SB 66

Abstract

On June 30, 2016, the Delaware State Senate adopted Senate Resolution No. 19 (“S.R. 19”), requesting the Delaware Department of Insurance (the “Department”) to examine the secondary market for life insurance policies and make recommendations for possible legislation. In response to S.R. 19, the Department issued a report in December 2016 recommending the adoption of the Model Viatical Settlements Act adopted by the National Association of Insurance Commissioners (“NAIC”). This bill significantly modifies 18 Del. C. Chapter 75, the Delaware Viatical Settlements Act by adopting the NAIC Model. This bill establishes strong consumer protections while protecting policyholder rights. Key provisions include: • The bill significantly expands the class of persons, known as “viators,” who are permitted to enter into viatical settlement contracts. Under present law, viators are defined as individuals with a catastrophic, life threatening or chronic illness or condition. This physical condition restriction is eliminated in this bill (Section 7502(20)). • A limited 5 year settlement prohibition targeting transactions with characteristics of stranger-originated life insurance, such as non-recourse financing, settlement guarantees, or life expectancy valuations. (Section 7511). • Protection of consumer property rights by permitting any-time settlements for cause such as death of spouse, divorce, disability, bankruptcy, loss of job, or chronic or terminal illness (Section 7511), and by requiring full disclosure to the prospective viator (Section 7508). • Expanded consumer right to rescind a settlement contract for up to 60 days (Section 7510(c)). • Settlement reporting requirements to enable regulators to identify and stop stranger-originated life insurance (Section 7506). • Prohibition on advertising representing that insurance is “free” or at “no cost” (Sections 7512(d) and 7513(e)). • Disclosure to insurers of any plan to originate, renew, or finance a policy prior to or within 5 years of policy issue (Section 7509). • A comprehensive definition of “viatical settlement contract” which includes policy transfers regardless of when they occur if they include indicia of stranger-originated life insurance, and transfers which do not fall within a legitimate settlement exception, such as non-recourse financing arrangements, debt forgiveness, or settlement guarantees (Section 7502(15)). • The bill contains fraud prevention and control measures, grants regulatory authority to the Insurance Commissioner to address violations of the Act through the issuance of cease and desist orders, imposition of civil penalties, petitions for injunctive relief, and other enforcement measures. The bill also allows persons injured by violations of the Act to bring civil actions, and allows the Attorney General to seek criminal penalties for “fraudulent viatical acts,” as defined in the Act. The criminal penalties in the current version of the bill are based on the penalties for theft in 11 Del. C. § 841. The bill expressly states that it does not preempt the authority or relieve the duty of the Attorney General or any other law enforcement or regulatory agencies to investigate, examine, and prosecute suspected violations of law. • Section 7518 of the bill provides that nothing in this chapter preempts any provision of the Delaware Securities Act, as amended, including the regulation of securities transactions in viatical settlement investments and the licensing of any person or entity engaged in the sale of securities. Enactment of the NAIC Model will provide regulators with strong and important tools to combat stranger-originated life insurance and the fraudulent behavior it engenders, while continuing to allow honest policyholders to exercise all of their individual and contractual rights.