Session of 2008 SENATE Substitute for HOUSE BILL No. 2110 By Committee on Financial Institutions and Insurance 3-25 10 AN ACT concerning viatical settlements; pertaining to stranger-origi- 11 nated life insurance; amending K.S.A. 2007 Supp. 40-5001, 40-5002, 12 40-5006, 40-5008 and 40-5010 and repealing the existing sections; also 13 repealing K.S.A. 2007 Supp. 40-5007, 40-5009 and 40-5012. 14 15 Be it enacted by the Legislature of the State of Kansas: 16 New Section 1. (a) (1) The commissioner may conduct an examina- 17 tion under this act of a licensee as often as the commissioner in such 18 commissioner’s sole discretion deems appropriate. 19 (2) For purposes of completing an examination of a licensee under 20 this act, the commissioner may examine or investigate any person, or the 21 business of any person, in so far as the examination or investigation, in 22 the sole discretion of the commissioner, is necessary or material to the 23 examination of the licensee. 24 (3) In lieu of an examination under this act of any foreign or alien 25 licensee licensed in this state, the commissioner, at the commissioner’s 26 discretion, may accept an examination report on the licensee as prepared 27 by the commissioner for the licensee’s state of domicile or port-of-entry 28 state. 29 (b) (1) Any person required to be licensed by this act shall for five 30 years retain copies of all: 31 (A) Proposed, offered or executed contracts, underwriting docu- 32 ments, policy forms, and applications from the date of the proposal, offer 33 or execution of the contract, whichever is later; 34 (B) all checks, drafts or other evidence and documentation related to 35 the payment, transfer, deposit or release of funds from the date of the 36 transaction; and 37 (C) all other records and documents related to the requirements of 38 this act. 39 (2) This section shall not relieve any person licensed under this act 40 of the obligation to produce these documents and provide copies thereof 41 to the commissioner after the retention period has expired if the person 42 has retained such documents. 43 (3) Records required to be retained by this section must be legible S Sub HB 2110 2 1 and complete and may be retained in paper, photograph, microprocess, 2 magnetic, mechanical, electronic media or by any process that accurately 3 reproduces or forms a durable medium for the reproduction of a record. 4 (c) (1) Upon determining that an examination should be conducted, 5 the commissioner shall issue an examination warrant appointing one or 6 more examiners to perform the examination and instructing them as to 7 the scope of the examination. The commissioner may also employ such 8 other guidelines or procedures as the commissioner may deem 9 appropriate. 10 (2) Every licensee or person from whom information is sought, its 11 officers, directors and agents shall provide to the examiners timely, con- 12 venient and free access at all reasonable hours at its offices to all books, 13 records, accounts, papers, documents, assets and computer or other re- 14 cordings relating to the property, assets, business and affairs of the li- 15 censee being examined. The officers, directors, employees and agents of 16 the licensee or person shall facilitate the examination and aid in the ex- 17 amination so far as it is in their power to do so. The refusal of a licensee, 18 by its officers, directors, employees or agents, to submit to examination 19 or to comply with any reasonable written request of the commissioner 20 shall be grounds for suspension or refusal of, or nonrenewal of any license 21 or authority held by the licensee to engage in the viatical settlement busi- 22 ness or other business subject to the commissioner’s jurisdiction. Any 23 proceedings for suspension, revocation or refusal of any license or au- 24 thority shall be conducted pursuant to the Kansas administrative proce- 25 dure act. 26 (3) The commissioner shall have the power to issue subpoenas, to 27 administer oaths and to examine under oath any person as to any matter 28 pertinent to the examination. Upon the failure or refusal of a person to 29 obey a subpoena, the commissioner may petition a court of competent 30 jurisdiction, and upon proper showing, the court may enter an order com- 31 pelling the witness to appear and testify or produce documentary evi- 32 dence. Failure to obey the court order shall be punishable as contempt 33 of court. 34 (4) When making an examination under this act, the commissioner 35 may retain attorneys, appraisers, independent actuaries, independent cer- 36 tified public accountants or other professionals and specialists as exam- 37 iners, the reasonable cost of which shall be borne by the licensee that is 38 the subject of the examination. 39 (5) Nothing contained in this act shall be construed to limit the com- 40 missioner’s authority to terminate or suspend an examination in order to 41 pursue other legal or regulatory action pursuant to the insurance laws of 42 this state. Findings of fact and conclusions made pursuant to any exami- 43 nation shall be prima facie evidence in any legal or regulatory action. S Sub HB 2110 3 1 (6) Nothing contained in this act shall be construed to limit the com- 2 missioner’s authority to use and, if appropriate, to make public any final 3 or preliminary examination report, any examiner or licensee work papers 4 or other documents, or any other information discovered or developed 5 during the course of any examination in the furtherance of any legal or 6 regulatory action which the commissioner, in such commissioner’s sole 7 discretion, may deem appropriate. 8 (d) (1) Examination reports shall be comprised of only facts appear- 9 ing upon the books, records or other documents of the licensee, its agents 10 or other persons examined, or as ascertained from the testimony of its 11 officers or agents or other persons examined concerning its affairs, and 12 such conclusions and recommendations as the examiners find reasonably 13 warranted from the facts. 14 (2) Not later than 60 days following completion of the examination, 15 the examiner in charge shall file with the commissioner a verified written 16 report of examination under oath. Upon receipt of the verified report, 17 the commissioner shall transmit the report to the licensee examined, to- 18 gether with a notice that shall afford the licensee examined a reasonable 19 opportunity of not more than 30 days to make a written submission or 20 rebuttal with respect to any matters contained in the examination report. 21 (3) In the event the commissioner determines that regulatory action 22 is appropriate as a result of an examination, the commissioner may initiate 23 any proceedings or actions provided by law. 24 (e) (1) Names and individual identification data for all viators shall 25 be considered private and confidential information and shall not be dis- 26 closed by the commissioner, unless required by law. 27 (2) Except as otherwise provided in this act, all examination reports, 28 working papers, recorded information, documents and copies thereof 29 produced by, obtained by or disclosed to the commissioner or any other 30 person in the course of an examination made under this act, or in the 31 course of analysis or investigation by the commissioner of the financial 32 condition or market conduct of a licensee shall be confidential by law and 33 privileged, shall not be subject to the provisions of the Kansas open re- 34 cords act, K.S.A. 45-215 et seq., and amendments thereto, shall not be 35 subject to subpoena, and shall not be subject to discovery or admissible 36 in evidence in any private civil action. The commissioner is authorized to 37 use the documents, materials or other information in the furtherance of 38 any regulatory or legal action brought as part of the commissioner’s of- 39 ficial duties. 40 (3) Documents, materials or other information, including, but not 41 limited to, all working papers, and copies thereof, in the possession or 42 control of the NAIC and its affiliates and subsidiaries shall be confidential 43 by law and privileged, shall not be subject to subpoena, and shall not be S Sub HB 2110 4 1 subject to discovery or admissible in evidence in any private civil action 2 if they are: 3 (A) Created, produced or obtained by or disclosed to the NAIC and 4 its affiliates and subsidiaries in the course of assisting an examination 5 made under this act, or assisting a commissioner in the analysis or inves- 6 tigation of the financial condition or market conduct of a licensee; or 7 (B) disclosed to the NAIC and its affiliates and subsidiaries under 8 paragraph (4) of subsection (e) by the commissioner. 9 For the purposes of paragraph (2) of subsection (e), the term ‘‘act’’ 10 includes the law of another state or jurisdiction that is substantially similar 11 to this act. 12 (4) Neither the commissioner nor any person that received the doc- 13 uments, material or other information while acting under the authority 14 of the commissioner, including the NAIC and its affiliates and subsidia- 15 ries, shall be permitted to testify in any private civil action concerning any 16 confidential documents, materials or information subject to paragraph (1) 17 of subsection (e). 18 (5) In order to assist in the performance of the commissioner’s duties, 19 the commissioner may: 20 (A) Share documents, materials or other information, including the 21 confidential and privileged documents, materials or information subject 22 to paragraph (1) of subsection (e), with other state, federal and interna- 23 tional regulatory agencies, with the NAIC and its affiliates and subsidia- 24 ries, and with state, federal and international law enforcement authorities, 25 provided that the recipient agrees to maintain the confidentiality and 26 privileged status of the document, material, communication or other 27 information; 28 (B) receive documents, materials, communications or information, 29 including otherwise confidential and privileged documents, materials or 30 information, from the NAIC and its affiliates and subsidiaries, and from 31 regulatory and law enforcement officials of other foreign or domestic 32 jurisdictions, and shall maintain as confidential or privileged any docu- 33 ment, material or information received with notice or the understanding 34 that it is confidential or privileged under the laws of the jurisdiction that 35 is the source of the document, material or information; and 36 (C) enter into agreements governing sharing and use of information 37 consistent with this subsection. 38 (6) No waiver of any applicable privilege or claim of confidentiality 39 in the documents, materials or information shall occur as a result of dis- 40 closure to the commissioner under this section or as a result of sharing 41 as authorized in paragraph (4) of subsection (e). 42 (7) A privilege established under the law of any state or jurisdiction 43 that is substantially similar to the privilege established under this subsec- S Sub HB 2110 5 1 tion shall be available and enforced in any proceeding in, and in any court 2 of, this state. 3 (8) Nothing contained in this act shall prevent or be construed as 4 prohibiting the commissioner from disclosing the content of an exami- 5 nation report, preliminary examination report or results, or any matter 6 relating thereto, to the commissioner of any other state or country, or to 7 law enforcement officials of this or any other state or agency of the federal 8 government at any time or to the NAIC, so long as such agency or office 9 receiving the report or matters relating thereto agrees in writing to hold 10 it confidential and in a manner consistent with this act. 11 (9) The provisions of this subsection shall expire July 1, 2013, unless 12 the legislature acts to reenact such provisions. The provisions of this sec- 13 tion shall be reviewed by the legislature prior to July 1, 2013. 14 (f) (1) An examiner may not be appointed by the commissioner if the 15 examiner, either directly or indirectly, has a conflict of interest or is af- 16 filiated with the management of or owns a pecuniary interest in any per- 17 son subject to examination under this act. This section shall not be con- 18 strued to automatically preclude an examiner from being: 19 (A) A viator; 20 (B) an insured in a viaticated insurance policy; or 21 (C) a beneficiary in an insurance policy that is proposed to be 22 viaticated. 23 (2) Notwithstanding the requirements of this clause, the commis- 24 sioner may retain from time to time, on an individual basis, qualified 25 actuaries, certified public accountants or other similar individuals who are 26 independently practicing their professions, even though these persons 27 may from time to time be similarly employed or retained by persons 28 subject to examination under this act. 29 (g) Unless provided otherwise, all fees and procedures for examina- 30 tions under this act shall be in accordance with K.S.A. 40-223, and amend- 31 ments thereto. 32 (h) (1) No cause of action shall arise nor shall any liability be imposed 33 against the commissioner, the commissioner’s authorized representatives 34 or any examiner appointed by the commissioner for any statements made 35 or conduct performed in good faith while carrying out the provisions of 36 this act. 37 (2) No cause of action shall arise, nor shall any liability be imposed 38 against any person for the act of communicating or delivering information 39 or data to the commissioner or the commissioner’s authorized represen- 40 tative or examiner pursuant to an examination made under this act, if the 41 act of communication or delivery was performed in good faith and without 42 fraudulent intent or the intent to deceive. This paragraph does not ab- 43 rogate or modify in any way any common law or statutory privilege or S Sub HB 2110 6 1 immunity heretofore enjoyed by any person identified in paragraph (1). 2 (3) A person identified in paragraph (1) or (2) shall be entitled to an 3 award of attorney fees and costs if such person is the prevailing party in 4 a civil cause of action for libel, slander or any other relevant tort arising 5 out of activities in carrying out the provisions of this act and the party 6 bringing the action was not substantially justified in doing so. For pur- 7 poses of this section a proceeding is ‘‘substantially justified’’ if it had a 8 reasonable basis in law or fact at the time that it was initiated. 9 (i) The commissioner may investigate suspected fraudulent viatical 10 settlement acts and persons engaged in the business of viatical 11 settlements. 12 New Sec. 2. (a) (1) A viatical settlement provider entering into a 13 viatical settlement contract shall first obtain: 14 (A) If the viator is the insured, a written statement from a licensed 15 attending physician that the viator is of sound mind and under no con- 16 straint or undue influence to enter into a viatical settlement contract; and 17 (B) a document in which the insured consents to the release of such 18 insured’s medical records to a viatical settlement provider, viatical settle- 19 ment broker and the insurance company that issued the life insurance 20 policy covering the life of the insured. 21 (2) Within 20 days after a viator executes documents necessary to 22 transfer any rights under an insurance policy or within 20 days of entering 23 any agreement, option, promise or any other form of understanding, ex- 24 pressed or implied, to viaticate the policy, the viatical settlement provider 25 shall give written notice to the insurer that issued that insurance policy 26 that the policy has or will become a viaticated policy. The notice shall be 27 accompanied by the documents required by paragraph (3). 28 (3) The viatical settlement provider shall deliver a copy of the medical 29 release required under clause (B) of paragraph (1), a copy of the viator’s 30 application for the viatical settlement contract, the notice required under 31 paragraph (2) and a request for verification of coverage to the insurer 32 that issued the life policy that is the subject of the viatical transaction. 33 The form for verification shall be developed by the commissioner. 34 (4) The insurer shall respond to a request for verification of coverage 35 submitted on an approved form by a viatical settlement provider within 36 30 calendar days of the date the request is received and shall indicate 37 whether, based on the medical evidence and documents provided, the 38 insurer intends to pursue an investigation at this time regarding the va- 39 lidity of the insurance contract. 40 (5) Prior to or at the time of execution of the viatical settlement con- 41 tract, the viatical settlement provider shall obtain a witnessed document 42 in which the viator consents to the viatical settlement contract, represents 43 that the viator has a full and complete understanding of the viatical set- S Sub HB 2110 7 1 tlement contract, that such viator has a full and complete understanding 2 of the benefits of the life insurance policy, acknowledges that such viator 3 is entering into the viatical settlement contract freely and voluntarily and, 4 for persons with a terminal or chronic illness or condition, acknowledges 5 that the insured has a terminal or chronic illness and that the terminal or 6 chronic illness or condition was diagnosed after the life insurance policy 7 was issued. 8 (6) If a viatical settlement broker performs any of these activities 9 required of the viatical settlement provider, the viatical settlement pro- 10 vider is deemed to have fulfilled the requirements of this section. 11 (b) (1) All medical information solicited or obtained by any licensee 12 shall be subject to the applicable provisions of state law relating to con- 13 fidentiality of medical information. 14 (2) The provisions of this subsection shall expire July 1, 2013, unless 15 the legislature acts to reenact such provisions. The provisions of this sec- 16 tion shall be reviewed by the legislature prior to July 1, 2013. 17 (c) All viatical settlement contracts entered into in this state shall 18 provide the viator with an unconditional right to rescind the contract for 19 at least 15 calendar days from the receipt of the viatical settlement pro- 20 ceeds. If the insured dies during the rescission period, the viatical settle- 21 ment contract shall be deemed to have been rescinded, subject to repay- 22 ment to the viatical settlement provider or purchaser of all viatical 23 settlement proceeds, and any premiums, loans and loan interest that have 24 been paid by the viatical settlement provider or purchaser. 25 (d) The viatical settlement provider shall instruct the viator to send 26 the executed documents required to effect the change in ownership, as- 27 signment or change in beneficiary directly to the independent escrow 28 agent. Within three business days after the date the escrow agent receives 29 the document, or from the date the viatical settlement provider receives 30 the documents, if the viator erroneously provides the documents directly 31 to the provider, the provider shall pay or transfer the proceeds of the 32 viatical settlement into an escrow or trust account maintained in a state 33 or federally-chartered financial institution whose deposits are insured by 34 the federal deposit insurance corporation. Upon payment of the settle- 35 ment proceeds into the escrow account, the escrow agent shall deliver 36 the original change in ownership, assignment or change in beneficiary 37 forms to the viatical settlement provider or related provider trust. Upon 38 the escrow agent’s receipt of the acknowledgment of the properly com- 39 pleted transfer of ownership, assignment or designation of beneficiary 40 from the insurance company, the escrow agent shall pay the settlement 41 proceeds to the viator. 42 (e) Failure to tender consideration to the viator for the viatical set- 43 tlement contract within the time disclosed pursuant to clause (6) of sub- S Sub HB 2110 8 1 section (a) of K.S.A. 2007 Supp. 40-5008, and amendments thereto, ren- 2 ders the viatical settlement contract voidable by the viator for lack of 3 consideration until the time consideration is tendered to and accepted by 4 the viator. 5 (f) Contacts with the insured for the purpose of determining the 6 health status of the insured by the viatical settlement provider or viatical 7 settlement broker after the viatical settlement has occurred shall only be 8 made by the viatical settlement provider or viatical settlement broker 9 licensed in this state or its authorized representatives and shall be limited 10 to once every three months for insureds with a life expectancy of more 11 than one year, and to no more than once per month for insureds with a 12 life expectancy of one year or less. The viatical settlement provider or 13 viatical settlement broker shall explain the procedure for these contacts 14 at the time the viatical settlement contract is entered into. The limitations 15 set forth in this subsection shall not apply to any contacts with an insured 16 for reasons other than determining the insured’s health status. Viatical 17 settlement providers and viatical settlement brokers shall be responsible 18 for the actions of their authorized representatives. 19 New Sec. 3. (a) No person shall: 20 (1) Commit a fraudulent viatical settlement act. 21 (2) Knowingly or intentionally interfere with the enforcement of any 22 provision of this act or any investigation of suspected or actual violations 23 of this act. 24 (3) Knowingly or intentionally permit any person, employed by a per- 25 son in the business of viatical settlements, convicted of a felony involving 26 dishonesty or breach of trust to participate in the business of viatical 27 settlements. No person in the business of viatical settlements shall know- 28 ingly or intentionally permit any person convicted of a felony involving 29 dishonesty or breach of trust to participate in the business of viatical 30 settlements. 31 (4) Issue, solicit, market or otherwise promote the purchase of an 32 insurance policy for the sole purpose of or with the primary emphasis on 33 settling the policy. 34 (5) Employ any device, scheme or artifice in violation of K.S.A. 40- 35 450, and amendments thereto, in the solicitation, application or issuance 36 of a life insurance policy. 37 (6) Receive, when providing premium financing, any proceeds, fees 38 or other consideration from the policy or owner of the policy that are in 39 addition to the amounts required to pay the principal, interest and costs 40 or expenses incurred by the lender or borrower related to policy premi- 41 ums paid under the premium financing agreement, except for the event 42 of a default unless either the default on such loan or the transfer of the 43 policy in connection with such default occurs pursuant to an agreement S Sub HB 2110 9 1 or understanding with any other person for the purpose of evading reg- 2 ulation under this act. 3 (b) (1) Viatical settlements, contracts and applications for viatical set- 4 tlements, regardless of the form of transmission, shall contain the follow- 5 ing statement or a substantially similar statement: 6 ‘‘Any person who knowingly presents false information in an application 7 for insurance or viatical settlement contract is guilty of a crime and may 8 be subject to fines and confinement in prison.’’ 9 (2) The lack of a statement as required in paragraph (1) shall not 10 constitute a defense in any prosecution for a fraudulent viatical settlement 11 act. 12 (c) (1) Any person engaged in the business of viatical settlements 13 having knowledge or a reasonable belief that a fraudulent viatical settle- 14 ment act is being, will be or has been committed shall provide to the 15 commissioner the information required by, and in a manner prescribed 16 by, the commissioner. 17 (2) Any other person having knowledge or a reasonable belief that a 18 fraudulent viatical settlement act is being, will be or has been committed 19 may provide to the commissioner the information required by, and in a 20 manner prescribed by, the commissioner. 21 (d) (1) No civil liability shall be imposed on and no cause of action 22 shall arise from a person’s furnishing information concerning suspected, 23 anticipated or completed fraudulent viatical settlement acts or suspected 24 or completed fraudulent insurance acts, if the information is provided to 25 or received from: 26 (A) The commissioner or the commissioner’s employees, agents or 27 representatives; 28 (B) federal, state or local law enforcement or regulatory officials or 29 their employees, agents or representatives; 30 (C) any person involved in the prevention and detection of fraudulent 31 viatical settlement acts or that person’s agents, employees or 32 representatives; 33 (D) the NAIC, national association of securities dealers, the North 34 American securities administrators association, or their employees, agents 35 or representatives, or other regulatory body overseeing life insurance, 36 viatical settlements, securities or investment fraud; or 37 (E) the life insurer that issued the life insurance policy covering the 38 life of the insured. 39 (2) Paragraph (1) shall not apply to statements made with actual mal- 40 ice. In an action brought against a person for filing a report or furnishing 41 other information concerning a fraudulent viatical settlement act or a 42 fraudulent insurance act, the party bringing the action shall plead specif- 43 ically any allegation that paragraph (1) does not apply because the person S Sub HB 2110 10 1 filing the report or furnishing the information did so with actual malice. 2 (3) A person identified in paragraph (1) shall be entitled to an award 3 of attorney fees and costs if such person is the prevailing party in a civil 4 cause of action for libel, slander or any other relevant tort arising out of 5 activities in carrying out the provisions of this act and the party bringing 6 the action was not substantially justified in doing so. For purposes of this 7 section a proceeding is substantially justified if it had a reasonable basis 8 in law or fact at the time that it was initiated. 9 (4) This section does not abrogate or modify common law or statutory 10 privileges or immunities enjoyed by a person described in paragraph (1). 11 (e) (1) The documents and evidence provided pursuant to subsection 12 (d) of this section or obtained by the commissioner in an investigation of 13 suspected or actual fraudulent viatical settlement acts shall be privileged 14 and confidential and shall not be a public record and shall not be subject 15 to discovery or subpoena in a civil or criminal action. 16 (2) Paragraph (1) of this subsection shall not prohibit release by the 17 commissioner of documents and evidence obtained in an investigation of 18 suspected or actual fraudulent viatical settlement acts: 19 (A) In administrative or judicial proceedings to enforce laws admin- 20 istered by the commissioner; 21 (B) to federal, state or local law enforcement or regulatory agencies, 22 to an organization established for the purpose of detecting and preventing 23 fraudulent viatical settlement acts or to the NAIC; 24 (C) at the discretion of the commissioner or pursuant to a court order, 25 to a person in the business of viatical settlements that is aggrieved by a 26 fraudulent viatical settlement act; or 27 (D) at the discretion of the commissioner or pursuant to a court or- 28 der, to a person that is aggrieved by a fraudulent viatical settlement act. 29 (3) Release of documents and evidence under subparagraphs (A) and 30 (B) of paragraph (2) of this subsection does not abrogate or modify the 31 privilege granted in paragraph (1). 32 (4) The provisions of this subsection shall expire July 1, 2013, unless 33 the legislature acts to reenact such provisions. The provisions of this sec- 34 tion shall be reviewed by the legislature prior to July 1, 2013. 35 (f) This act shall not: 36 (1) Preempt the authority or relieve the duty of other law enforce- 37 ment or regulatory agencies to investigate, examine and prosecute sus- 38 pected violations of law; 39 (2) prevent or prohibit a person from disclosing voluntarily infor- 40 mation concerning viatical settlement fraud to a law enforcement or reg- 41 ulatory agency other than the insurance department; or 42 (3) limit the powers granted elsewhere by the laws of this state to the 43 commissioner or an insurance fraud unit to investigate and examine pos- S Sub HB 2110 11 1 sible violations of law and to take appropriate action against wrongdoers. 2 (g) Viatical settlement providers and viatical settlement brokers shall 3 have in place antifraud initiatives reasonably calculated to detect, prose- 4 cute and prevent fraudulent viatical settlement acts. At the discretion of 5 the commissioner, the commissioner may order, or a licensee may request 6 and the commissioner may grant, such modifications of the following 7 required initiatives as necessary to ensure an effective antifraud program. 8 The modifications may be more or less restrictive than the required ini- 9 tiatives so long as the modifications reasonably may be expected to ac- 10 complish the purpose of this section. Antifraud initiatives shall include: 11 (1) Fraud investigators, who may be viatical settlement providers or 12 viatical settlement broker employees or independent contractors; and 13 (2) an antifraud plan, which shall be submitted to the commissioner. 14 The antifraud plan shall include, but not be limited to: 15 (A) A description of the procedures for detecting and investigating 16 possible fraudulent viatical settlement acts and procedures for resolving 17 material inconsistencies between medical records and insurance 18 applications; 19 (B) a description of the procedures for reporting possible fraudulent 20 viatical settlement acts to the commissioner; 21 (C) a description of the plan for antifraud education and training of 22 underwriters and other personnel; and 23 (D) a description or chart outlining the organizational arrangement 24 of the antifraud personnel who are responsible for the investigation and 25 reporting of possible fraudulent viatical settlement acts and investigating 26 unresolved material inconsistencies between medical records and insur- 27 ance applications; and 28 (3) antifraud plans submitted to the commissioner shall be privileged 29 and confidential and shall not be a public record and shall not be subject 30 to discovery or subpoena in a civil or criminal action. 31 Sec. 4. K.S.A. 2007 Supp. 40-5001 is hereby amended to read as 32 follows: 40-5001. K.S.A. 2007 Supp. 40-5001 through 40-5016 inclusive, 33 and sections 1, 2 and 3, and amendments thereto, may be cited as the 34 viatical settlements act of 2002. 35 Sec. 5. K.S.A. 2007 Supp. 40-5002 is hereby amended to read as 36 follows: 40-5002. As used in this act, the following words and phrases 37 shall have the meanings ascribed to them in this section: 38 (a) ‘‘Advertising’’ means any written, electronic or printed commu- 39 nication or any communication by means of recorded telephone messages 40 or transmitted on radio, television, the internet or similar communications 41 media, including film strips, motion pictures and videos, published, dis- 42 seminated, circulated or placed before the public, directly or indirectly, 43 for the purpose of creating an interest in or inducing a person to sell a S Sub HB 2110 12 1 life insurance policy pursuant to a viatical settlement contract. 2 (b) ‘‘Business of viatical settlements’’ means an activity involved in, 3 but not limited to, offering, soliciting, negotiating, procuring, effectua- 4 tion, purchasing, investing, financing, monitoring, tracking, underwriting, 5 selling, transferring, assigning, pledging or hypothecating any viatical set- 6 tlement contract. 7 (c) ‘‘Chronically ill’’ means: 8 (1) Being unable to perform at least two activities of daily living in- 9 cluding eating, toileting, transferring, bathing, dressing, continence or 10 such other activity as determined by rules and regulations adopted by the 11 commissioner; or 12 (2) requiring substantial supervision to protect the individual from 13 threats to health and safety due to severe cognitive impairment. 14 (d) ‘‘Commissioner’’ means the commissioner of insurance. 15 (e) ‘‘Financing entity’’ means any underwriter, placement agent, 16 lender, purchaser of securities, purchaser of a policy or certificate from 17 a viatical settlement provider, credit enhancer or any entity that has a 18 direct ownership in a policy or certificate which is the subject of a viatical 19 settlement contract, but: 20 (1) Whose principal activity related to the transaction is providing 21 funds to effect the viatical settlement or purchase of one or more viati- 22 cated policies; and 23 (2) who has an agreement in writing with one or more licensed vi- 24 atical settlement providers to finance the acquisition of viatical settlement 25 contracts. 26 Financing entity shall not include any nonaccredited investor or viatical 27 settlement purchaser. 28 (f) ‘‘Fraudulent viatical settlement act’’ means and includes: 29 (1) Any act or omission committed by any person who, knowingly or 30 with intent to defraud, for the purpose of depriving another of property 31 or for pecuniary gain, commits, or permits such person’s employees or 32 agents to engage in acts including: 33 (A) Presenting, causing to be presented or preparing with knowledge 34 or belief that it will be presented to or by a viatical settlement provider, 35 viatical settlement broker, viatical settlement purchaser, financing entity, 36 insurer, insurance producer or any other person, false material informa- 37 tion, or concealing material information, as part of, in support of or con- 38 cerning a fact material to one or more of the following: 39 (i) An application for the issuance of a viatical settlement contract or 40 insurance policy; 41 (ii) the underwriting of a viatical settlement contract or insurance 42 policy; 43 (iii) a claim for payment or benefit pursuant to a viatical settlement S Sub HB 2110 13 1 contract or insurance policy; 2 (iv) premiums paid on an insurance policy; 3 (v) payments and changes in ownership or beneficiary made in ac- 4 cordance with the terms of a viatical settlement contract or insurance 5 policy; 6 (vi) the reinstatement or conversion of an insurance policy; 7 (vii) in the solicitation, offer, effectuation or sale of a viatical settle- 8 ment contract or insurance policy; 9 (viii) the issuance of written evidence of viatical settlement contract 10 or insurance; or 11 (ix) a financing transaction. 12 (B) Employing any device, scheme or artifice to defraud related to 13 viaticated policies; 14 (2) any act done or committed in the furtherance of a fraud or to 15 prevent the detection of a fraud any person commits or permits its em- 16 ployees or its agents to: 17 (A) Remove, conceal, alter, destroy or sequester from the commis- 18 sioner the assets or records of a licensee or other person engaged in the 19 business of viatical settlements; 20 (B) misrepresent or conceal the financial condition of a licensee, fi- 21 nancing entity, insurer or other person; 22 (C) transact the business of viatical settlements in violation of laws 23 requiring a license, certificate of authority or other legal authority for the 24 transaction of the business of viatical settlements; or 25 (D) file with the commissioner or the chief insurance regulatory of- 26 ficial of another jurisdiction a document containing false information or 27 otherwise conceals information about a material fact from the 28 commissioner; 29 (3) commit embezzlement, theft, misappropriation or conversion of 30 moneys, funds, premiums, credits or other property of a viatical settle- 31 ment provider, insurer, insured, viator, insurance policy owner or any 32 other person engaged in the business of viatical settlements or insurance; 33 or 34 (4) recklessly entering into, brokering, otherwise dealing enter into, 35 broker or otherwise deal in a viatical settlement contract, the subject of 36 which is a life insurance policy that was obtained by presenting false 37 information concerning any fact material to the policy or by concealing, 38 for the purpose of misleading another, information concerning any fact 39 material to the policy, where the viator or the viator’s agent intended to 40 defraud the policy’s issuer. ‘‘Recklessly’’ means engaging in the conduct 41 in conscious and clearly unjustifiable disregard of a substantial likelihood 42 of the existence of the relevant facts or risks, such disregard involving a 43 gross deviation from acceptable standards of conduct; S Sub HB 2110 14 1 (5) stranger-originated life insurance; or 2 (6) attempting to commit, assisting, aiding or abetting in the com- 3 mission of, or conspiracy to commit the acts or omissions specified in this 4 subsection. attempt to commit, assist, aid or abet in the commission of, 5 or conspiracy to commit any act or omission specified in this subsection; 6 or 7 (7) fail to disclose to the insurer when requested by the insurer that 8 the prospective insured has undergone a life expectancy evaluation by any 9 person or entity other than the insurer or any authorized representative 10 of such insurer in connection with the issuance of the policy. 11 (g) ‘‘NAIC’’ means the national association of insurance 12 commissioners. 13 (h) ‘‘Person’’ means a natural person or a legal entity, including, but 14 not limited to, an individual, partnership, limited liability company, as- 15 sociation, trust or corporation. 16 (i) ‘‘Policy’’ means an individual or group policy, group certificate, 17 contract or arrangement of life insurance affecting the rights of a resident 18 of this state or bearing a reasonable relation to this state, regardless of 19 whether delivered or issued for delivery in this state. 20 (j) ‘‘Related provider trust’’ means a titling trust or other trust estab- 21 lished by a licensed viatical settlement provider or a financing entity for 22 the sole purpose of holding the ownership or beneficial interest in pur- 23 chased policies in connection with a financing transaction. The trust shall 24 have a written agreement with the licensed viatical settlement provider 25 under which the licensed viatical settlement provider is responsible for 26 ensuring compliance with all statutory and regulatory requirements and 27 under which the trust agrees to make all records and files related to 28 viatical settlement transactions available to the commissioner as if those 29 records and files were maintained directly by the licensed viatical settle- 30 ment provider. 31 (k) ‘‘Special purpose entity’’ means any corporation, partnership, 32 trust, limited liability company or other similar entity formed solely to 33 provide, either directly or indirectly, access to institutional capital markets 34 for a financing entity or licensed viatical settlement provider. 35 (l) ‘‘Stranger-originated life insurance’’ means an act, practice or ar- 36 rangement to initiate a life insurance policy for the benefit of a third party 37 investor who, at the time of policy origination, has no insurable interest 38 in the insured under K.S.A. 40-450 and amendments thereto. Stranger- 39 originated life insurance practices include, but are not limited to, cases in 40 which life insurance is purchased with resources or guarantees from or 41 through a person or entity who, at the time of policy inception, could not 42 lawfully initiate the policy, and where, at the time of policy inception, 43 there is an arrangement or agreement to directly or indirectly transfer S Sub HB 2110 15 1 the ownership of the policy or the policy benefits, or both, to a third party. 2 Any trust that is created to give the appearance of insurable interest, and 3 is used to initiate one or more policies for investors, violates K.S.A. 40- 4 450, and amendments thereto, and the prohibition against wagering on 5 human life. Stranger-originated life insurance arrangements do not in- 6 clude those practices set forth in paragraph (3) of subsection (o). 7 (m) ‘‘Terminally ill’’ means having an illness or sickness that can rea- 8 sonably be expected to result in death in 24 months or less. 9 (m) (n) ‘‘Viatical settlement broker’’ means a person that on behalf 10 of a viator and for a fee, commission or other valuable consideration offers 11 or attempts to negotiate viatical settlement contracts between a viator and 12 one or more viatical settlement providers. Notwithstanding the manner 13 in which the viatical settlement broker is compensated, a viatical settle- 14 ment broker is deemed to represent only the viator and owes a fiduciary 15 duty to the viator to act according to the viator’s instructions and in the 16 best interest of the viator. The term does not include an attorney, certified 17 public accountant or a financial planner accredited by a nationally rec- 18 ognized accreditation agency, who is retained to represent the viator and 19 whose compensation is not paid directly or indirectly by the viatical set- 20 tlement provider or purchaser. 21 (n) (o) (1) ‘‘Viatical settlement contract’’ means a written agreement 22 establishing the terms under which compensation or anything of value 23 will be paid, which compensation or value is less than the expected death 24 benefit of the insurance policy or certificate, in return for the viator’s 25 assignment, transfer, sale, devise or bequest of the death benefit or own- 26 ership of any portion of the insurance policy or certificate of insurance. 27 A viatical settlement contract also includes a contract for a loan or other 28 financing transaction with a viator secured primarily by an individual or 29 group life insurance policy, other than a loan by a life insurance company 30 pursuant to the terms of the life insurance contract, or a loan secured by 31 the cash value of a policy. A viatical settlement contract includes an agree- 32 ment with a viator to transfer ownership or change the beneficiary des- 33 ignation at a later date regardless of the date that compensation is paid 34 to the viator. between a viator and a viatical settlement provider estab- 35 lishing the terms under which compensation or anything of value is or 36 will be paid, which compensation or value is less than the expected death 37 benefits of the policy, in return for the viator’s present or future assign- 38 ment, transfer, sale, devise or bequest of the death benefit or ownership 39 of any portion of the insurance policy or certificate of insurance, except 40 that the minimum value for a viatical settlement contract shall be greater 41 than the cash surrender value or accelerated death benefit available at 42 the time of an application for a viatical settlement contract. 43 (2) Viatical settlement contract also includes: S Sub HB 2110 16 1 (A) The transfer for compensation or value of ownership or beneficial 2 interest in a trust or other entity that owns such policy if the trust or 3 other entity was formed or availed of for the principal purpose of acquir- 4 ing one or more life insurance contracts, which life insurance contract 5 insures the life of a person residing in this state. 6 (B) A written agreement for a loan or other lending transaction, se- 7 cured primarily by an individual or group life insurance policy, or a 8 premium finance loan made for a policy on or before the date of issuance 9 of the policy, where: 10 (i) The viator receives on the date of the premium finance loan a 11 guarantee of a future viatical settlement value of the policy; or 12 (ii) the viator agrees on the date of the premium finance loan to sell 13 the policy or any portion of its death benefit on any date following the 14 issuance of the policy. 15 (3) Viatical settlement contract does not include: 16 (A) A policy loan by a life insurance company pursuant to the terms 17 of the life insurance policy or accelerated death provisions contained in 18 the life insurance policy, whether issued with the original policy or as a 19 rider. 20 (B) Loan proceeds that are used solely to pay: 21 (i) Premiums for the policy; and 22 (ii) any costs or expenses incurred by the lender or the borrower in 23 connection with the financing. 24 (C) A premium finance loan or any loan made by a bank or other 25 licensed financial institution, provided that neither default on such loan 26 nor the transfer of the policy in connection with such default is pursuant 27 to an agreement or understanding with any other person for the purpose 28 of evading regulation under this act. 29 (D) A collateral assignment of a life insurance policy by a viator. 30 (E) A loan made by a lender that does not violate the Kansas insur- 31 ance premium finance company act, K.S.A. 40-2601 et seq., and acts 32 amendatory thereof or supplemental thereto, unless the premium finance 33 loan is described in subparagraph (B) of paragraph (2). 34 (F) An agreement where all the parties: 35 (i) Are closely related to the insured by blood or law; or 36 (ii) have a lawful substantial economic interest in the continued life, 37 health and bodily safety of the person insured, or are trusts established 38 primarily for the benefit of such parties; 39 (G) any designation, consent or agreement by an insured who is an 40 employee of an employer in connection with the purchase by the em- 41 ployer, or trust established by the employer, of life insurance on the life 42 of the employee; 43 (H) a bona fide business succession planning arrangement between S Sub HB 2110 17 1 one or more: 2 (i) Shareholders in a corporation or between a corporation and one 3 or more of its shareholders or one or more trusts established by its 4 shareholders; 5 (ii) partners in a partnership or between a partnership and one or 6 more of its partners or one or more trusts established by its partners; or 7 (iii) members in a limited liability company or between a limited li- 8 ability company and one or more of its members or one or more trusts 9 established by its members; 10 (I) an agreement entered into by a service recipient, or a trust estab- 11 lished by the service recipient, and a service provider, or a trust estab- 12 lished by the service provider, who performs significant services for the 13 service recipient’s trade or business; or 14 (J) any other contract, transaction or arrangement exempted from the 15 definition of viatical settlement contract by the commissioner based on a 16 determination that the contract, transaction or arrangement is not of the 17 type intended to be regulated by this act. 18 (o) (p) ‘‘Viatical settlement provider’’ means a person, other than a 19 viator, who enters into or effectuates a viatical settlement contract. Vi- 20 atical settlement provider does not include: 21 (1) A bank, savings bank, savings and loan association, credit union 22 or other licensed lending institution that takes an assignment of a life 23 insurance policy as collateral for a loan; 24 (2) the issuer of a life insurance policy providing accelerated benefits 25 under K.S.A. 40-401, and amendments thereto, and pursuant to the 26 contract; 27 (3) an authorized or eligible insurer that provides stop loss coverage 28 to a viatical settlement provider, purchaser, financing entity, special pur- 29 pose entity or related provider trust; 30 (4) a natural person who enters into or effectuates no more than one 31 agreement in a calendar year for the transfer of life insurance policies for 32 any value less than the expected death benefit; 33 (5) a financing entity; 34 (6) a special purpose entity; 35 (7) a related provider trust; 36 (8) a viatical settlement purchaser; or 37 (9) an accredited investor or qualified institutional buyer as such term 38 is defined respectively in regulation D, rule 501 or rule 144A of the fed- 39 eral securities act of 1933, as in effect upon the effective date of this act, 40 and who purchases a viaticated policy from a viatical settlement provider. 41 (p) (q) ‘‘Viator’’ means the owner of a life insurance policy or a cer- 42 tificate holder under a group policy who enters or seeks to enter into a 43 viatical settlement contract. For the purposes of this act, a viator shall not S Sub HB 2110 18 1 be limited to an owner of a life insurance policy or a certificate holder 2 under a group policy insuring the life of an individual with a terminal or 3 chronic illness or condition except where specifically addressed. Viator 4 shall not include: 5 (1) A licensee under this act; 6 (2) an accredited investor or a qualified institutional buyer as such 7 term is defined respectively in regulation D, rule 501 or in rule 144A of 8 the federal securities act of 1933, as in effect upon the effective date of 9 this act; 10 (3) a financing entity; 11 (4) a special purpose entity; or 12 (5) a related provider trust. 13 (q) (r) ‘‘Viaticated policy’’ means a life insurance policy or certificate 14 that has been acquired by a viatical settlement provider pursuant to a 15 viatical settlement contract. 16 (r) (s) ‘‘Viatical settlement purchaser’’ means a person who gives a 17 sum of money as consideration for a life insurance policy or an interest 18 in the death benefits of a life insurance policy, or a person who owns or 19 acquires or is entitled to a beneficial interest in a trust that owns a viatical 20 settlement contract or is the beneficiary of a life insurance policy that has 21 been or will be the subject of a viatical settlement contract, for the pur- 22 pose of deriving an economic benefit. Viatical settlement purchaser shall 23 not include: 24 (1) A licensee under this act; 25 (2) an accredited investor or qualified institutional buyer as such term 26 is defined respectively in regulation D, rule 501 or rule 144A of the fed- 27 eral securities act of 1933, as in effect upon the effective date of this act; 28 (3) a financing entity; 29 (4) a special purpose entity; or 30 (5) a related provider trust. 31 Sec. 6. K.S.A. 2007 Supp. 40-5006 is hereby amended to read as 32 follows: 40-5006. (a) (1) Each licensee shall file with the commissioner 33 on or before March 1 of each year an annual statement containing such 34 information as the commissioner may prescribe by rule and regulation. 35 (2) In addition to any other requirements, for any policy settled 36 within five years of such policy’s date of issuance, the annual statement 37 shall specify the total number, aggregate face amount and life settlement 38 proceeds of policies settled during the immediately preceding calendar 39 year, together with a break down of the information by policy issue year. 40 Such information shall be limited to only those transactions where the 41 insured is a resident of this state and shall not include individual trans- 42 action data regarding the business of viatical settlements or information 43 that there is a reasonable basis to believe could be used to identify the S Sub HB 2110 19 1 policy owner or the insured. 2 (b) Except as otherwise allowed or required by law, a viatical settle- 3 ment provider, viatical settlement broker, insurance company, insurance 4 producer, information bureau, rating agency or company, or any other 5 person with actual knowledge of an insured’s identity, shall not disclose 6 that identity as an insured, or the insured’s financial or medical infor- 7 mation to any other person unless the disclosure is: 8 (1) Necessary to effect a viatical settlement between the viator and a 9 viatical settlement provider and the viator and insured have provided 10 prior written consent to the disclosure; 11 (2) provided in response to an investigation or examination by the 12 commissioner or any other governmental officer or agency or pursuant 13 to the requirements of paragraph (c) of K.S.A. 2007 Supp. 40-5012, sec- 14 tion 3 and amendments thereto; 15 (3) a term of or condition to the transfer of a policy by one viatical 16 settlement provider to another viatical settlement provider; 17 (4) necessary to permit a financing entity, related provider trust or 18 special purpose entity to finance the purchase of policies by a viatical 19 settlement provider and the viator and insured have provided prior writ- 20 ten consent to the disclosure; 21 (5) necessary to allow the viatical settlement provider or viatical set- 22 tlement broker or their authorized representatives to make contacts for 23 the purpose of determining health status; or 24 (6) required to purchase stop loss coverage. 25 Sec. 7. K.S.A. 2007 Supp. 40-5008 is hereby amended to read as 26 follows: 40-5008. (a) With each application for a viatical settlement, a 27 viatical settlement provider or viatical settlement broker shall provide the 28 viator with at least the following disclosures no later than the time the 29 application for the viatical settlement contract is signed by all parties. The 30 disclosures shall be provided in a separate document that is signed by the 31 viator and the viatical settlement provider or viatical settlement broker, 32 and shall provide the following information: 33 (1) There are possible alternatives to viatical settlement contracts in- 34 cluding any accelerated death benefits or policy loans offered under the 35 viator’s life insurance policy. 36 (2) That a viatical settlement broker represents exclusively the viator 37 and not the insurer or the viatical settlement provider. Furthermore the 38 viatical settlement broker owes a fiduciary duty to the viator including 39 the duty to act according to the viator’s instructions and in the best in- 40 terest of the viator. 41 (2) (3) Some or all of the proceeds of the viatical settlement may be 42 taxable under federal income tax and state franchise and income taxes, 43 and assistance should be sought from a professional tax advisor. S Sub HB 2110 20 1 (3) (4) Proceeds of the viatical settlement could be subject to the 2 claims of creditors. 3 (4) (5) Receipt of the proceeds of a viatical settlement may adversely 4 affect the viator’s eligibility for medicaid or other government benefits or 5 entitlements, and advice should be obtained from the appropriate gov- 6 ernment agencies. 7 (5) (6) The viator has the right to rescind a viatical settlement contract 8 for 15 calendar days after the receipt of the viatical settlement proceeds 9 by the viator, as provided in subsection (c) of K.S.A. 2007 Supp. 40-5009, 10 section 2 and amendments thereto. If the insured dies during the rescis- 11 sion period, the settlement contract shall be deemed to have been re- 12 scinded, subject to repayment of all viatical settlement proceeds and any 13 premiums, loans and loan interest to the viatical settlement provider or 14 purchaser. 15 (6) (7) Funds will be sent to the viator within three business days 16 after the viatical settlement provider has received the insurer or group 17 administrator’s acknowledgment that ownership of the policy or interest 18 in the certificate has been transferred and the beneficiary has been 19 designated. 20 (7) (8) Entering into a viatical settlement contract may cause other 21 rights or benefits, including conversion rights and waiver of premium 22 benefits that may exist under the policy or certificate, to be forfeited by 23 the viator. Assistance should be sought from a financial adviser. 24 (8) (9) Disclosure to a viator shall include distribution of a brochure 25 describing the process of viatical settlements. The form for the brochure 26 shall be developed by the commissioner. 27 (9) (10) The disclosure document shall contain the following lan- 28 guage: ‘‘All medical, financial or personal information solicited or ob- 29 tained by a viatical settlement provider or viatical settlement broker about 30 an insured, including the insured’s identity or the identity of family mem- 31 bers, a spouse or a significant other may be disclosed as necessary to effect 32 the viatical settlement between the viator and the viatical settlement pro- 33 vider. If you are asked to provide this information, you will be asked to 34 consent to the disclosure. The information may be provided to someone 35 who buys the policy or provides funds for the purchase. You may be asked 36 to renew your permission to share information every two years.’’ 37 (10) (11) The insured may be contacted by either the viatical settle- 38 ment provider or viatical settlement broker or such viatical settlement 39 provider’s or viatical settlement broker’s authorized representative for the 40 purpose of determining the insured’s health status. This contact is limited 41 to once every three months if the insured has a life expectancy of more 42 than one year, and no more than once per month if the insured has a life 43 expectancy of one year or less. S Sub HB 2110 21 1 (b) A viatical settlement provider shall provide the viator with at least 2 the following disclosures no later than the date the viatical settlement 3 contract is signed by all parties. The disclosures shall be conspicuously 4 displayed in the viatical settlement contract or in a separate document 5 signed by the viator and the viatical settlement provider or viatical settle- 6 ment broker, and contain the following information: 7 (1) The affiliation, if any, between the viatical settlement provider 8 and the issuer of the insurance policy to be viaticated. 9 (2) The name, address and telephone number of the viatical settle- 10 ment provider. 11 (3) A viatical settlement broker shall disclose to a prospective viator 12 the amount and method of calculating the broker’s compensation. The 13 term ‘‘compensation’’ includes anything of value paid or given to a viatical 14 settlement broker for the placement of a policy. 15 (4) If an insurance policy to be viaticated has been issued as a joint 16 policy or involves family riders or any coverage of a life other than the 17 insured under the policy to be viaticated, the viator shall be informed of 18 the possible loss of coverage on the other lives under the policy and shall 19 be advised to consult with such viator’s insurance producer or the insurer 20 issuing the policy for advice on the proposed viatical settlement. 21 (5) State the dollar amount of the current death benefit payable to 22 the viatical settlement provider under the policy or certificate. If known, 23 the viatical settlement provider shall also disclose the availability of any 24 additional guaranteed insurance benefits, the dollar amount of any acci- 25 dental death and dismemberment benefits under the policy or certificate 26 and the viatical settlement provider’s interest in those benefits. 27 (6) State the name, business address and telephone number of the 28 independent third party escrow agent, and the fact that the viator or 29 owner may inspect or receive copies of the relevant escrow or trust agree- 30 ments or documents. 31 (c) Without limiting the ability of an insurer from assessing the in- 32 surability of a policy applicant and determining whether or not to issue 33 the policy, and in addition to other questions an insurance carrier may 34 lawfully pose to a life insurance applicant, insurance carriers may inquire 35 in the application for insurance whether the proposed owner intends to 36 pay premiums with the assistance of financing from a lender that will use 37 the policy as collateral to support the financing. 38 (1) If, as described in paragraph (3) of subsection (o) of K.S.A. 40- 39 5002, and amendments thereto, the loan provides funds which can be used 40 for a purpose other than paying for the premiums, costs, and expenses 41 associated with obtaining and maintaining the life insurance policy and 42 loan, the application shall be rejected as a violation of this act. 43 (2) If the financing does not violate this section in this manner, the S Sub HB 2110 22 1 insurance carrier: 2 (A) May make disclosures, including, but not limited to, such as the 3 following, to the applicant and the insured, either on the application or 4 an amendment to the application to be completed no later than the deliv- 5 ery of the policy: 6 ‘‘If you have entered into a loan arrangement where the policy is used 7 as collateral, and the policy does change ownership at some point in the 8 future in satisfaction of the loan, the following may be true: 9 (i) A change of ownership could lead to a stranger owning an interest 10 in the insured’s life; 11 (ii) a change of ownership could in the future limit your ability to 12 purchase future insurance on the insured’s life because there is a limit to 13 how much coverage insurers will issue on one life; 14 (iii) should there be a change of ownership and you wish to obtain 15 more insurance coverage on the insured’s life in the future, the insured’s 16 higher issue age, a change in health status, or other factors, or both, may 17 reduce the ability to obtain coverage or may result in significantly higher 18 premiums or both; 19 (iv) you should consult a professional advisor, since a change in own- 20 ership in satisfaction of the loan may result in tax consequences to the 21 owner, depending on the structure of the loan;’’ and 22 (B) may require certifications, such as the following, from the appli- 23 cant or the insured or both: 24 ‘‘(i) I have not entered into any agreement or arrangement providing 25 for the future sale of this life insurance policy; 26 (ii) my loan arrangement for this policy provides funds sufficient to 27 pay for some or all of the premiums, costs, and expenses associated with 28 obtaining and maintaining my life insurance policy, but I have not entered 29 into any agreement by which I am to receive consideration in exchange 30 for procuring this policy; and 31 (iii) the borrower has an insurable interest in the insured.’’ 32 Sec. 8. K.S.A. 2007 Supp. 40-5010 is hereby amended to read as 33 follows: 40-5010. It shall be a violation of this act for any person to enter 34 into a viatical settlement contract within a two-year period commencing 35 with the date of issuance of the insurance policy or certificate unless the 36 viator certifies to the viatical settlement provider that one or more of the 37 following conditions have been met within the two-year period: No person 38 at any time prior to, or at the time of, the application for or issuance of 39 a policy, or during a two-year period commencing with the date of issu- 40 ance of the policy, shall enter into a viatical settlement regardless of the 41 date the compensation is to be provided and regardless of the date the 42 assignment, transfer, sale, devise, bequest or surrender of the policy is to 43 occur. This prohibition shall not apply if the viator certifies to the viaticial S Sub HB 2110 23 1 settlement provider that: 2 (a) The policy was issued upon the viator’s exercise of conversion 3 rights arising out of a group or individual policy, provided the total of the 4 time covered under the conversion policy plus the time covered under 5 the prior policy is at least 24 months. The time covered under a group 6 policy shall be calculated without regard to any change in insurance car- 7 riers, provided the coverage has been continuous and under the same 8 group sponsorship; 9 (b) the viator is a charitable organization exempt from taxation under 10 26 U.S.C. §501 (c)(3); 11 (c) the viator is not a natural person; 12 (d) (1) The viator submits independent evidence to the viatical set- 13 tlement provider that one or more of the following conditions have been 14 met within the two-year period: 15 (A) (1) The viator or insured is terminally or chronically ill; 16 (B) (2) the viator’s spouse dies; 17 (C) (3) the viator divorces such viator’s spouse; 18 (D) (4) the viator retires from full-time employment; 19 (E) (5) the viator becomes physically or mentally disabled and a phy- 20 sician determines that the disability prevents the viator from maintaining 21 full-time employment; 22 (F) (6) the viator was the insured’s employer at the time the policy 23 or certificate was issued and the employment relationship terminated; a 24 final order, judgment or decree is entered by a court of competent juris- 25 diction, on the application of a creditor of the viator, adjudicating the 26 viator bankrupt or insolvent, or approving a petition seeking reorganiza- 27 tion of the viator or appointing a receiver, trustee or liquidator to all or 28 a substantial part of the viator’s assets; or 29 (G) (7) the beneficiary of the policy is a family member of the viator 30 and the beneficiary dies. 31 (H) the viator experiences a significant decrease in income that is 32 unexpected and that impairs the viator’s reasonable ability to pay the 33 policy premium; or 34 (I) the viator or insured disposes of such viator’s or insured’s own- 35 ership interests in a closely held corporation. 36 (2) (c) Copies of the independent evidence described in paragraph 37 (1) of this subsection (b) and documents required by subsection (a) of 38 K.S.A. 2007 Supp. 40-5009 section 2, and amendments thereto, shall be 39 submitted to the insurer when the viatical settlement provider submits a 40 request to the insurer for verification of coverage. The copies shall be 41 accompanied by a letter of attestation from the viatical settlement pro- 42 vider that the copies are true and correct copies of the documents re- 43 ceived by the viatical settlement provider. No provision in this section S Sub HB 2110 24 1 shall prohibit an insurer from exercising its right to contest the validity 2 of any policy. 3 (e) (d) If the viatical settlement provider submits to the insurer a copy 4 of the owner or insured’s certification described in subsection (d) (b) 5 when provider submits a request to the insurer to effect the transfer of 6 the policy or certificate to the viatical settlement provider, the copy shall 7 be deemed to conclusively establish that the viatical settlement contract 8 satisfies the requirements of this section and the insurer shall timely re- 9 spond to the request. 10 Sec. 9. K.S.A. 2007 Supp. 40-5001, 40-5002, 40-5006, 40-5007, 40- 11 5008, 40-5009, 40-5010 and 40-5012 are hereby repealed. 12 Sec. 10. This act shall take effect and be in force from and after its 13 publication in the statute book.
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