§ 27-72-2 - Definitions. [Effective July 1, 2010.].

RHODE ISLAND STATUTES AND CODES

§ 27-72-2 - Definitions. [Effective July 1, 2010.].

SECTION 27-72-2

§ 27-72-2 Definitions. [EffectiveJuly 1, 2010.]. – As used in this chapter:

(1) "Advertisement" means any written, electronic or printedcommunication or any communication by means of recorded telephone messages ortransmitted on radio, television, the Internet or similar communications media,including film strips, motion pictures and videos, published, disseminated,circulated or placed before the public, directly or indirectly, for the purposeof creating an interest in or inducing a person to purchase or sell, assign,devise, bequest or transfer the death benefit or ownership of a life insurancepolicy or an interest in a life insurance policy pursuant to a life settlementcontract.

(2) "Broker" means a person who, on behalf of an owner andfor a fee, commission or other valuable consideration, offers or attempts tonegotiate life settlement contracts between an owner and provider. A brokerrepresents only the owner and owes a fiduciary duty to the owner to actaccording to the owner's instructions, and in the best interest of the owner,notwithstanding the manner in which the broker is compensated. A broker doesnot include an attorney, certified public accountant or financial plannerretained in the type of practice customarily performed in their professionalcapacity to represent the owner whose compensation is not paid directly orindirectly by the provider or any other person, except the owner.

(3) "Business of life settlements" means an activity involvedin, but not limited to, offering to enter into, soliciting, negotiating,procuring, effectuating, monitoring, or tracking, of life settlement contracts.

(4) "Chronically ill" means:

(i) Being unable to perform at least two (2) activities ofdaily living (i.e., eating, toileting, transferring, bathing, dressing orcontinence);

(ii) Requiring substantial supervision to protect theindividual from threats to health and safety due to severe cognitiveimpairment; or

(iii) Having a level of disability similar to that describedin subdivision (i) as determined by the United States Secretary of Health andHuman Services.

(5) "Commissioner" means the director of the department ofbusiness regulation or his or her designee.

(6) "Federally regulated entity" means a national bank,thrift, credit union, or any entity registered or exempt from registrationunder 15 U.S.C. § 80a-1 et. seq., 15 U.S.C. § 80b-1 et. seq., 15U.S.C. § 77a et. seq., and 15 U.S.C. § 78a et. seq., or any affiliatethereof.

(7) "Financing entity" means an underwriter, placement agent,lender, purchaser of securities, purchaser of a policy or certificate from aprovider, credit enhancer, or any entity that has a direct ownership in apolicy or certificate that is the subject of a life settlement contract, but:

(i) Whose principal activity related to the transaction isproviding funds to effect the life settlement contract or purchase of one ormore policies; and

(ii) Who has an agreement in writing with one or moreproviders to finance the acquisition of life settlement contracts.

"Financing entity" does not include a non-accredited investoror purchaser.

(8) "Financing transaction" means a transaction in which alicensed provider obtains financing from a financing entity including, withoutlimitation, any secured or unsecured financing, any securitization transaction,or any securities offering which either is registered or exempt fromregistration under federal and state securities law.

(9) "Fraudulent life settlement act" includes:

(i) Acts or omissions committed by any person who, knowinglyand with intent to defraud, for the purpose of depriving another of property orfor pecuniary gain, commits, or permits its employees or its agents to engagein acts including, but not limited to:

(A) Presenting, causing to be presented or preparing withknowledge and belief that it will be presented to or by a provider, premiumfinance lender, broker, insurer, insurance producer or any other person, falsematerial information, or concealing material information, as part of, insupport of, or concerning a fact material to one or more of the following:

(I) An application for the issuance of a life settlementcontract or insurance policy;

(II) The underwriting of a life settlement contract orinsurance policy;

(III) A claim for payment or benefit pursuant to a lifesettlement contract or insurance policy;

(IV) Premiums paid on an insurance policy;

(V) Payments and changes in ownership or beneficiary made inaccordance with the terms of a life settlement contract or insurance policy;

(VI) The reinstatement or conversion of an insurance policy;

(VII) In the solicitation, offer to enter into, oreffectuation of a life settlement contract, or insurance policy;

(VIII) The issuance of written evidence of life settlementcontract or insurance;

(IX) Any application for or the existence of or any paymentsrelated to a loan secured directly or indirectly by any interest in a lifeinsurance policy; or

(X) Enter into any practice or plan which involves strangeroriginated life insurance (STOLI).

(B) Failing to disclose to the insurer where the request forsuch disclosure has been asked for by the insurer that the prospective insuredhas undergone a life expectancy evaluation by any person or entity other thanthe insurer or its authorized representatives in connection with the issuanceof the policy.

(D) In the solicitation, application or issuance of a lifeinsurance policy, employing any device, scheme or artifice in violation ofstate insurable interest laws.

(ii) In the furtherance of a fraud or to prevent thedetection of a fraud any person commits or permits its employees or its agentsto:

(A) Remove, conceal, alter, destroy or sequester from thecommissioner the assets or records of a licensee or other person engaged in thebusiness of life settlements;

(B) Misrepresent or conceal the financial condition of alicensee, financing entity, insurer or other person;

(C) Transact the business of life settlements in violation oflaws requiring a license, certificate of authority or other legal authority forthe transaction of the business of life settlements;

(D) File with the commissioner or the chief insuranceregulatory official of another jurisdiction a document containing falseinformation or otherwise concealing information about a material fact from thecommissioner;

(E) Engage in embezzlement, theft, misappropriation orconversion of monies, funds, premiums, credits or other property of a provider,insurer, insured, owner, insurance, policy owner or any other person engaged inthe business of life settlements or insurance;

(F) Knowingly and with intent to defraud, enter into, broker,or otherwise deal in a life settlement contract, the subject of which is a lifeinsurance policy that was obtained by presenting false information concerningany fact material to the policy or by concealing, for the purpose of misleadinganother, information concerning any fact material to the policy, where theowner or the owner's agent intended to defraud the policy's issuer;

(G) Attempt to commit, assist, aid or abet in the commissionof, or conspiracy to commit the acts or omissions specified in this subsection;or

(H) Misrepresent the state of residence of an owner to be astate or jurisdiction that does not have a law substantially similar to thischapter for the purpose of evading or avoiding the provisions of this chapter.

(10) "Insured" means the person covered under the policybeing considered for sale in a life settlement contract.

(11) "Life expectancy" means the arithmetic mean of thenumber of months the insured under the life insurance policy to be settled canbe expected to live as determined by a life expectancy company provider,broker, or financing entity considering medical records and appropriateexperiential data.

(12) "Life insurance producer" means any person licensed inthis state as a resident or nonresident insurance producer who has receivedqualification or authority for life insurance coverage or a life line ofcoverage pursuant to chapter 27-2.4.

(13) "Life settlement contract" means a written agreemententered into between a provider and an owner, establishing the terms underwhich compensation or any thing of value will be paid, which compensation orthing of value is less than the expected death benefit of the insurance policyor certificate, in return for the owner's assignment, transfer, sale, devise orbequest of the death benefit or any portion of an insurance policy orcertificate of insurance for compensation; provided, however, that the minimumvalue for a life settlement contract shall be greater than a cash surrendervalue or accelerated death benefit available at the time of an application fora life settlement contract. "Life settlement contract" also includes thetransfer for compensation or value of ownership or beneficial interest in atrust or other entity that owns such policy if the trust or other entity wasformed or availed of for the principal purpose of acquiring one or more lifeinsurance contracts, which life insurance contract insures the life of a personresiding in this state.

(i) "Life settlement contract" also includes a premiumfinance loan made for a policy on or before the date of issuance where:

(A) The loan proceeds are not used solely to pay premiums forthe policy and any costs or expenses incurred by the lender or the borrower inconnection with the financing; or

(B) The owner receives on the date of the premium financeloan a guarantee of the future life settlement value of the policy; or

(C) The owner agrees on the date of the premium finance loanto sell the policy or any portion of its death benefit on any date followingthe issuance of the policy.

(ii) "Life Settlement Contract" does not include:

(A) A policy loan by a life insurance company pursuant to theterms of the life insurance policy or accelerated death provisions contained inthe life insurance policy, whether issued with the original policy or as arider;

(B) A premium finance loan, as defined herein, or any loanmade to an insured, a trust established by an insured, or an entity establishedby the insured by a bank, federally regulated entity, or other licensedfinancial institution or any transfer, foreclosure, option to transfer, sale ofany interest in collateral of such loan subsequent thereto for the purpose ofevading regulation under this chapter;

(D) A loan made by a lender that does not violate RhodeIsland general laws chapter 19- 14.6, provided such loan is not described insubdivision (i) above, and is not otherwise within the definition of lifesettlement contract;

(E) An agreement where all the parties:

(I) are closely related to the insured by blood or law; or

(II) have a lawful substantial economic interest in thecontinued life, heath and bodily safety of the person insured, or are trustsestablished primarily for the benefit of such parties;

(F) Any designation, consent or agreement by an insured whois an employee of an employer in connection with the purchase by the employer,or trust established by the employer, of life insurance on the life of theemployee;

(G) A bona fide business succession planning arrangement:

(I) Between one or more shareholders in a corporation orbetween a corporation and one or more of its shareholders or one or more trustestablished by its shareholders;

(II) Between one or more partners in a partnership or betweena partnership and one or more of its partners or one or more trust establishedby its partners; or

(III) Between one or more members in a limited liabilitycompany or between a limited liability company and one or more of its membersor one or more trust established by its members;

(H) An agreement entered into by a service recipient, or atrust established by the service recipient, and a service provider, or a trustestablished by the service provider, who performs significant services for theservice recipient's trade or business; or

(I) Any other contract, transaction or arrangement from thedefinition of life settlement contract that the commissioner determines is notof the type intended to be regulated by this chapter.

(14) "Net death benefit" means the amount of the lifeinsurance policy or certificate to be settled less any outstanding debts orliens.

(15) "Owner" means the owner of a life insurance policy or acertificate holder under a group policy, with or without a terminal illness,who enters or seeks to enter into a life settlement contract. For the purposesof this article, an owner shall not be limited to an owner of a life insurancepolicy or a certificate holder under a group policy that insures the life of anindividual with a terminal or chronic illness or condition except wherespecifically addressed. The term "owner" does not include:

(i) Any provider or other licensee under this chapter;

(ii) A qualified institutional buyer as defined in Rule 144Aof the Federal Securities Act of 1933, as amended;

(iii) A financing entity;

(iv) A special purpose entity; or

(v) A related provider trust.

(16) "Patient identifying information" means an insured'saddress, telephone number, facsimile number, electronic mail address,photograph or likeness, employer, employment status, social security number, orany other information that is likely to lead to the identification of theinsured.

(17) "Policy" means an individual or group policy, groupcertificate, contract or arrangement of life insurance owned by a resident ofthis state, regardless of whether delivered or issued for delivery in thisstate.

(18) "Premium finance loan" is a loan made primarily for thepurposes of making premium payments on a life insurance policy, which loan issecured by an interest in such life insurance policy.

(19) "Person" means any natural person or legal entityincluding, but not limited to, a partnership, limited liability company,association, trust or corporation.

(20) "Provider" means a person, other than an owner, whoenters into or effectuates a life settlement contract with an owner, a providerdoes not include:

(i) Any bank, savings bank, savings and loan association,credit union;

(ii) A licensed lending institution or creditor or securedparty pursuant to a premium finance loan agreement which takes an assignment ofa life insurance policy or certificate issued pursuant to a group lifeinsurance policy as collateral for a loan;

(iii) The insurer of a life insurance policy or rider to theextent of providing accelerated death benefits or riders or cash surrendervalue;

(iv) Any natural person who enters into or effectuates nomore than one agreement in a calendar year for the transfer of a life insurancepolicy or certificate issued pursuant to a group life insurance policy, forcompensation or anything of value less than the expected death benefit payableunder the policy;

(v) A purchaser;

(vi) Any authorized or eligible insurer that provides stoploss coverage to a provider; purchaser, financing entity, special purposeentity, or related provider trust;

(vii) A financing entity;

(viii) A special purpose entity;

(ix) A related provider trust;

(x) A broker; or

(xi) An accredited investor or qualified institutional buyeras defined; respectively, in regulation D, rule 501 or rule 144A of the FederalSecurities Act of 1933, as amended, who purchases a life settlement policy froma provider.

(21) "Purchased policy" means a policy or group certificatethat has been acquired by a provider pursuant to a life settlement contract.

(22) "Purchaser" means a person who pays compensation oranything of value as consideration for a beneficial interest in a trust whichis vested with, or for the assignment, transfer or sale of, an ownership orother interest in a life insurance policy or a certificate issued pursuant to agroup life insurance policy which has been the subject of a life settlementcontract.

(23) "Related provider trust' means a titling trust or othertrust established by a licensed provider or a financing entity for the solepurpose of holding the ownership or beneficial interest in purchased policiesin connection with a financing transaction. In order to qualify as a relatedprovider trust, the trust must have a written agreement with the licensedprovider under which the licensed provider is responsible for ensuringcompliance with all statutory and regulatory requirements and under which thetrust agrees to make all records and files relating to life settlementtransactions available to the commissioner as if those records and files weremaintained directly by the licensed provider.

(24) "Settled policy" means a life insurance policy orcertificate that has been acquired by a provider pursuant to a life settlementcontract.

(25) "Special purpose entity" means a corporation,partnership, trust, limited liability company, or other legal entity formedsolely to provide either directly or indirectly access to institutional capitalmarkets:

(i) For a financing entity or provider; or

(ii) In connection with a transaction in which the securitiesin the special purpose entity are acquired by the owner or by a "qualifiedinstitutional buyer" as defined in Rule 144 promulgated under the FederalSecurities Act of 1933, as amended; or

(iii) The securities pay a fixed rate of return commensuratewith established asset-backed institutional capital markets.

(26) "Stranger-originated life insurance" or "STOLI" is apractice or plan to initiate a life insurance policy for the benefit of athird-party investor who, at the time of policy origination, has no insurableinterest in the insured. STOLI practices include, but are not limited to, casesin which life insurance is purchased with resources or guarantees from orthrough a person, or entity, who, at the time of policy inception, could notlawfully initiate the policy himself/herself or itself, and where, at the timeof inception, there is an arrangement or agreement, whether verbal or written,to directly or indirectly transfer the ownership of the policy and/or thepolicy benefits to a third party. Trusts, that are created to give theappearance of insurable interest, and are used to initiate policies forinvestors, violate insurable interest laws and the prohibition against wageringon life. STOLI arrangements do not include those practices set forth in thischapter.

(27) "Terminally ill" means having an illness or sicknessthat can reasonably be expected to result in death in twenty-four (24) monthsor less.