §3.1708 of this
subchapter (relating to Required Disclosure) have been received and read;
(C)
all of the documents used to effect the viatical or life
settlement have been received and read; and
(D)
the viatical or life settlement contract is being entered
into knowingly and voluntarily.
(d)
A viatical or life settlement provider, provider representative,
or broker may develop and file its own acknowledgement form required by subsection
(c)(11) of this section, or may utilize the acknowledgment form available
from the department, which may be obtained by making a request to the Life/Health
Division at the address specified in §3.1703(f) of this subchapter (relating
to Application for Certificate of Registration for Viatical or Life Settlement
Providers, Provider Representatives, or Brokers; Fees).
(e)
If a viatical or life settlement provider enters into a
viatical or life settlement which allows the owner to retain an interest in
the policy or the policy contains a provision, whether in the policy or attached
by rider, providing an additional death benefit for accidental death, the
viatical or life settlement contract or amendment shall contain a provision:
(1)
that the viatical or life settlement provider will effect
the transfer of the amount of the net death benefit only to the extent or
portion of the amount sold. Benefits in excess of the amount that is sold
will be paid by the insurance company directly to the beneficiaries in accordance
with the terms of the policy;
(2)
that the additional death benefit for accidental death
shall remain payable to the beneficiary last named by the viator, life settlor,
or owner, not including the viatical or life settlement provider or in the
absence of a beneficiary, to the estate of the viator, life settlor, or owner;
(3)
that the viatical or life settlement provider will, upon
acknowledgment of the perfection of the transfer, either:
(A)
advise the owner, in writing, that the insurance company
has confirmed the owner's remaining interest in the policy; or
(B)
send the owner a copy of the document sent from the insurance
company that acknowledges the owner's remaining interest in the policy;
(4)
that defines the apportionment of premiums to be paid by
the viatical or life settlement provider and the owner. It is permissible
for the viatical or life settlement contract, or amendment, to specify that
all premiums will be paid by the viatical or life settlement provider. The
contract, or amendment, may also require the owner to reimburse the viatical
or life settlement provider for the premiums attributable to the remaining
interest, including any premiums for the accidental death benefit subsequent
to the viatical or life settlement contract.
(f)
All viatical or life settlement contracts, in addition
to meeting the other requirements of this section, shall contain:
(1)
consistent terminology;
(2)
a section defining key terms used in the viatical or life
settlement contract;
(3)
the name of the owner and insured;
(4)
the number of the policy which serves as the basis for
the viatical or life settlement contract;
(5)
the name of the insurance company underwriting the policy
at the time of contract;
(6)
the amount of the net death benefit of the policy; and
(7)
a signature line for the viatical or life settlement provider
and the owner and insured, as applicable.
(g)
A viatical or life settlement provider that places the
proceeds of the viatical or life settlement into an escrow or trust account
pursuant to subsection (c)(3) or (c)(4)(B) of this section, shall comply with
the following:
(1)
the name of the registered viatical or life settlement
provider shall be included within the name of the escrow or trust account;
(2)
the escrow agent shall not be any person under common control
with a viatical or life settlement provider, provider representative, or broker;
(3)
the escrow or trust agreement shall contain:
(A)
the name of the owner and insured:
(B)
the number of the policy which serves as the basis for
the viatical or life settlement contract;
(C)
the name of the insurance company underwriting the policy
at time of contract;
(D)
the name of the viatical or life settlement provider purchasing
the policy;
(E)
the name, address, and telephone number of the escrow agent
or trustee;
(F)
the amount of proceeds placed into the escrow or trust
account;
(G)
all terms and conditions of the escrow or trust agreement;
(H)
the name and address of the financial institution where
the funds to be paid to the owner will be deposited;
(I)
a description of the purpose of the escrow or trust account;
(J)
the circumstances that will trigger disbursement of the
funds from the escrow or trust account;
(K)
the name of the person to whom the funds will be disbursed;
(L)
the time restrictions or limitations for accepting assignment
of the policy regarding the insurance company's acceptance of the assignment
or failure of the insurance company to acknowledge the assignment;
(M)
if applicable, the process for required notices for communication
if the viator or life settlor rescinds the viatical or life settlement contract
pursuant to subsection (c)(2) of this section, or if the insurance company
does not accept the policy assignment;
(N)
the duties of the escrow agent or trustee;
(O)
the designation of the escrow agent or trustee;
(P)
the limits of liability for the escrow agent or trustee;
(Q)
the process by which any dispute arising between the owner
and the viatical or life settlement provider and the escrow agent or trustee
concerning the interpretation of the escrow or trust agreement is to be resolved;
and
(R)
a signature line for the viatical or life settlement provider,
the owner and insured, and the escrow agent or trustee.
(h)
The viatical or life settlement provider, provider representative,
or broker shall provide, to the viator or life settlor and owner, a copy of
the viatical or life settlement contract and all materials used to effect
the viatical or life settlement, including, but not limited to, the application,
a copy of the escrow or trust agreement, and any consent forms or any other
document that the viatical or life settlement provider, provider representative,
or broker, as applicable, required the viator or life settlor and owner, or
his or her representative, to sign in order to effect the viatical or life
settlement. The viatical or life settlement contract and all other materials
used to effect the viatical or life settlement shall be provided at no charge
to the viator or life settlor and owner.
§3.1710.Prohibited Practices Relating to Advertising and Solicitation; Applications and Contracts.
(a)
No viatical or life settlement provider, provider representative,
or broker shall advertise or in any other way solicit business in a manner
that is untruthful or misleading by fact or implication. In considering whether
or not the advertising or other solicitation is untruthful or misleading,
the department shall use the standards set forth in this subchapter, Insurance
Code Article 21.21, and Chapter 21, Subchapter B of this title (relating to
Insurance Advertising, Certain Trade Practices, and Solicitation), or any
other applicable law.
(b)
No viatical or life settlement provider, provider representative,
or broker shall state or imply any advantage, right, or preference which,
if granted or performed, would be a violation of any law of this state or
the United States.
(c)
No viatical or life settlement provider, provider representative,
or broker shall:
(1)
condition the consideration of an application for a viatical
or life settlement on the exclusive dealing between the viator or life settlor
and owner and the viatical or life settlement provider, provider representative,
or broker;
(2)
directly or indirectly contact any owner's, viator's, or
life settlor's parents or family members, including a spouse or significant
other, for any purpose, unless the owner, viator, or life settlor has designated
a member of his or her family, a spouse, or a significant other as a contact
person for health status information as provided in §3.1712 of this title
(relating to Contacting the Viator, Life Settlor, or Owner for Health Status
Inquiries; Limits and Prohibited Practices);
(3)
discriminate in the availability or terms of viatical or
life settlements on the basis of race, color, national origin, creed, religion,
occupation, geographic location, marital or family status, sexual orientation,
age, gender, disability or partial disability, unless it can be demonstrated
that any such factor affects the life expectancy of the viator or life settlor;
(4)
discriminate between viators or life settlors with dependents
and those without dependents;
(5)
enter into any viatical or life settlement contract without:
(A)
obtaining the written consent of both the viator or life
settlor and owner, if the two are separate individuals under the policy which
is the subject of the viatical or life settlement; and
(B)
making the disclosures required by §3.1708 of this
subchapter (relating to Required Disclosure) to both the viator or life settlor
and the owner;
(6)
enter into any viatical or life settlement contract that
provides a payment to the owner that is unjust. In determining whether a payment
is unjust, the department may consider, among other factors, the data submitted
in the reports required by §3.1705 of this title (relating to Reporting
Requirements), and the prevailing discount rates in the viatical or life settlement
market in Texas, or if insufficient data is available for Texas, the prevailing
rates nationally or in other states that maintain such data;
(7)
enter into a viatical or life settlement contract in which
payments of proceeds are made in installments, unless the settlement is effected
through an annuity purchased from an insurance company licensed by this state
or licensed by the state in which the annuity is purchased or through an escrow
or trust account which provides for installment payments and which is established
by a financial institution licensed by this state or any other state in the
United States, and is also a member of the FDIC;
(8)
enter into any viatical or life settlement in this state
in which any form used to effect the settlement, including the escrow or trust
agreement, contains a provision that either requires or limits a viator, life
settlor, or owner to resolve a legal dispute with the viatical or life settlement
provider, provider representative, or broker in any state other than Texas,
specifies a particular city, county, or locality in Texas or elsewhere as
the legal forum for resolving a dispute, or makes any other state's laws as
the law applicable to the form;
(9)
enter into any viatical or life settlement in which any
form used to effect the settlement, including the escrow or trust agreement,
contains a provision that requires the owner, viator, or life settlor to pay
for policy premiums that cover any period of time after the date in which
the ownership of the policy is transferred, except as provided in §3.1709(e)(4)
of this subchapter (relating to Application and Contract Forms: Required Provisions
and Escrow/Trust Agreements);
(10)
retain any portion of the proceeds from the viatical or
life settlement contract;
(11)
intentionally misstate the life expectancy of any viator
or life settlor for the purpose of evading the tax laws of the United States,
or for any other purpose; or
(12)
require any viator, life settlor, or owner to give the
viatical or life settlement broker, provider, provider representative, or
any person, a general power-of-attorney, or designate the broker, provider,
provider representative, or any person as his or her attorney-in-fact; provided
that the viatical or life settlement broker, provider, provider representative,
or other person may obtain a special or limited power-of-attorney if such
power-of-attorney is restricted only to purposes related to the viatical or
life settlement transaction, and those purposes are explicitly described in
the special or limited power-of-attorney form.
(d)
No viatical or life settlement provider, provider representative,
or broker shall purchase benefits of a policy or rider which provides for
additional death benefits for accidental death. Such additional death benefits
shall remain payable to the beneficiary last named by the viator, life settlor,
or owner, not including the viatical or life settlement provider, or in the
absence of a beneficiary, to the estate of the viator, life settlor, or owner.
§3.1711.Payment of Commissions or Other Forms of Compensation: Disclosure and Prohibited Practices.
(a)
Upon request of the viator, life settlor, or owner, the
viatical or life settlement provider, provider representative, or broker shall
disclose in writing to the viator, life settlor, or owner:
(1)
the identity of any person who will receive a commission
or other form of compensation from the viatical or life settlement provider,
provider representative, or broker with respect to the viatical or life settlement;
and
(2)
the amount and terms of the compensation.
(b)
A viatical or life settlement provider, provider representative,
or broker shall not pay or offer to pay any referral or finder's fee, commission,
or other compensation to a viator's or life settlor's physician, attorney,
accountant, social worker, case manager, individual acting under power-of-attorney,
or other person providing medical, social, financial planning or other counseling
services to the viator, life settlor, or owner.
(c)
Notwithstanding the manner in which the viatical or life
settlement broker is compensated, a viatical or life settlement broker, is
deemed to represent only the viator or life settlor and owner and owes a fiduciary
duty to the viator or life settlor and owner to act according to the viator's
or life settlor's and owner's instructions and in the best interest of the
viator or life settlor and owner.
§3.1712.Contacting the Viator, Life Settlor, or Owner for Health Status Inquiries: Limits and Prohibited Practices.
(a)
If a viator or life settlor makes a designation of an individual
as provided in §3.1709(c)(5) of this subchapter (relating to Application
and Contract Forms: Required Provisions and Escrow/Trust Agreements), a viatical
or life settlement provider, provider representative, or broker shall not
contact the viator, life settlor, or owner for health status information about
the viator or life settlor, unless the viatical or life settlement provider,
provider representative, or broker is unable, after diligent effort, to contact
a designee for more than 30 calendar days, subject to the restrictions set
forth in subsection (b) of this section.
(b)
Once a viator, life settlor, or owner has entered into
a settlement with a viatical or life settlement provider, no viatical or life
settlement provider, provider representative, or broker shall contact the
viator, life settlor, or owner, or a viator's or life settlor's designee,
to determine the viator's or life settlor's health status more frequently
than once every 30 days for viators or life settlors with a life expectancy
of one year or less, and no more than once every three months for viators
or life settlors with a life expectancy of more than one year. No person shall
contact the viator, life settlor, owner, or designee for determining the health
status of a viator or life settlor as provided in §3.1709(c)(5) and (6)
of this subchapter, unless that person is registered as a viatical or life
settlement provider, provider representative, or broker in this state.
§3.1713.Assignment, Sale, or Transfer of Policies: Disclosure.
(a)
Any viatical or life settlement provider that assigns,
sells, or otherwise transfers its interest in any policy that is the subject
of a viatical or life settlement without providing the disclosures to the
viator, life settlor, or owner as required by §3.1709(c)(7) of this subchapter
(relating to Application and Contract Forms: Required Provisions and Escrow/Trust
Agreements) is subject to discipline by the commissioner under §3.1716
of this subchapter (relating to Denial, Suspension, or Revocation of Certificate
of Registration; Enforcement).
(b)
At the time a viatical or life settlement provider assigns,
sells, or otherwise transfers its interest in any policy that is the subject
of a viatical or life settlement contract to any person not registered pursuant
to this subchapter, the viatical or life settlement provider, must continue
to track the viator's or life settlor's health status, or appoint, in writing,
one of their Texas-registered provider representatives, another Texas-registered
viatical or life settlement provider, or a Texas-registered broker, to make
all inquiries to the viator, life settlor, or owner, or the viator's or life
settlor's designee, regarding the health status of the viator or life settlor
or any other matters. A viatical or life settlement provider that assigns,
sells, or otherwise transfers such a policy to a non-registered person and
fails to continue to track the viator's or life settlor's health status, or
to make such an appointment, commits a violation of this section, and is subject
to discipline by the commissioner under §3.1716 of this subchapter.
§3.1714.Confidentiality.
(a)
All confidential information solicited or obtained by a
viatical or life settlement provider, provider representative, or broker about
a viator, life settlor or owner, including the viator's, life settlor's, or
owner's identity or the identity of family members, a spouse or a significant
other, is confidential and shall not be disclosed in any form to any person,
unless disclosure:
(1)
is provided by prior written consent from the viator, life
settlor, or owner on a form which identifies to whom the confidential information
may be released, and the purpose for releasing the confidential information;
(2)
is provided to the department in the form of statistical
data from which the identity of the viator or life settlor and owner cannot
be ascertained;
(3)
is provided to the department in response to a subpoena
from the commissioner, pursuant to the enforcement powers made applicable
by Insurance Code Article 3.50-6A, and §3.1716 of this subchapter (relating
to Denial, Suspension, or Revocation of Certificate of Registration; Enforcement),
or in response to a written request for information made pursuant to Insurance
Code §38.001; or
(4)
is provided to the department during the course of an examination
by the department of the business and affairs of the viatical or life settlement
provider, provider representative, or broker, as provided in §3.1717
of this subchapter (relating to Examinations).
(b)
All medical and financial information solicited or obtained
by a viatical or life settlement provider, provider representative, or broker
about a viator, life settlor, or owner must be obtained by written consent
which must disclose that the viator, life settlor or owner has the right to
withdraw consent pursuant to applicable law, and that the release form(s)
may be used to track on-going health status.
(c)
A viatical or life settlement provider, provider representative,
or broker shall not release any viator's, life settlor's, or owner's confidential
information to any person without first making a factual determination that:
(1)
the releasing of any confidential information to that person
is not in violation of any applicable provisions of the laws of this state,
or of the United States, relating to the confidentiality of information;
(2)
all persons to whom any confidential information is disclosed
will maintain the confidentiality of such information and not disclose it
to any other person in any form without prior and knowing written consent
of the viator or life settlor and owner;
(3)
all persons to whom any confidential information is released,
have sufficient procedures implemented to prevent the accidental or unauthorized
release of any viator's or life settlor's and owner's confidential information;
and
(4)
the viatical or life settlement provider, provider representative,
or broker is not violating any law of this state or the United States by engaging
in business with persons to whom it is releasing the confidential information
of any viator, life settlor, and owner.
(d)
In any enforcement action taken by the department for a
violation of this section, in accordance with §3.1716 of this subchapter,
it shall be the viatical or life settlement provider's, provider representative's,
or broker's duty to establish sufficient evidentiary proof that the factual
determinations referenced in subsection (c) of this section were made by the
provider, provider representative, or broker.
(e)
Confidential information obtained by the commissioner pursuant
to the subpoena powers set forth in §3.1716 of this subchapter, is protected
by the confidentiality provisions of either Insurance Code Article 1.10D or §§36.151
- 36.159 depending on which provision is used to subpoena the information.
(f)
All confidential information solicited or obtained by a
viatical or life settlement provider, provider representative, or broker about
a viator, life settlor, or owner shall be further subject to applicable provisions
of the laws of this state and of the United States.
§3.1715.Prohibition Against Doing Business with an Unregistered or Unlicensed Viatical or Life Settlement Provider, Provider Representative, or Broker, Escrow Agent or Trustee.
No viatical or life settlement provider, provider representative, or
broker registered pursuant to this subchapter shall participate in a viatical
or life settlement, or pay or share commissions, with a person engaging in
the business of viatical or life settlements who is required to be registered
pursuant to this subchapter, but who has not obtained such registration.
§3.1716.Denial, Suspension, or Revocation of Certificate of Registration; Enforcement.
(a)
Pursuant to Insurance Code Article 3.50-6A, if the commissioner
determines, after notice and opportunity for hearing, that a viatical or life
settlement provider, provider representative, or broker, individually or through
any officer, partner, member or key management personnel, employee, director,
affiliate, subcontractor, shareholder of the registrant or applicant, escrow
agent, or trustee has violated or fails to meet any provision of Insurance
Code Article 3.50-6A, this subchapter, or any other insurance law of this
state or another law made applicable to viatical or life settlement providers,
provider representatives, or brokers, the department may take any of the actions
authorized by the insurance laws referenced in Insurance Code Article 3.50-6A, §3.
(b)
A viatical or life settlement provider, provider representative,
or broker whose certificate of registration has been denied, suspended, or
revoked under this section or pursuant to Insurance Code Article 3.50-6A shall
not file another application for certificate of registration before the first
anniversary of the effective date of the denial, suspension, or revocation
or, if judicial review of the denial, suspension, or revocation is sought,
the first anniversary of the date of the final court order or decree affirming
the action. An application filed after that period shall be denied by the
department unless the applicant shows good cause why the denial, suspension,
or revocation of the previous certificate of registration should not bar the
issuance of a new certificate of registration.
(c)
Pursuant to Insurance Code Article 3.50-6A, §3, the
department shall have all authority and powers in Insurance Code Article 1.10D
against a person who violates any penal law while engaging in the business
of viatical or life settlements or while attempting to defraud a viatical
or life settlement provider, provider representative, or broker.
(d)
Pursuant to Insurance Code Article 3.50-6A, §3, in
order to facilitate enforcement of Article 3.50-6A, other applicable laws
and this subchapter, the department may utilize the provisions of Insurance
Code Chapters 36 and 38 which apply to investigations of viatical or life
settlement providers, provider representatives, or brokers (whether registered
by the department, applying for a certificate of registration or unlawfully
doing business without a certificate of registration), or anyone else engaged
in, or conducting transactions relating to the business of viatical or life
settlements.
(e)
The department may seek information made confidential by §3.1714
of this subchapter (relating to Confidentiality) through use of subpoenas
issued pursuant to Insurance Code Article 3.50-6A, §3, Article 1.10D,
Chapter 36, or through use of a written request for information made pursuant
to Insurance Code §38.001. Confidential information obtained by the department
shall remain confidential pursuant to the terms of either Insurance Code Chapter
38 or Article 1.10D, §5.
(f)
Pursuant to Insurance Code Article 3.50-6A, §3, Insurance
Code §§36.101, 36.205, and Chapter 40 apply to enforcement actions
brought pursuant to this subchapter.
§3.1717.Examinations.
(a)
The department may examine the business and affairs of
any viatical or life settlement provider, provider representative, or broker
in this state. The department may request any viatical or life settlement
provider, provider representative, or broker to produce any records, books,
files, or other information reasonably necessary to ascertain whether or not
the viatical or life settlement provider, provider representative, or broker
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 viatical or life settlement provider, provider representative,
or broker.
(b)
For purposes of such examination, records of all transactions
of viatical and life settlements shall be maintained by the viatical or life
settlement provider, provider representative, or broker and shall be available
to the department for inspection during reasonable business hours. All viatical
or life settlement providers, provider representatives, and brokers doing
business in this state shall maintain records of each viatical or life settlement
in which it participates, until three years after the date the viatical or
life settlement has matured.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on February 2, 2001.
TRD-200100695
Lynda Nesenholtz
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: February 22, 2001
Proposal publication date: August 11, 2000
For further information, please call: (512) 463-6327
28 TAC §§3.1704, 3.1706, 3.1716-3.1718
The Commissioner of Insurance adopts the repeal of §§3.1704,
3.1706, and 3.1716-3.1718 concerning viatical and life settlements. The repeal
is adopted without changes to the proposed repeal as published in the August
11, 2000, issue of the
Texas Register
(25
TexReg 7485).
The repeal is necessary so that proposed new §§3.1704, 3.1706,
3.1716, and 3.1717 may be adopted to implement the 1999 legislative amendments
to Insurance Code Article 3.50-6A from the 76th Legislative Session, House
Bill 792. Contemporaneous with this adopted repeal, adopted amendments to §§3.1701-3.1703,
3.1705, and 3.1707-3.1715, and newly adopted §§3.1704, 3.1706, 3.1716,
and 3.1717 are published elsewhere in this issue of the
Texas Register
.
The purpose and objective of this repeal is to remove sections that are
being replaced with newly adopted §§3.1704, 3.1706, 3.1716, and
3.1717.
No comments were received.
The repeal of §§3.1704, 3.1706, and 3.1716-3.1718 is
adopted under the Insurance Code Article 3.50-6A and §36.001. Article
3.50-1A, which provides that the commissioner shall adopt reasonable rules
to implement this article as it relates to viatical and life settlements.
Insurance Code §36.001 provides that the commissioner may adopt rules
for the conduct and execution of the powers and duties of the department only
as authorized by statute.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on February 2, 2001.
TRD-200100696
Lynda Nesenholtz
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: February 22, 2001
Proposal publication date: August 11, 2000
For further information, please call: (512) 463-6327
28 TAC §§3.3306, 3.3308, 3.3312
The Commissioner of Insurance adopts amendments to §§3.3306,
3.3308, and 3.3312, concerning the minimum standards for Medicare supplement
policies. Sections 3.3306, 3.3308, and 3.3312 are adopted without changes
to the proposed text as published in the December 15, 2000, issue of the
The amendments bring Texas into compliance with federal requirements adopted
November 1999 in Public Law 106-113, concerning the Balanced Budget Refinement
Act (BBRA) and the Ticket To Work And Work Incentives Improvement Act (TWWIIA).
The compliance enables Texas to retain its regulatory authority over Medicare
supplement coverage. The amendments also make clarifying technical changes
to the sections and forms for consistency and readability.
The BBRA and TWWIIA amend section 1882 of the Social Security Act (Act),
which governs Medicare supplement insurance. The amendment to §3.3306
provides that each Medicare supplement policy shall provide that benefits
and premiums can be suspended while the individual is eligible for benefits
under section 226 (b) of the Act; then reinstitutes the Medicare supplement
coverage if the individual loses coverage under the group health plan and
provides the required notice of loss of coverage. Section 3.3306 also sets
forth a copayment structure for outpatient hospital services provided to Medicare
beneficiaries. The amendment to Figure §3.3308(c)(2)(D) changes the name
of the "Medicare Handbook," adds prospective payment system language to the
"outline of coverage" cover page for Plans A - J regarding Medicare Part B,
adds brackets to the deductibles under Plan F or High Deductible Plan F and
Plan J or High Deductible Plan J, and adds language to Plans H and I concerning,
"Basic Outpatient Prescription Drugs - Not Covered By Medicare." The amendment
to §3.3312 expands the guaranteed issue provision for "eligible persons"
and sets forth an alternate date for termination of enrollment that an individual
can use when enrolling in an alternative Medicare+Choice plan or Medicare
supplement plan.
No comments were received.
The amended sections are adopted under the Insurance Code Article
3.74 and §36.001. Article 3.74, §10 provides that the department
shall adopt rules in accordance with federal law applicable to the regulation
of Medicare supplement insurance coverage that are necessary for the state
to obtain or retain certification as a state with an approved regulatory program
under 42 U.S.C. section 1395ss. Section 36.001 provides that the commissioner
may adopt rules for the conduct and execution of the powers and duties of
the department only as authorized by statute.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on January 30, 2001.
TRD-200100548
Lynda Nesenholtz
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: February 19, 2001
Proposal publication date: December 15, 2000
For further information, please call: (512) 463-6327
Subchapter T. INTERIM STUDY OF AGENTS AND AGENTS' LICENSES STATUTES
28 TAC §19.1901
The Commissioner of Insurance adopts the repeal of Subchapter
T, §19.1901, concerning an advisory committee for the interim study of
agents and agents' licenses statutes. The repeal is adopted without changes
to the proposal as published in the September 15, 2000, issue of the
Repeal of this subchapter is necessary because the advisory committee completed
its assigned tasks prior to the deadlines established in Insurance Code Article
21.15-7 and associated regulations. In addition, repeal of this subchapter
is necessary because the advisory committee was terminated effective December
31, 1998, as set out in §19.1901 (f). As a result, this subchapter is
no longer necessary.
The purpose of this repeal is to remove an outdated rule concerning the
conduct of an agent licensing advisory committee because the committee completed
its assigned task and was terminated by operation of law.
No comments were received.
Repeal of Subchapter T is adopted pursuant to Texas Civil Statutes
Article 6252-33, Insurance Code Article 21.15-7 and §36.001. Texas Civil
Statutes Article 6252-33 §5 requires a state agency that is advised by
an advisory committee to adopt rules which state the purpose of the committee,
and describe the committee's task and the manner in which the committee will
report to the agency. Section 8 of Article 6252-33 requires a state agency
that is advised by an advisory committee to establish by rule a date on which
the committee will automatically be abolished. Insurance Code Article 21.15-7
directs the commissioner to appoint an advisory committee to assist in the
evaluation and review of agents and agents' licenses statutes. Section 36.001
provides that the Commissioner of Insurance may adopt rules to execute the
duties and functions of the Texas Department of Insurance only as authorized
by statute.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on January 31, 2001.
TRD-200100647
Lynda Nesenholtz
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: February 20, 2001
Proposal publication date: September 15, 2000
For further information, please call: (512) 463-6327
28 TAC §§19.1901 - 19.1910
The Commissioner of Insurance adopts new Subchapter T, §§19.1901
- 19.1910 concerning specialty insurance licenses. Sections 19.1904 and 19.1909
are adopted with changes to the proposed text as published in the September
15, 2000, issue of the
Texas Register
(25
TexReg 9177). Sections 19.1901 - 19.1903, 19.1905 - 19.1908 and 19.1910 are
adopted without changes and will not be republished.
The 76th Texas Legislature enacted Senate Bill 957 which added new Article
21.09 to the Texas Insurance Code establishing a specialty insurance agent
license. The department adopts the new subchapter to implement new Article
21.09, define terms used in Article 21.09, and clarify the processes involved
in making application for a specialty license from the department.
Section 19.1901 specifies that the purpose of these rules is to implement
the licensing of specialty agents as provided for by Article 21.09. Section
19.1902 defines terms used in the subchapter. Section 19.1903 sets forth the
licensing requirements for individual and entity applicants. Section 19.1904
provides information necessary to properly complete a specialty license application
including application for more than one specialty license authority, the registration
of an assumed name with the department, and availability of application and
registration forms. Section 19.1905 requires applicants to register each location
where insurance sales will be conducted under the specialty license and prohibits
the solicitation of insurance from non-registered locations. Section 19.1906
establishes a two year expiration period for specialty licenses and provides
for license renewal. Section 19.1907 provides for the licensure of persons
not resident in Texas. Section 19.1908 requires licensees to notify the department
of certain enumerated occurrences including change of address, the addition
or removal of office locations, and administrative actions by other insurance
regulators. Section 19.1909 contains requirements for the mandatory employee
training program as set out in Article 21.09. Section 19.1910 sets forth the
disciplinary procedures for specialty licensees including denial of issuance,
refusal to renew, suspension, and revocation. Simultaneous to the adoption
of new Subchapter T, the adopted repeal of current Subchapter T is published
elsewhere in this issue of the Texas Register.
Comment: A commenter suggested adding a new section to the rule to require
specialty insurance licensees to include in their disclosures to consumers
and in their employee training programs specific information regarding price,
benefits, exclusions, conditions or other limitations of the insurance policies
they solicit.
Agency Response: The Department disagrees. Insurance Code Article 21.09 §1(g)
currently requires disclosure of the material terms of insurance coverage
offered to consumers. The Department believes the current disclosure requirements
in Article 21.09 provide sufficient consumer protections. The Department will
monitor market practices and may consider requiring additional disclosures
as necessary to maintain effective consumer protection.
Comment: A commenter suggested that a definition for credit property insurance
should be included, either by referencing Article 21.09, §3(a)(3), or
by restating the definition in the regulation.
Agency Response: The Department disagrees. A definition of credit property
insurance is included in Insurance Code Article 21.09 §3(a)(3). The general
purpose of a regulation is to provide additional guidance on application of
the statute. Duplication of a definition from the statute is not illuminative
of statutory function or application.
Comment: A commenter suggested it should be adequate for the applying organization
to provide its tax certificate number on the application form in lieu of the
requirement to submit a franchise tax certificate.
Agency Response: The Department disagrees. The franchise tax certificate
is required to demonstrate good standing with the state comptroller's office.
Inclusion of the certificate with the license application shortens the time
required to process the license application at TDI.
Comment: A commenter suggested that the requirement to provide personal
information about the applicant's owners and the requirement to notify the
Department of the addition or removal of an officer, director, member, partner
or other person who can control the licensee is overly burdensome and recommended
instead that each applicant identify and provide contact information for one
or two individuals that will be responsible for insurance sales under the
license.
Agency Response: The Department disagrees. The requirement to provide this
information applies to all persons who have the ability to "control" the operations
of the licensee. Control is defined in the rule. This requirement is intended
to ensure compliance with federal law (18 U.S.C. §1033) which prohibits
conduct of the business of insurance by a person with a felony conviction.
The information required concerning the applicant's owners and officers is
necessary to perform a criminal history background check on these persons.
Comment: A commenter believed the requirement that the applicant be actively
engaged in a finance or retail business at each location where insurance sales
will be conducted conflicts with insurance industry marketing practices and
should be removed.
Agency Response: The Department disagrees. The specialty license is a point
of sale license authorizing the solicitation of insurance which is incidental
to an associated consumer transaction. This is clearly set out in the statute
by language which restricts the entities which may be issued a specialty license.
The solicitation of insurance after the point of sale or by a third party
marketer would require a different license type which is available from the
Department under other provisions of the Insurance Code.
Comment: A commenter stated that it is not clear what the reference to
"more than one license authority" means. The commenter suggested adding a
definition for "license authority" or some other language to avoid confusion.
Agency Response: The Department agrees and has changed the language in §19.1904
to clarify that the phrase is restricted to specialty license authorities.
Comment: A commenter questioned whether clear statutory authority exists
for the requirement to notify the Department of administrative actions taken
against the licenseholder by the insurance regulator of another state and
felt that Article 21.09 does not reflect any specific intent to place this
requirement on specialty license holders alone.
Agency Response: The statutory authority for this disclosure is Insurance
Code Section 81.003. The requirement to notify the Department of administrative
actions taken against the licenseholder by the insurance regulator of another
state is not restricted solely to specialty licensees. This provision was
added to this rule to ensure proper notice to licensees of the requirements
imposed by other sections of the Insurance Code.
Comment: A commenter believed the ability of the Department to institute
disciplinary action against an insurance company or specialty license holder
based upon use of an improper training program would constitute double jeopardy
for insurers or their agents using an insurer-provided training program already
approved by TDI, and strongly recommended that this provision not apply to
insurers and license holders using TDI approved training programs that are
kept up to date.
Agency Response: The Department disagrees. Section 19.1909(b) of the rule
requires the insurance company to submit only an outline of the training program
for approval by the Department. The requirement to submit all training materials
to the Department upon request is a necessary enforcement mechanism and an
important consumer protection. The ability to review the entire training program,
when necessary, will allow the department to hold the insurance company responsible
for the material contained in its training program and to hold the specialty
licensee responsible for the proper administration of the training program
to its employees. The Department has changed the language in this section
to clarify these responsibilities.
For with changes: Office of Public Insurance Counsel; Assurant Group. Against:
None.
The subchapter is adopted under Insurance Code Article 21.09
and §36.001. Article 21.09 §6 provides the Commissioner may adopt
rules necessary to implement the specialty license. Section 36.001 provides
that the Commissioner of Insurance may adopt rules to execute the duties and
functions of the Texas Department of Insurance only as authorized by statute.
§19.1904.Application.
(a)
Application for more than one specialty license authority.
A first time applicant may seek licensure for more than one specialty license
authority on the same specialty license application. A $50 fee per specialty
license authority must accompany the application.
(b)
Assumed name or trade name. An applicant desiring to use
an assumed name in the conduct of an insurance business under a specialty
insurance license shall be subject to the requirements of §19.902 of
this title (relating to One Agent, One License) except that a separate filing
with the department shall not be required for an applicant who conducts business
under a single assumed name and registers that name with the department on
the applicant's original specialty license application. No applicant for or
holder of a specialty license shall be required to file multiple registrations
with the department for a previously registered assumed name as a result of
seeking more than one specialty license authority.
(c)
Forms. Application and Registration forms are available
by:
(1)
contacting the department's licensing division customer
service center; or
(2)
through the department's website at www.tdi.state.tx.us.
§19.1909.Employee Training.
(a)
Each employee of a specialty license holder who performs
any act of an insurance agent within the scope of the individual's employment
shall complete a training program which satisfies the requirements of Article
21.09 §1(d).
(b)
An insurance company authorized to write the specialty
insurance product shall submit an outline of the training program to the department
for approval prior to use by a specialty license holder.
(c)
The training outline shall be sufficiently detailed to
demonstrate that the specialty license applicant's employees will receive
training in the disclosures required under the applicable statutes and regulations
as well as training in each specific type of specialty insurance product which
the applicant seeks authorization to solicit.
(d)
An applicant for or holder of a specialty insurance license
shall submit all employee training materials to the department upon request.
If the department finds that a training program is deficient, misrepresents
any aspect of the insurance transaction or contains inaccuracies misleading
to the public, the department may institute a disciplinary action against
the insurance company that prepared the training materials. If the department
finds that a training program is modified by or is not properly administered
by the specialty license holder, the department may take any disciplinary
action authorized under §19.1910 of this title (relating to Denial or
Refusal of Specialty License Application; Suspension or Revocation of Specialty
Licenses; Discipline of Specialty License Holders) against the specialty license
holder.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on January 31, 2001.
TRD-200100648
Lynda Nesenholtz
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: February 20, 2001
Proposal publication date: September 15, 2000
For further information, please call: (512) 463-6327
Subchapter M. MANDATORY BENEFIT NOTICE REQUIREMENTS
Subchapter R. MINIMUM REGISTRATION, DISCLOSURE, AND NONDISCRIMINATION REQUIREMENTS FOR VIATICAL DOCUMENTS
Subchapter T. MINIMUM STANDARDS FOR MEDICARE SUPPLEMENT POLICIES
Chapter 19.
AGENTS' LICENSING
Subchapter T. SPECIALTY INSURANCE LICENSE
Chapter 21.
TRADE PRACTICES