10110. Every person has an insurable interest in the life and
health of:
(a) Himself.
(b) Any person on whom he depends wholly or in part for education
or support.
(c) Any person under a legal obligation to him for the payment of
money or respecting property or services, of which death or illness
might delay or prevent the performance.
(d) Any person upon whose life any estate or interest vested in
him depends.
10110.1. (a) An insurable interest, with reference to life and
disability insurance, is an interest based upon a reasonable
expectation of pecuniary advantage through the continued life,
health, or bodily safety of another person and consequent loss by
reason of that person's death or disability or a substantial interest
engendered by love and affection in the case of individuals closely
related by blood or law.
(b) An individual has an unlimited insurable interest in his or
her own life, health, and bodily safety and may lawfully take out a
policy of insurance on his or her own life, health, or bodily safety
and have the policy made payable to whomsoever he or she pleases,
regardless of whether the beneficiary designated has an insurable
interest.
(c) Except as provided in Section 10110.4, an employer has an
insurable interest, as referred to in subdivision (a), in the life or
physical or mental ability of any of its directors, officers, or
employees or the directors, officers, or employees of any of its
subsidiaries or any other person whose death or physical or mental
disability might cause financial loss to the employer; or, pursuant
to any contractual arrangement with any shareholder concerning the
reacquisition of shares owned by the shareholder at the time of his
or her death or disability, on the life or physical or mental ability
of that shareholder for the purpose of carrying out the contractual
arrangement; or, pursuant to any contract obligating the employer as
part of compensation arrangements or pursuant to a contract
obligating the employer as guarantor or surety, on the life of the
principal obligor. The trustee of an employer or trustee of a
pension, welfare benefit plan, or trust established by an employer
providing life, health, disability, retirement, or similar benefits
to employees and retired employees of the employer or its affiliates
and acting in a fiduciary capacity with respect to those employees,
retired employees, or their dependents or beneficiaries has an
insurable interest in the lives of employees and retired employees
for whom those benefits are to be provided. The employer shall obtain
the written consent of the individual being insured.
(d) Trusts and special purpose entities that are used to apply for
and initiate the issuance of policies of insurance for investors,
where one or more beneficiaries of those trusts or special purpose
entities do not have an insurable interest in the life of the
insured, violate the insurable interest laws and the prohibition
against wagering on life.
(e) Any device, scheme, or artifice designed to give the
appearance of an insurable interest where there is no legitimate
insurable interest violates the insurable interest laws.
(f) An insurable interest shall be required to exist at the time
the contract of life or disability insurance becomes effective, but
need not exist at the time the loss occurs.
(g) Any contract of life or disability insurance procured or
caused to be procured upon another individual is void unless the
person applying for the insurance has an insurable interest in the
individual insured at the time of the application.
(h) Notwithstanding subdivisions (a), (f), and (g), a charitable
organization that meets the requirements of Section 214 or 23701d of
the Revenue and Taxation Code may effectuate life or disability
insurance on an insured who consents to the issuance of that
insurance.
(i) This section shall not be interpreted to define all instances
in which an insurable interest exists.
10110.2. An insurer shall be entitled to rely upon all statements,
declarations, and representations made by an applicant for insurance
relative to the insurable interest that the applicant has in the
insured, and no insurer shall incur any legal liability except as set
forth in the policy, by virtue of any untrue statements,
declarations, or representations so relied upon in good faith by the
insurer.
10110.3. (a) An insurer may not issue an individual life insurance
policy to an applicant that insures the life of the applicant's
spouse unless the applicant's spouse has signed the policy
application or has otherwise been notified in advance of the issuance
of the policy.
(b) This section shall apply to policies of individual life
insurance with face amounts exceeding fifty thousand dollars
($50,000) that are issued on or after July 1, 2004.
10110.4. (a) Except as allowed in subdivision (c), an insurer may
not issue or deliver a corporate-owned life insurance policy.
(b) "Corporate-owned life insurance policy" means a life insurance
policy that is purchased by a California employer, that designates
the employer as the beneficiary of the policy, and that insures the
life of a California resident who is a current or former employee of
the employer.
(c) This section does not apply to a policy insuring the life of a
current or former exempt employee. An exempt employee is an
administrative, executive, or professional employee who is exempt
under Section 515 of the Labor Code and the regulations adopted
pursuant thereto.
(d) Except as provided in subdivision (f), it is a violation of
public policy for a California employer to purchase or hold a
corporate-owned life insurance policy.
(e) (1) A corporate-owned life insurance policy purchased on or
after the effective date of this section is void.
(2) Except as provided in subdivision (f), a corporate-owned life
insurance policy purchased prior to the effective date of this
section shall become void on the next premium payment date on or
after the date five years from the effective date of this section,
but no later than January 1, 2010.
(f) A corporate-owned life insurance policy purchased prior to the
effective date of this section that insures the life of a current or
former nonexempt employee shall continue in force after the
effective date of this section provided that no further premium
payments are made after the effective date of this section. However,
an employer who has purchased and holds such a corporate-owned life
insurance policy shall disclose in writing to the current or former
nonexempt employee whose life is insured by the policy, within 90
days of the effective date of this section, all of the following
information:
(1) The existence of the corporate-owned life insurance policy on
the life of the nonexempt employee.
(2) The identity of the insurer under the policy.
(3) The benefit amount under the policy, unless the full amount of
the benefit is used to defray the costs of nonexempt employee
benefits.
(4) How benefits paid under the policy would be used.
(5) The name of the beneficiary under the policy.
(g) For a former employee, the disclosure requirements shall be
deemed satisfied if the employer mails the required information to
the former employee's last known address.
10110.5. A policy or endorsement issued by an admitted life and
disability insurer may contain a provision for a waiver of premium
payments in the event of involuntary unemployment of the insured.
Insurers issuing policies or endorsements which contain that
provision shall establish any additional reserves and file any
additional financial reports that the commissioner may require.
10111. In life or disability insurance, the only measure of
liability and damage is the sum or sums payable in the manner and at
the times as provided in the policy to the person entitled thereto.
10111.2. (a) Under a policy of disability income insurance, as
defined in subdivision (i) of Section 799.01, payment of benefits to
the insured shall be made within 30 calendar days after the insurer
has received all information needed to determine liability for a
claim. However, the 30-calendar-day period shall not include any time
during which the insurer is doing any of the following:
(1) Awaiting a response for relevant medical information from a
health care provider.
(2) Awaiting a response from the claimant to a request for
additional relevant information.
(3) Investigating possible fraud that has been reported to the
department's Fraud Division in compliance with subdivision (a) of
Section 1872.4.
(b) If the insurer has not received all information needed to
determine liability for a claim within 30 calendar days after receipt
of the claim, the insurer shall notify the insured in writing and
include a written list of all information it reasonably needs to
determine liability for the claim. In that event, the 30-calendar-day
period set out in subdivision (a) shall commence when the insured
has provided to the insurer all information in that notification. If
no notice is sent by the insurer within 30 calendar days after the
claim is filed by the insured, interest shall begin to accrue on the
payment of benefits on the 31st calendar day after receipt of the
claim, at the rate of 10 percent per year.
(c) When the insurer has received all information needed to
determine liability for a claim, and the insurer determines that
liability exists and fails to make payment of benefits to the insured
within 30 calendar days after the insurer has received that
information, any delayed payment shall bear interest, beginning the
31st calendar day, at the rate of 10 percent per year. Liability
shall, in all cases, be determined by the insurer within 30 calendar
days of receiving all information set out in the insurer's written
notification to the insured.
(d) Nothing in this section is intended to restrict any other
remedies available to an insured by statute or any other law.
10111.5. An insurer shall not be liable for payments claimed under
an individual or group policy of life insurance if the duty to make
those payments depends upon a factual determination of whether the
death of the insured was an accident or a suicide and that fact
cannot be established without an autopsy and the autopsy is
prohibited under Section 27491.43 of the Government Code. Insurers
refusing or delaying payments in those circumstances in good faith
shall not be liable for exemplary or punitive damages.
10111.7. (a) An insurer shall not deny or refuse to accept an
application for life insurance, or refuse to insure, refuse to renew,
cancel, restrict, or otherwise terminate a policy of life insurance,
or charge a different rate for the same life insurance coverage,
based solely upon the applicant's or insured's past or future lawful
travel destinations.
(b) Nothing in this section shall prohibit an insurer from
excluding or limiting coverage under a life insurance policy, or
refusing to offer life insurance, based upon lawful travel, or from
charging a different rate for that coverage, when that action is
based upon sound actuarial principles or is related to actual and
reasonably expected experience.
10112. Subject to Section 2459 of the Probate Code, in respect to
life or disability insurance, or annuity contracts (except as
provided in Sections 2500 to 2507, inclusive, of the Probate Code and
Section 3500 of the Probate Code and Chapter 4 (commencing with
Section 3600) of Part 8 of Division 4 of the Probate Code),
heretofore or hereafter issued to or upon the life of any person not
of the full age of 18 years for the benefit of such minor or for the
benefit of the father, mother, husband, wife, child, brother, or
sister, of such minor, or issued to such minor, subject to written
consent of a parent or guardian, upon the life of any person in whom
such minor has an insurable interest for the benefit of himself or
such minor's father, mother, husband, wife, child, brother or sister,
such minor shall not, by reason only of such minority, be deemed
incompetent to contract for such insurance or annuity, or for the
surrender thereof, or to exercise all contractual rights thereunder,
or, subject to approval of a parent or guardian, to give a valid
discharge for any benefit accruing or for any money payable
thereunder; provided, that all such contracts made by a minor under
the age of 16 years, as determined by the nearest birthday, shall
have the written consent of a parent or guardian, and that the
exercise of all contractual rights under such contracts, or the
surrender thereof, or the giving of a valid discharge for any benefit
accruing or money payable thereunder, in the case of a minor under
the age of 16 years, as determined by the nearest birthday, shall
have the written consent of a parent or guardian.
All such contracts made by a minor not of the full age of 18 years
which may result in any personal liability for assessment shall have
the written assumption of any such liability by a parent or guardian
in consideration of the issuance of the contract. Such assumption
shall be in a form approved by the commissioner, reasonably designed
to inform the parent or guardian of the liability thus assumed.
Such assumption of liability may be made a part of and included
with any written consent of such parent or guardian required under
other provisions of this section and it may be provided therein that
such assumption shall cover only up to the anniversary date of the
policy nearest to the member's birthday at which he or she attains
age 18.
10112.2. To the extent required under federal law, a group or
individual health insurance policy issued, amended, renewed, or
delivered on or after September 23, 2010, shall comply with Section
2713 of the federal Public Health Service Act (42 U.S.C. Sec.
300gg-13) and any rules or regulations issued under that section.
10112.3. (a) For purposes of this section, the following
definitions shall apply:
(1) "Exchange" means the California Health Benefit Exchange
established in Title 22 (commencing with Section 100500) of the
Government Code.
(2) "Federal act" means the federal Patient Protection and
Affordable Care Act (Public Law 111-148), as amended by the federal
Health Care and Education Reconciliation Act of 2010 (Public Law
111-152), and any amendments to, or regulations or guidance issued
under, those acts.
(3) "Qualified health plan" has the same as that term is defined
in Section 1301 of the federal act.
(4) "Small employer" has the same meaning as that term is defined
in Section 10700.
(b) Health insurers participating in the Exchange shall fairly and
affirmatively offer, market, and sell in the Exchange at least one
product within each of the five levels of coverage contained in
subdivisions (d) and (e) of Section 1302 of the federal act. The
board established under Section 100500 of the Government Code may
require insurers to sell additional products within each of those
levels of coverage. This subdivision shall not apply to an insurer
that solely offers supplemental coverage in the Exchange under
paragraph (10) of subdivision (a) of Section 100504 of the Government
Code.
(c) (1) Health insurers participating in the Exchange that sell
any products outside the Exchange shall do both of the following:
(A) Fairly and affirmatively offer, market, and sell all products
made available to individuals in the Exchange to individuals
purchasing coverage outside the Exchange.
(B) Fairly and affirmatively offer, market, and sell all products
made available to small employers in the Exchange to small employers
purchasing coverage outside the Exchange.
(2) For purposes of this subdivision, "product" does not include
contracts entered into pursuant to Part 6.2 (commencing with Section
12693) of Division 2 between the Managed Risk Medical Insurance Board
and health insurers for enrolled Healthy Families beneficiaries or
to contracts entered into pursuant to Chapter 7 (commencing with
Section 14000) of, or Chapter 8 (commencing with Section 14200) of,
Part 3 of Division 9 of the Welfare and Institutions Code between the
State Department of Health Care Services and health insurers for
enrolled Medi-Cal beneficiaries.
(d) Commencing January 1, 2014, a health insurer, with respect to
policies that cover hospital, medical, or surgical benefits, may only
sell the five levels of coverage contained in subdivisions (d) and
(e) of Section 1302 of the federal act, except that a health insurer
that does not participate in the Exchange may, with respect to
policies that cover hospital, medical, or surgical benefits only sell
the four levels of coverage contained in subdivision (d) of Section
1302 of the federal act.
(e) Commencing January 1, 2014, a health insurer that does not
participate in the Exchange shall, with respect to policies that
cover hospital, medical, or surgical expenses, offer at least one
standardized product that has been designated by the Exchange in each
of the four levels of coverage contained in subdivision (d) of
Section 1302 of the federal act. This subdivision shall only apply if
the board of the Exchange exercises its authority under subdivision
(c) of Section 100504 of the Government Code. Nothing in this
subdivision shall require an insurer that does not participate in the
Exchange to offer standardized products in the small employer market
if the insurer only sells products in the individual market. Nothing
in this subdivision shall require an insurer that does not
participate in the Exchange to offer standardized products in the
individual market if the insurer only sells products in the small
employer market. This subdivision shall not be construed to prohibit
the insurer from offering other products provided that it complies
with subdivision (d).
10112.4. The commissioner shall, in coordination with the Director
of the Department of Managed Health Care, review the Internet portal
developed by the United States Secretary of Health and Human Services
under subdivision (a) of Section 1103 of the federal Patient
Protection and Affordable Care Act (Public Law 111-148) and paragraph
(5) of subdivision (c) of Section 1311 of that act, and any
enhancements to that portal expected to be implemented by the
secretary on or before January 1, 2015. The review shall examine
whether the Internet portal provides sufficient information regarding
all health benefit products offered by health care service plans and
health insurers in the individual and small employer markets in
California to facilitate fair and affirmative marketing of all
individual and small employer products, particularly outside the
Health Benefit Exchange created under Title 22 (commencing with
Section 100500) of the Government Code. If the commissioner and the
Director of the Department of Managed Health Care jointly determine
that the Internet portal does not adequately achieve those purposes,
they shall jointly develop and maintain an electronic clearinghouse
to achieve those purposes. In performing this function, the
commissioner and the Director of the Department of Managed Health
Care shall routinely monitor individual and small employer benefit
filings with, and complaints submitted by individuals and small
employers to, their respective departments, and shall use any other
available means to maintain the clearinghouse.
10112.5. (a) Notwithstanding any other provision of law, every
policy or certificate of disability insurance covering hospital,
medical, or surgical expenses marketed, issued, or delivered to a
resident of this state, regardless of the situs of the contract or
master group policyholder, shall be subject to all provisions of this
code.
(b) Subdivision (a) shall not apply to a policy of disability
insurance that covers hospital, medical, or surgical expenses and
that is issued outside of California to an employer whose principle
place of business and majority of employees are located outside of
California.
(c) Nothing in subdivision (b) shall be construed to limit the
applicability of any other provision of this code to any policy of
disability insurance that covers hospital, medical, or surgical
expenses and that is issued outside of California to an employer
whose principle place of business and majority of employees are
located outside of California.
10112.6. (a) Consistent with federal law, a sponsor of a
prescription drug plan authorized by the federal Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (P.L.
108-173) shall hold a valid license as a life and disability insurer
issued by the department or as a health care service plan issued by
the Department of Managed Health Care.
(b) An entity that is licensed as a life and disability insurer
and that operates a prescription drug plan shall be subject to the
provisions of this code, unless preempted by federal law.
10113. Every policy of life, disability, or life and disability
insurance issued or delivered within this State on or after the first
day of January, 1936, by any insurer doing such business within this
State shall contain and be deemed to constitute the entire contract
between the parties and nothing shall be incorporated therein by
reference to any constitution, by-laws, rules, application or other
writings, of either of the parties thereto or of any other person,
unless the same are indorsed upon or attached to the policy; and all
statements purporting to be made by the insured shall, in the absence
of fraud, be representations and not warranties. Any waiver of the
provisions of this section shall be void.
10113.1. The following provisions shall apply to this act:
(a) "Advertisement" means any written, electronic, or printed
communication or any communication by means of recorded telephone
messages or transmitted 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 purpose of 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
insurance policy or an interest in a life insurance policy pursuant
to a life settlement contract.
(b) "Broker" means a person who, on behalf of an owner, and for a
fee, commission, or other valuable consideration, offers or attempts
to negotiate life settlement contracts between an owner and
providers. A broker represents only the owner and owes a fiduciary
duty to the owner to act according to the owner's instructions, and
in the best interest of the owner, notwithstanding the manner in
which the broker is compensated. A broker does not include an
attorney, certified public accountant, or financial planner retained
in the type of practice customarily performed in his or her
professional capacity to represent the owner whose compensation is
not paid directly or indirectly by the provider or any other person,
except the owner.
(c) "Business of life settlements" means an activity involved in,
but not limited to, offering to enter into, soliciting, negotiating,
procuring, effectuating, monitoring, or tracking of life settlement
contracts.
(d) "Commissioner" means the Insurance Commissioner.
(e) "Financing entity" means an underwriter, placement agent,
lender, purchaser of securities, purchaser of a policy or certificate
from a provider, credit enhancer, or any entity that has a direct
ownership in a policy or certificate that is the subject of a life
settlement contract, as to which both of the following apply:
(1) It is an entity whose principal activity related to the
transaction is providing funds to effect the life settlement contract
or purchase of one or more policies.
(2) It is an entity that has an agreement in writing with one or
more providers to finance the acquisition of life settlement
contracts.
(f) "Financing transaction" means a transaction in which a
licensed provider obtains financing from a financing entity,
including, without limitation, any secured or unsecured financing,
any securitization transaction, or any securities offering which
either is registered or exempt from registration under federal and
state securities law.
(g) "Fraudulent life settlement act" includes all of the
following:
(1) Acts or omissions committed by any person that, for the
purpose of depriving another of property or for pecuniary gain,
commits or permits its employees or its agents to engage in acts,
including, but not limited to, the following:
(A) Presenting, causing to be presented, or preparing with
knowledge and belief that it will be presented to or by a provider,
premium finance lender, broker, insurer, insurance producer, or any
other person, false material information, or concealing material
information, as part of, in support of, or concerning a fact material
to one or more of the following:
(i) An application for the issuance of a life settlement contract
or insurance policy.
(ii) The underwriting of a life settlement contract or insurance
policy.
(iii) A claim for payment or benefit pursuant to a life settlement
contract or insurance policy.
(iv) Premiums paid on an insurance policy.
(v) Payments and changes in ownership or beneficiary made in
accordance with the terms of a life settlement contract or insurance
policy.
(vi) The reinstatement or conversion of an insurance policy.
(vii) The solicitation, offer to enter into, or effectuation of, a
life settlement contract or insurance policy.
(viii) The issuance of written evidence of life settlement
contracts or insurance.
(ix) Any application for, or the existence of or any payments
related to, a loan secured directly or indirectly by any interest in
a life insurance policy.
(B) Entering into stranger-originated life insurance (STOLI).
(C) Employing any device, scheme, or artifice to defraud in the
business of life settlements.
(2) Any of the following that any person does, or permits his or
her employees or agents to do, in the furtherance of a fraud, or to
prevent the detection of a fraud:
(A) Remove, conceal, alter, destroy, or sequester from the
commissioner the assets or records of a licensee or other person
engaged in the business of life settlements.
(B) Misrepresent or conceal the financial condition of a licensee,
financing entity, insurer, or other person.
(C) Transact the business of life settlements in violation of laws
requiring a license, certificate of authority, or other legal
authority for the transaction of the business of life settlements.
(D) File with the commissioner or the chief insurance regulatory
official of another jurisdiction a document containing false
information or otherwise concealing information about a material fact
from the commissioner.
(E) Engage in embezzlement, theft, misappropriation, or conversion
of moneys, funds, premiums, credits, or other property of a
provider, insurer, insured, owner, insurance policyowner, or any
other person engaged in the business of life settlements or
insurance.
(F) Enter into, broker, or otherwise deal in a life settlement
contract, the subject of which is a life insurance policy that was
obtained by presenting false information concerning any fact material
to the policy or by concealing, for the purpose of misleading
another, information requested concerning any fact material to the
policy, where the owner or the owner's agent intended to defraud the
policy's issuer.
(G) Attempt to commit, assist, aid, or abet in the commission of,
or conspiracy to commit the acts or omissions specified in this
subdivision.
(H) Misrepresent the state of residence of an owner to be a state
or jurisdiction that does not have a law substantially similar to
this act for the purpose of evading or avoiding the provisions of
this act.
(h) "Insured" means the person covered under the policy being
considered for sale in a life settlement contract.
(i) "Life expectancy" means the arithmetic mean of the number of
months the insured under the life insurance policy to be settled can
be expected to live considering medical records and appropriate
experiential data.
(j) "Life insurance producer" means any person licensed in this
state as a resident or nonresident insurance agent who has received
qualification or authority for life insurance coverage or a life line
of coverage pursuant to Chapter 5 (commencing with Section 1621) of
Part 2 of Division 1.
(k) "Life settlement contract" means a written agreement
solicited, negotiated, or entered into in this state between a
provider and an owner, establishing the terms under which
compensation or any thing of value will be paid, which compensation
or thing of value is less than the expected death benefit of the
insurance policy or certificate, in return for the owner's
assignment, transfer, sale, devise, or bequest of the death benefit
or any portion of an insurance policy or certificate of insurance for
compensation, provided, however, that the minimum value for a life
settlement contract shall be greater than a cash surrender value or
accelerated death benefit available at the time of an application for
a life settlement contract. "Life settlement contract" also includes
the transfer for compensation or value of ownership or beneficial
interest in a trust or other entity that owns such policy if the
trust or other entity was formed or availed of for the principal
purpose of acquiring one or more life insurance contracts, which life
insurance contract is owned by a person residing in this state.
(1) A "life settlement contract" includes a premium finance loan
made for a policy on or before the date of issuance of the policy
where one or more of the following conditions apply:
(A) The loan proceeds are not used solely to pay premiums for the
policy and any costs or expenses incurred by the lender or the
borrower in connection with the financing.
(B) The owner receives on the date of the premium finance loan a
guarantee of the future life settlement value of the policy.
(C) The owner agrees on the date of the premium finance loan to
sell the policy or any portion of the policy's death benefit on any
date following the issuance of the policy, not including an agreement
to sell the policy in the event of a default, provided that the
default is not pursuant to an agreement or understanding with any
other person for the purpose of evading regulation under this act.
(2) "Life settlement contract" does not include any of the
following:
(A) A policy loan by a life insurance company pursuant to the
terms of the life insurance policy or accelerated death provisions
contained in the life insurance policy, whether issued with the
original policy or as a rider.
(B) A premium finance loan, as defined herein, or any loan made by
a bank or other licensed financial institution, provided that
neither default on the loan nor the transfer of the policy in
connection with the default is pursuant to an agreement or
understanding with any other person for the purpose of evading
regulation under this act.
(C) A collateral assignment of a life insurance policy by an
owner.
(D) A loan made by a lender that does not violate Article 5.8
(commencing with Section 778) of Chapter 1 of Part 2, provided the
loan is not described in paragraph (1), and is not otherwise within
the definition of life settlement contract.
(E) An agreement where all of the parties satisfy one of the
following conditions:
(i) They are closely related to the insured by blood or law.
(ii) They have a lawful substantial economic interest in the
continued life, health, and bodily safety of the person insured.
(iii) They are trusts established primarily for the benefit of
those parties.
(F) Any designation, consent, or agreement by an insured who is an
employee of an employer in connection with the purchase by the
employer, or by a trust established by the employer of life insurance
on the life of the employee.
(G) A bona fide business succession planning arrangement:
(i) Between one or more shareholders in a corporation or between a
corporation and one or more of its shareholders or one or more
trusts established by its shareholders.
(ii) Between one or more partners in a partnership or between a
partnership and one or more of its partners or one or more trusts
established by its partners.
(iii) Between one or more members in a limited liability company
or between a limited liability company and one or more of its members
or one or more trusts established by its members.
(H) An agreement entered into by a service recipient, or a trust
established by the service recipient, and a service provider, or a
trust established by the service provider, who performs significant
services for the service recipient's trade or business.
(I) Any other contract, transaction, or arrangement from the
definition of "life settlement contract" that the commissioner
determines is not of the type intended to be regulated by this act.
(l) "Net death benefit" means the amount of the life insurance
policy or certificate to be settled less any outstanding debts or
liens.
(m) "Owner" means the owner of a life insurance policy or a
certificate holder under a group policy, with or without a terminal
illness, who enters or seeks to enter into a life settlement
contract. For the purposes of this article, an owner shall not be
limited to an owner of a life insurance policy or a certificate
holder under a group policy that insures the life of an individual
with a terminal illness or condition except where specifically
addressed. The term "owner" does not include any of the following:
(1) Any provider or other licensee under this act.
(2) A qualified institutional buyer as defined in Rule 144A of the
federal Securities Act of 1933, as amended.
(3) A financing entity.
(4) A special purpose entity.
(5) A related provider trust.
(n) "Patient identifying information" means an insured's address,
telephone number, facsimile number, electronic mail address,
photograph or likeness, employer, employment status, social security
number, or any other information that is likely to lead to the
identification of the insured.
(o) "Person" means any natural person or legal entity, including,
but not limited to, a partnership, limited liability company,
association, trust, or corporation.
(p) "Policy" means an individual or group policy, group
certificate, contract, or arrangement of life insurance owned by a
resident of this state, regardless of whether delivered or issued for
delivery in this state.
(q) "Premium finance loan" is a loan made primarily for the
purpose of making premium payments on a life insurance policy, which
loan is secured by an interest in such life insurance policy.
(r) "Provider" means a person, other than an owner, who enters
into or effectuates a life settlement contract with an owner. A
provider does not include any of the following:
(1) Any bank, savings bank, savings and loan association, or
credit union.
(2) A licensed lending institution or creditor or secured party
pursuant to a premium finance loan agreement which takes an
assignment of a life insurance policy or certificate issued pursuant
to a group life insurance policy as collateral for a loan.
(3) The insurer of a life insurance policy or rider to the extent
of providing accelerated death benefits or riders or cash surrender
value.
(4) A purchaser.
(5) Any authorized or eligible insurer that provides stop loss
coverage to a provider, purchaser, financing entity, special purpose
entity, or related provider trust.
(6) A financing entity.
(7) A related provider trust.
(8) A broker.
(9) An accredited investor or qualified institutional buyer as
defined respectively in Regulation D, Rule 501 or Rule 144A of the
federal Securities Act of 1933, as amended, who purchases a life
settlement policy from a provider.
(s) "Purchaser" means a person who pays compensation or anything
of value as consideration for a beneficial interest in a trust which
is vested with, or for the assignment, transfer, or sale of, an
ownership or other interest in a life insurance policy or a
certificate issued pursuant to a group life insurance policy which
has been the subject of a life settlement contract.
(t) "Related provider trust" means a titling trust or other trust
established by a licensed provider or a financing entity for the sole
purpose of holding the ownership or beneficial interest in purchased
policies in connection with a financing transaction. In order to
qualify as a related provider trust, the trust must have a written
agreement with the licensed provider under which the licensed
provider is responsible for ensuring compliance with all statutory
and regulatory requirements and under which the trust agrees to make
all records and files relating to life settlement transactions
available to the Department of Insurance as if those records and
files were maintained directly by the licensed provider.
(u) "Settled policy" means a life insurance policy or certificate
that has been acquired by a provider pursuant to a life settlement
contract.
(v) "Special purpose entity" means a corporation, partnership,
trust, limited liability company, or other legal entity whose
securities pay a fixed rate of return commensurate with established
asset-backed capital markets, or has been formed solely to provide
either directly or indirectly access to institutional capital
markets:
(1) For a financing entity or provider.
(2) In connection with a transaction in which the securities in
the special purpose entity are acquired by the owner or by a
"qualified institutional buyer" as defined in Rule 144 promulgated
under the federal Securities Act of 1933, as amended.
(w) "Stranger-originated life insurance" or "STOLI" is an act,
practice, or arrangement to initiate the issuance of a life insurance
policy in this state for the benefit of a third-party investor who,
at the time of policy origination, has no insurable interest, under
the laws of this state, in the life of the insured. STOLI practices
include, but are not limited to, cases in which life insurance is
purchased with resources or guarantees from or through a person or
entity, that, at the time of policy inception, could not lawfully
initiate the policy himself, herself, or itself, and where, at the
time of inception, there is an arrangement or agreement, to directly
or indirectly transfer the ownership of the policy or the policy
benefits to a third party. Trusts that are created to give the
appearance of insurable interest and that are used to initiate
policies for investors violate insurable interest laws and the
prohibition against wagering on life. STOLI arrangements do not
include lawful life settlement contracts as permitted by the act that
added this section or those practices set forth in paragraph (2) of
subdivision (k), provided that they are not for the purpose of
evading regulation under this act.
(x) "Terminally ill" means having an illness or sickness that can
reasonably be expected to result in death in 24 months or less.
(y) "This act" shall refer to the act in the 2009-10 Regular
Session that added Sections 10113.1 to 10113.35, inclusive, and as it
may from time to time be amended.
10113.2. (a) This section applies to any person entering into,
brokering, or soliciting life settlements pursuant to this section
and Sections 10113.1 and 10113.3.
(b) (1) Except as provided in subparagraph (B) or (D), no person
may enter into, broker, or solicit life settlements pursuant to
Section 10113.1 unless that person has been licensed by the
commissioner under this section. The person shall file an application
for a license in the form prescribed by the commissioner, and the
application shall be accompanied by a fee established by the
commissioner. The license fees for a provider license shall be
reasonable and sufficient to cover the costs incurred by the
department to implement this act. The license and renewal fees for a
broker shall be reasonable and sufficient to cover the costs incurred
by the department to implement this act and shall not exceed the
license and renewal fees established for an insurance producer who is
acting as a life settlement broker. The applicant shall provide any
information the commissioner may require. The commissioner may issue
a license, or deny the application if, in his or her discretion, it
is determined that it is contrary to the interests of the public to
issue a license to the applicant. The reasons for a denial shall be
set forth in writing.
(A) An individual acting as a broker under this section shall
complete at least 15 hours of continuing education related to life
settlements and life settlement transactions, as required and
approved by the commissioner, prior to operating as a broker. This
requirement shall not apply to a life insurance producer who
qualifies under subparagraph (D).
(B) A person licensed as an attorney, certified public accountant,
or financial planner accredited by a nationally recognized
accreditation agency, who is retained to represent the owner, and
whose compensation is not paid directly or indirectly by the provider
or purchaser, may negotiate a life settlement contract on behalf of
the owner without having to obtain a license as a broker.
(C) A person licensed to act as a viatical settlement broker or
provider as of December 31, 2009, shall be deemed qualified for
licensure as a life settlement broker or provider, and shall be
subject to all the provisions of this article as if the person were
originally licensed as a life settlement broker or provider.
(D) (i) A life insurance producer who has been duly licensed as a
life agent for at least one year or as a licensed nonresident
producer in this state for one year shall be deemed to meet the
licensing requirements of this section and shall be permitted to
operate as a broker.
(ii) Not later than 10 days from the first day of operating as a
broker, the life insurance producer shall notify the commissioner
that he or she is acting as a broker, on a form prescribed by the
commissioner, and shall pay any applicable fee to be determined by
the commissioner.
(iii) The fee established by the commissioner shall be reasonable
and sufficient to cover the costs incurred by the department to
implement this act, but shall not be in excess of the license and
renewal fees paid by a life insurance producer. The fee shall be paid
by the life insurance producer for each license term the producer
intends to operate as a broker. The fee shall be calculated pursuant
to Section 1750. The notification to the commissioner shall include
an acknowledgment by the life insurance producer that he or she will
operate as a broker in accordance with this act.
(iv) The insurer that issued the policy that is the subject of a
life settlement contract shall not be responsible for any act or
omission of a broker or provider arising out of, or in connection
with, the life settlement transaction, unless the insurer receives
compensation for the replacement of the life settlement contract for
the provider or broker.
(E) The commissioner shall review the examination for the
licensing of life insurance agents and may recommend any changes to
the examination to the department's curriculum committee in order to
carry out the purposes of this section and Sections 10113.1 and
10113.3.
(2) Whenever it appears to the commissioner that it is contrary to
the interests of the public for a person licensed pursuant to this
section to continue to transact life settlements business, he or she
shall issue a notice to the licensee stating the reasons therefor.
If, after a hearing, the commissioner concludes that it is contrary
to the interests of the public for the licensee to continue to
transact life settlements business, he or she may revoke the person's
license, or issue an order suspending the license for a period as
determined by the commissioner. Any hearing conducted pursuant to
this paragraph shall be in accordance with Chapter 5 (commencing with
Section 11500) of Part 1 of Division 3 of Title 2 of the Government
Code, except that the hearing may be conducted by administrative law
judges chosen pursuant to Section 11502 or appointed by the
commissioner, and the commissioner shall have the powers granted
therein.
(3) Each licensee shall owe and pay in advance to the commissioner
an annual renewal fee in an amount to be determined by the
commissioner pursuant to paragraph (1) of subdivision (b). This fee
shall be for each license year, as defined by Section 1629.
(4) Any licensee that intends to discontinue transacting life
settlements in this state shall so notify the commissioner, and shall
surrender its license.
(c) A life settlements licensee shall file with the department a
copy of all life settlement forms used in this state. No licensee may
use any life settlement form in this state unless it has been
provided in advance to the commissioner. The commissioner may
disapprove a life settlement form if, in his or her discretion, the
form, or provisions contained therein, are contrary to the interests
of the public, or otherwise misleading or unfair to the consumer. In
the case of disapproval, the licensee may, within 15 days of notice
of the disapproval, request a hearing before the commissioner or his
or her designee, and the hearing shall be held within 30 days of the
request.
(d) Life settlements licensees shall be required to provide any
applicant for a life settlement contract, at the time of application
for the life settlement contract, all of the following disclosures in
writing and signed by the owner, in at least 12-point type:
(1) That there are possible alternatives to life settlements,
including, but not limited to, accelerated benefits options that may
be offered by the life insurer.
(2) The fact that some or all of the proceeds of a life settlement
may be taxable and that assistance should be sought from a
professional tax adviser.
(3) Consequences for interruption of public assistance as provided
by information provided by the State Department of Health Care
Services and the State Department of Social Services under Section
11022 of the Welfare and Institutions Code.
(4) That the proceeds from a life settlement could be subject to
the claims of creditors.
(5) That entering into a life settlement contract may cause other
rights or benefits, including conversion rights and waiver of premium
benefits that may exist under the policy or certificate of a group
policy to be forfeited by the owner and that assistance should be
sought from a professional financial adviser.
(6) That a change in ownership of the settled policy could limit
the insured's ability to purchase insurance in the future on the
insured's life because there is a limit to how much coverage insurers
will issue on one life.
(7) That the owner has a right to rescind a life settlement
contract within 30 days of the date it is executed by all parties and
the owner has received all required disclosures, or 15 days from
receipt by the owner of the proceeds of the settlement, whichever is
sooner. Rescission, if exercised by the owner, is effective only if
both notice of rescission is given and the owner repays all proceeds
and any premiums, loans, and loan interest paid on account of the
provider within the rescission period. If the insured dies during the
rescission period, the contract shall be deemed to have been
rescinded subject to repayment by the owner or the owner's estate of
all proceeds and any premiums, loans, and loan interest to the
provider.
(8) That proceeds will be sent to the owner within three business
days after the provider has received the insurer or group
administrator's acknowledgment that ownership of the policy or the
interest in the certificate has been transferred and the beneficiary
has been designated in accordance with the terms of the life
settlement contract.
(9) The date by which the funds will be available to the owner and
the transmitter of the funds.
(10) The disclosure document shall include the following language:
"All medical, financial, or personal information solicited or
obtained by a provider or broker about an insured, including the
insured's identity or the identity of family members, a spouse, or a
significant other may be disclosed as necessary to effect the life
settlement contract between the owner and provider. If you are asked
to provide this information, you will be asked to consent to the
disclosure. The information may be provided to someone who buys the
policy or provides funds for the purchase. You may be asked to renew
your permission to share information every two years."
(11) That the insured may be contacted by either the provider or
the broker or its authorized representative for the purpose of
determining the insured's health status or to verify the insured's
address. This contact is limited to once every three months if the
insured has a life expectancy of more than one year, and no more than
once per month if the insured has a life expectancy of one year or
less.
(12) Any affiliations or contractual relations between the
provider and the broker, and the affiliation, if any, between the
provider and the issuer of the policy to be settled.
(13) That a broker represents exclusively the owner, and not the
insurer or the provider or any other person, and owes a fiduciary
duty to the owner, including a duty to act according to the owner's
instructions and in the best interest of the owner.
(14) The name, business address, and telephone number of the
broker.
(e) Prior to the execution of the life settlement contract by all
parties, the life settlement provider entering into a life settlement
contract with the owner shall provide, in a document signed by the
owner, the gross purchase price the life settlement provider is
paying for the policy, the amount of the purchase price to be paid to
the owner, the amount of the purchase price to be paid to the owner'
s life settlement broker, and the name, business address, and
telephone number of the life settlement broker. For purposes of this
section, "gross purchase price" means the total amount or value paid
by the provider for the purchase of one or more life insurance
policies, including commissions and fees.
(f) The broker shall provide the owner and the insured with at
least all of the following disclosures in writing prior to the
signing of the life settlement contract by all parties. The
disclosures shall be clearly displayed in the life settlement
contract or in a separate document signed by the owner:
(1) The name, business address, and telephone number of the
broker.
(2) A full, complete, and accurate description of all of the
offers, counteroffers, acceptances, and rejections relating to the
proposed life settlement contract.
(3) A disclosure of any affiliations or contractual arrangements
between the broker and any person making an offer in connection with
the proposed life settlement contract.
(4) All estimates of the life expectancy of the insured which are
obtained by the licensee in connection with the life settlement,
unless such disclosure would violate any California or federal
privacy laws.
(5) The commissioner may consider any failure to provide the
disclosures or rights described in this section as a basis for
suspending or revoking a broker's or provider's license pursuant to
paragraph (2) of subdivision (b).
(g) All medical information solicited or obtained by any person
soliciting or entering into a life settlement is subject to Article
6.6 (commencing with Section 791) of Chapter 1 of Part 2 of Division
1, concerning confidentiality of medical information.
(h) Except as otherwise allowed or required by law, a provider,
broker, insurance company, insurance producer, information bureau,
rating agency, or company, or any other person with actual knowledge
of an insured's identity shall not disclose the identity of an
insured or information that there is a reasonable basis to believe
that could be used to identify the insured or the insured's financial
or medical information to any other person unless the disclosure is
one of the following:
(1) It is necessary to effect a life settlement contract between
the owner and a provider and the owner and insured have provided
prior written consent to the disclosure.
(2) It is necessary to effectuate the sale of life settlement
contracts, or interests therein, as investments, provided the sale is
conducted in accordance with applicable state and federal securities
law and provided further that the owner and the insured have both
provided prior written consent to the disclosure.
(3) It is provided in response to an investigation or examination
by the commissioner or any other governmental officer or agency or
any other provision of law.
(4) It is a term or condition to the transfer of a policy by one
provider to another provider, in which case the receiving provider
shall be required to comply with the confidentiality requirements of
Article 6.6 (commencing with Section 791) of Chapter 1 of Part 2 of
Division 1.
(5) It is necessary to allow the provider or broker or their
authorized representatives to make contacts for the purpose of
determining health status. For the purposes of this section, the term
"authorized representative" shall not include any person who has or
may have any financial interest in the settlement contract other than
a provider, licensed broker; further, a provider or broker shall
require its authorized representative to agree in writing to adhere
to the privacy provisions of this act.
(6) It is required to purchase stop loss coverage.
(i) In addition to other questions an insurance carrier may
lawfully pose to a life insurance applicant, insurance carriers may
inquire in the application for insurance whether the proposed owner
intends to pay premiums with the assistance of financing from a
lender that will use the policy as collateral to support the
financing.
(1) If the premium finance loan provides funds which can be used
for a purpose other than paying for the premiums, costs, and expenses
associated with obtaining and maintaining the life insurance policy
and loan, the application may be rejected as a prohibited practice
under this act.
(2) If the financing does not violate paragraph (1), the existence
of premium financing may not be the sole criterion employed by an
insurer in a decision whether to reject an application for life
insurance. The insurance carrier may make disclosures to the
applicant, either on the application or an amendment to the
application to be completed no later than the delivery of the policy,
including, but not limited to, the following:
"If you have entered into a loan arrangement where the policy is
used as collateral, and the policy changes ownership at some point in
the future in satisfaction of the loan, the following may be true:
"(A) A change of ownership could lead to a stranger owning an
interest in the insured's life.
"(B) A change of ownership could in the future limit your ability
to purchase insurance on the insured's life because there is a limit
to how much coverage insurers will issue on a life.
"(C) You should consult a professional adviser since a change in
ownership in satisfaction of the loan may result in tax consequences
to the owner, depending on the structure of the loan."
(3) In addition to the disclosures in paragraph (2), the insurance
carrier may require the following certifications from the applicant
or the insured:
"(A) I have not entered into any agreement or arrangement under
which I have agreed to make a future sale of this life insurance
policy.
"(B) My loan arrangement for this policy provides funds
sufficient to pay for some or all of the premiums, costs, and
expenses associated with obtaining and maintaining my life insurance
policy, but I have not entered into any agreement by which I am to
receive consideration in exchange for procuring this policy.
"(C) The borrower has an insurable interest in the insured."
(j) Life insurers shall provide individual life insurance
policyholders with a statement informing them that if they are
considering making changes in the status of their policy, they should
consult with a licensed insurance or financial advisor. The
statement may accompany or be included in notices or mailings
otherwise provided to the policyholders.
(k) The commissioner may adopt rules and regulations reasonably
necessary to govern life settlement transactions.
(l) The commissioner may, whenever he or she deems it reasonably
necessary to protect the interests of the public, examine the
business and affairs of any licensee or applicant for a license. The
commissioner shall have the authority to order any licensee or
applicant to produce any records, books, files, or other information
as is reasonably necessary to ascertain whether or not the licensee
or applicant is acting or has acted in violation of the law or
otherwise contrary to the interests of the public. The expenses
incurred in conducting any examination shall be paid by the licensee
or applicant.
(m) The commissioner may investigate the conduct of any licensee,
its officers, employees, agents, or any other person involved in the
business of the licensee, or any applicant for a license, whenever
the commissioner has reason to believe that the licensee or applicant
for a license may have acted, or may be acting, in violation of the
law, or otherwise contrary to the interests of the public. The
commissioner may initiate an investigation on his or her own, or upon
a complaint filed by any other person.
(n) The commissioner may issue orders to licensees whenever he or
she determines that it is reasonably necessary to ensure or obtain
compliance with this section, or Section 10113.3. This authority
includes, but is not limited to, orders directing a licensee to cease
and desist in any practice that is in violation of this section, or
Section 10113.3, or otherwise contrary to the interests of the
public. Any licensee to which an order pursuant to this subdivision
is issued may, within 15 days of receipt of that order, request a
hearing at which the licensee may challenge the order.
(o) The commissioner may, after notice and a hearing at which it
is determined that a licensee has violated this section or Section
10113.3 or any order issued pursuant to this section, order the
licensee to pay a monetary penalty of up to ten thousand dollars
($10,000), which may be recovered in a civil action. Any hearing
conducted pursuant to this subdivision shall be in accordance with
Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of
Title 2 of the Government Code, except that the hearing may be
conducted by administrative law judges chosen pursuant to Section
11502 or appointed by the commissioner, and the commissioner shall
have the powers granted therein.
(p) Each licensed provider shall file with the commissioner on or
before March 1 of each year an annual statement in the form
prescribed by the commissioner. The information that the commissioner
may require in the annual statement shall include, but not be
limited to, the total number, aggregate face amount, and life
settlement proceeds of policies settled during the immediately
preceding calendar year, together with a breakdown of the information
by policy issue year. The annual statement shall also include the
names of the insurance companies whose policies have been settled and
the brokers that have settled those policies, and that information
shall be received in confidence within the meaning of subdivision (d)
of Section 6254 of the Government Code and exempt from disclosure
pursuant to the Public Records Act (Chapter 3.5 (commencing with
Section 6250) of Division 7 of Title 1 of the Government Code). The
annual statement shall not include individual transaction data
regarding the business of life settlements or information that there
is a reasonable basis to believe could be used to identify the owner
or the insured.
(q) No person who is not a resident of California may receive or
maintain a license unless a written designation of an agent for
service of process is filed and maintained with the commissioner. The
provisions of Article 3 (commencing with Section 1600) of Chapter 4
of Part 2 shall apply to life settlements licensees as if they were
foreign insurers, their license a certificate of authority, and the
life settlements a policy, and the commissioner may modify the
agreement set forth in Section 1604 accordingly.
(r) No person licensed pursuant to this section shall engage in
any false or misleading advertising, solicitation, or practice. In no
case shall a broker or provider, directly or indirectly, market,
advertise, solicit, or otherwise promote the purchase of a new policy
for the sole purpose of or with a primary emphasis on settling the
policy or use the words "free," "no cost," or words of similar import
in the marketing, advertising, soliciting, or otherwise promoting of
the purchase of a policy. The provisions of Article 6 (commencing
with Section 780) and Article 6.5 (commencing with Section 790) of
Chapter 1 of Part 2 shall apply to life settlements licensees as if
they were insurers, their license a certificate of authority or
producer's license, and the life settlements a policy, and the
commissioner shall liberally construe these provisions so as to
protect the interests of the public.
(s) Any person who enters into a life settlement with a life
settlements licensee shall have the absolute right to rescind the
settlement within 30 days of the date it is executed by all parties
and the owner has received all required disclosures, or 15 days from
receipt by the owner of the proceeds of the settlement, whichever is
sooner, and any waiver or settlement language contrary to this
subdivision shall be void. Rescission, if exercised by the owner, is
effective only if both notice of rescission is given and the owner
repays all proceeds and any premiums, loans, and loan interest paid
on account of the provider within the rescission period. If the
insured dies during the rescission period, the contract shall be
deemed to have been rescinded subject to repayment by the owner or
the owner's estate of all proceeds and any premiums, loans, and loan
interest to the provider.
(t) Records of all consummated transactions and life settlement
contracts shall be maintained by the provider for three years after
the death of the insured and shall be available to the commissioner
for inspection during reasonable business hours.
(u) A violation of this section is a misdemeanor.
10113.3. (a) A provider entering into a life settlement contract
with any owner of a policy, wherein the insured is terminally ill,
shall first obtain the following:
(1) If the owner is the insured, a written statement from a
licensed attending physician that the owner is of sound mind and
under no constraint or undue influence to enter into a settlement
contract.
(2) A document in which the insured consents to the release of his
or her medical records to a provider, settlement broker, or
insurance producer and, if the policy was issued less than two years
from the date of application for a settlement contract, to the
insurance company that issued the policy.
(b) The insurer shall respond to a request for verification of
coverage submitted by a provider, settlement broker, or life
insurance producer not later than 30 calendar days of the date the
request is received. The request for verification of coverage must be
made on a form approved by the commissioner. The insurer shall
complete and issue the verification of coverage or indicate in which
respects it is unable to respond. In its response, the insurer shall
indicate whether, based on the medical evidence and documents
provided, the insurer intends to pursue an investigation at this time
regarding the validity of the insurance contract.
(c) Before or at the time of execution of the settlement contract,
the provider shall obtain a witnessed document in which the owner
consents to the settlement contract, represents that the owner has a
full and complete understanding of the settlement contract and a full
and complete understanding of the benefits of the policy,
acknowledges that the owner is entering into the settlement contract
freely and voluntarily, and, for persons with a terminal illness or
condition, acknowledges that the insured has a terminal illness and
that the terminal illness or condition was diagnosed after the po
10110. Every person has an insurable interest in the life and
health of:
(a) Himself.
(b) Any person on whom he depends wholly or in part for education
or support.
(c) Any person under a legal obligation to him for the payment of
money or respecting property or services, of which death or illness
might delay or prevent the performance.
(d) Any person upon whose life any estate or interest vested in
him depends.
10110.1. (a) An insurable interest, with reference to life and
disability insurance, is an interest based upon a reasonable
expectation of pecuniary advantage through the continued life,
health, or bodily safety of another person and consequent loss by
reason of that person's death or disability or a substantial interest
engendered by love and affection in the case of individuals closely
related by blood or law.
(b) An individual has an unlimited insurable interest in his or
her own life, health, and bodily safety and may lawfully take out a
policy of insurance on his or her own life, health, or bodily safety
and have the policy made payable to whomsoever he or she pleases,
regardless of whether the beneficiary designated has an insurable
interest.
(c) Except as provided in Section 10110.4, an employer has an
insurable interest, as referred to in subdivision (a), in the life or
physical or mental ability of any of its directors, officers, or
employees or the directors, officers, or employees of any of its
subsidiaries or any other person whose death or physical or mental
disability might cause financial loss to the employer; or, pursuant
to any contractual arrangement with any shareholder concerning the
reacquisition of shares owned by the shareholder at the time of his
or her death or disability, on the life or physical or mental ability
of that shareholder for the purpose of carrying out the contractual
arrangement; or, pursuant to any contract obligating the employer as
part of compensation arrangements or pursuant to a contract
obligating the employer as guarantor or surety, on the life of the
principal obligor. The trustee of an employer or trustee of a
pension, welfare benefit plan, or trust established by an employer
providing life, health, disability, retirement, or similar benefits
to employees and retired employees of the employer or its affiliates
and acting in a fiduciary capacity with respect to those employees,
retired employees, or their dependents or beneficiaries has an
insurable interest in the lives of employees and retired employees
for whom those benefits are to be provided. The employer shall obtain
the written consent of the individual being insured.
(d) Trusts and special purpose entities that are used to apply for
and initiate the issuance of policies of insurance for investors,
where one or more beneficiaries of those trusts or special purpose
entities do not have an insurable interest in the life of the
insured, violate the insurable interest laws and the prohibition
against wagering on life.
(e) Any device, scheme, or artifice designed to give the
appearance of an insurable interest where there is no legitimate
insurable interest violates the insurable interest laws.
(f) An insurable interest shall be required to exist at the time
the contract of life or disability insurance becomes effective, but
need not exist at the time the loss occurs.
(g) Any contract of life or disability insurance procured or
caused to be procured upon another individual is void unless the
person applying for the insurance has an insurable interest in the
individual insured at the time of the application.
(h) Notwithstanding subdivisions (a), (f), and (g), a charitable
organization that meets the requirements of Section 214 or 23701d of
the Revenue and Taxation Code may effectuate life or disability
insurance on an insured who consents to the issuance of that
insurance.
(i) This section shall not be interpreted to define all instances
in which an insurable interest exists.
10110.2. An insurer shall be entitled to rely upon all statements,
declarations, and representations made by an applicant for insurance
relative to the insurable interest that the applicant has in the
insured, and no insurer shall incur any legal liability except as set
forth in the policy, by virtue of any untrue statements,
declarations, or representations so relied upon in good faith by the
insurer.
10110.3. (a) An insurer may not issue an individual life insurance
policy to an applicant that insures the life of the applicant's
spouse unless the applicant's spouse has signed the policy
application or has otherwise been notified in advance of the issuance
of the policy.
(b) This section shall apply to policies of individual life
insurance with face amounts exceeding fifty thousand dollars
($50,000) that are issued on or after July 1, 2004.
10110.4. (a) Except as allowed in subdivision (c), an insurer may
not issue or deliver a corporate-owned life insurance policy.
(b) "Corporate-owned life insurance policy" means a life insurance
policy that is purchased by a California employer, that designates
the employer as the beneficiary of the policy, and that insures the
life of a California resident who is a current or former employee of
the employer.
(c) This section does not apply to a policy insuring the life of a
current or former exempt employee. An exempt employee is an
administrative, executive, or professional employee who is exempt
under Section 515 of the Labor Code and the regulations adopted
pursuant thereto.
(d) Except as provided in subdivision (f), it is a violation of
public policy for a California employer to purchase or hold a
corporate-owned life insurance policy.
(e) (1) A corporate-owned life insurance policy purchased on or
after the effective date of this section is void.
(2) Except as provided in subdivision (f), a corporate-owned life
insurance policy purchased prior to the effective date of this
section shall become void on the next premium payment date on or
after the date five years from the effective date of this section,
but no later than January 1, 2010.
(f) A corporate-owned life insurance policy purchased prior to the
effective date of this section that insures the life of a current or
former nonexempt employee shall continue in force after the
effective date of this section provided that no further premium
payments are made after the effective date of this section. However,
an employer who has purchased and holds such a corporate-owned life
insurance policy shall disclose in writing to the current or former
nonexempt employee whose life is insured by the policy, within 90
days of the effective date of this section, all of the following
information:
(1) The existence of the corporate-owned life insurance policy on
the life of the nonexempt employee.
(2) The identity of the insurer under the policy.
(3) The benefit amount under the policy, unless the full amount of
the benefit is used to defray the costs of nonexempt employee
benefits.
(4) How benefits paid under the policy would be used.
(5) The name of the beneficiary under the policy.
(g) For a former employee, the disclosure requirements shall be
deemed satisfied if the employer mails the required information to
the former employee's last known address.
10110.5. A policy or endorsement issued by an admitted life and
disability insurer may contain a provision for a waiver of premium
payments in the event of involuntary unemployment of the insured.
Insurers issuing policies or endorsements which contain that
provision shall establish any additional reserves and file any
additional financial reports that the commissioner may require.
10111. In life or disability insurance, the only measure of
liability and damage is the sum or sums payable in the manner and at
the times as provided in the policy to the person entitled thereto.
10111.2. (a) Under a policy of disability income insurance, as
defined in subdivision (i) of Section 799.01, payment of benefits to
the insured shall be made within 30 calendar days after the insurer
has received all information needed to determine liability for a
claim. However, the 30-calendar-day period shall not include any time
during which the insurer is doing any of the following:
(1) Awaiting a response for relevant medical information from a
health care provider.
(2) Awaiting a response from the claimant to a request for
additional relevant information.
(3) Investigating possible fraud that has been reported to the
department's Fraud Division in compliance with subdivision (a) of
Section 1872.4.
(b) If the insurer has not received all information needed to
determine liability for a claim within 30 calendar days after receipt
of the claim, the insurer shall notify the insured in writing and
include a written list of all information it reasonably needs to
determine liability for the claim. In that event, the 30-calendar-day
period set out in subdivision (a) shall commence when the insured
has provided to the insurer all information in that notification. If
no notice is sent by the insurer within 30 calendar days after the
claim is filed by the insured, interest shall begin to accrue on the
payment of benefits on the 31st calendar day after receipt of the
claim, at the rate of 10 percent per year.
(c) When the insurer has received all information needed to
determine liability for a claim, and the insurer determines that
liability exists and fails to make payment of benefits to the insured
within 30 calendar days after the insurer has received that
information, any delayed payment shall bear interest, beginning the
31st calendar day, at the rate of 10 percent per year. Liability
shall, in all cases, be determined by the insurer within 30 calendar
days of receiving all information set out in the insurer's written
notification to the insured.
(d) Nothing in this section is intended to restrict any other
remedies available to an insured by statute or any other law.
10111.5. An insurer shall not be liable for payments claimed under
an individual or group policy of life insurance if the duty to make
those payments depends upon a factual determination of whether the
death of the insured was an accident or a suicide and that fact
cannot be established without an autopsy and the autopsy is
prohibited under Section 27491.43 of the Government Code. Insurers
refusing or delaying payments in those circumstances in good faith
shall not be liable for exemplary or punitive damages.
10111.7. (a) An insurer shall not deny or refuse to accept an
application for life insurance, or refuse to insure, refuse to renew,
cancel, restrict, or otherwise terminate a policy of life insurance,
or charge a different rate for the same life insurance coverage,
based solely upon the applicant's or insured's past or future lawful
travel destinations.
(b) Nothing in this section shall prohibit an insurer from
excluding or limiting coverage under a life insurance policy, or
refusing to offer life insurance, based upon lawful travel, or from
charging a different rate for that coverage, when that action is
based upon sound actuarial principles or is related to actual and
reasonably expected experience.
10112. Subject to Section 2459 of the Probate Code, in respect to
life or disability insurance, or annuity contracts (except as
provided in Sections 2500 to 2507, inclusive, of the Probate Code and
Section 3500 of the Probate Code and Chapter 4 (commencing with
Section 3600) of Part 8 of Division 4 of the Probate Code),
heretofore or hereafter issued to or upon the life of any person not
of the full age of 18 years for the benefit of such minor or for the
benefit of the father, mother, husband, wife, child, brother, or
sister, of such minor, or issued to such minor, subject to written
consent of a parent or guardian, upon the life of any person in whom
such minor has an insurable interest for the benefit of himself or
such minor's father, mother, husband, wife, child, brother or sister,
such minor shall not, by reason only of such minority, be deemed
incompetent to contract for such insurance or annuity, or for the
surrender thereof, or to exercise all contractual rights thereunder,
or, subject to approval of a parent or guardian, to give a valid
discharge for any benefit accruing or for any money payable
thereunder; provided, that all such contracts made by a minor under
the age of 16 years, as determined by the nearest birthday, shall
have the written consent of a parent or guardian, and that the
exercise of all contractual rights under such contracts, or the
surrender thereof, or the giving of a valid discharge for any benefit
accruing or money payable thereunder, in the case of a minor under
the age of 16 years, as determined by the nearest birthday, shall
have the written consent of a parent or guardian.
All such contracts made by a minor not of the full age of 18 years
which may result in any personal liability for assessment shall have
the written assumption of any such liability by a parent or guardian
in consideration of the issuance of the contract. Such assumption
shall be in a form approved by the commissioner, reasonably designed
to inform the parent or guardian of the liability thus assumed.
Such assumption of liability may be made a part of and included
with any written consent of such parent or guardian required under
other provisions of this section and it may be provided therein that
such assumption shall cover only up to the anniversary date of the
policy nearest to the member's birthday at which he or she attains
age 18.
10112.2. To the extent required under federal law, a group or
individual health insurance policy issued, amended, renewed, or
delivered on or after September 23, 2010, shall comply with Section
2713 of the federal Public Health Service Act (42 U.S.C. Sec.
300gg-13) and any rules or regulations issued under that section.
10112.3. (a) For purposes of this section, the following
definitions shall apply:
(1) "Exchange" means the California Health Benefit Exchange
established in Title 22 (commencing with Section 100500) of the
Government Code.
(2) "Federal act" means the federal Patient Protection and
Affordable Care Act (Public Law 111-148), as amended by the federal
Health Care and Education Reconciliation Act of 2010 (Public Law
111-152), and any amendments to, or regulations or guidance issued
under, those acts.
(3) "Qualified health plan" has the same as that term is defined
in Section 1301 of the federal act.
(4) "Small employer" has the same meaning as that term is defined
in Section 10700.
(b) Health insurers participating in the Exchange shall fairly and
affirmatively offer, market, and sell in the Exchange at least one
product within each of the five levels of coverage contained in
subdivisions (d) and (e) of Section 1302 of the federal act. The
board established under Section 100500 of the Government Code may
require insurers to sell additional products within each of those
levels of coverage. This subdivision shall not apply to an insurer
that solely offers supplemental coverage in the Exchange under
paragraph (10) of subdivision (a) of Section 100504 of the Government
Code.
(c) (1) Health insurers participating in the Exchange that sell
any products outside the Exchange shall do both of the following:
(A) Fairly and affirmatively offer, market, and sell all products
made available to individuals in the Exchange to individuals
purchasing coverage outside the Exchange.
(B) Fairly and affirmatively offer, market, and sell all products
made available to small employers in the Exchange to small employers
purchasing coverage outside the Exchange.
(2) For purposes of this subdivision, "product" does not include
contracts entered into pursuant to Part 6.2 (commencing with Section
12693) of Division 2 between the Managed Risk Medical Insurance Board
and health insurers for enrolled Healthy Families beneficiaries or
to contracts entered into pursuant to Chapter 7 (commencing with
Section 14000) of, or Chapter 8 (commencing with Section 14200) of,
Part 3 of Division 9 of the Welfare and Institutions Code between the
State Department of Health Care Services and health insurers for
enrolled Medi-Cal beneficiaries.
(d) Commencing January 1, 2014, a health insurer, with respect to
policies that cover hospital, medical, or surgical benefits, may only
sell the five levels of coverage contained in subdivisions (d) and
(e) of Section 1302 of the federal act, except that a health insurer
that does not participate in the Exchange may, with respect to
policies that cover hospital, medical, or surgical benefits only sell
the four levels of coverage contained in subdivision (d) of Section
1302 of the federal act.
(e) Commencing January 1, 2014, a health insurer that does not
participate in the Exchange shall, with respect to policies that
cover hospital, medical, or surgical expenses, offer at least one
standardized product that has been designated by the Exchange in each
of the four levels of coverage contained in subdivision (d) of
Section 1302 of the federal act. This subdivision shall only apply if
the board of the Exchange exercises its authority under subdivision
(c) of Section 100504 of the Government Code. Nothing in this
subdivision shall require an insurer that does not participate in the
Exchange to offer standardized products in the small employer market
if the insurer only sells products in the individual market. Nothing
in this subdivision shall require an insurer that does not
participate in the Exchange to offer standardized products in the
individual market if the insurer only sells products in the small
employer market. This subdivision shall not be construed to prohibit
the insurer from offering other products provided that it complies
with subdivision (d).
10112.4. The commissioner shall, in coordination with the Director
of the Department of Managed Health Care, review the Internet portal
developed by the United States Secretary of Health and Human Services
under subdivision (a) of Section 1103 of the federal Patient
Protection and Affordable Care Act (Public Law 111-148) and paragraph
(5) of subdivision (c) of Section 1311 of that act, and any
enhancements to that portal expected to be implemented by the
secretary on or before January 1, 2015. The review shall examine
whether the Internet portal provides sufficient information regarding
all health benefit products offered by health care service plans and
health insurers in the individual and small employer markets in
California to facilitate fair and affirmative marketing of all
individual and small employer products, particularly outside the
Health Benefit Exchange created under Title 22 (commencing with
Section 100500) of the Government Code. If the commissioner and the
Director of the Department of Managed Health Care jointly determine
that the Internet portal does not adequately achieve those purposes,
they shall jointly develop and maintain an electronic clearinghouse
to achieve those purposes. In performing this function, the
commissioner and the Director of the Department of Managed Health
Care shall routinely monitor individual and small employer benefit
filings with, and complaints submitted by individuals and small
employers to, their respective departments, and shall use any other
available means to maintain the clearinghouse.
10112.5. (a) Notwithstanding any other provision of law, every
policy or certificate of disability insurance covering hospital,
medical, or surgical expenses marketed, issued, or delivered to a
resident of this state, regardless of the situs of the contract or
master group policyholder, shall be subject to all provisions of this
code.
(b) Subdivision (a) shall not apply to a policy of disability
insurance that covers hospital, medical, or surgical expenses and
that is issued outside of California to an employer whose principle
place of business and majority of employees are located outside of
California.
(c) Nothing in subdivision (b) shall be construed to limit the
applicability of any other provision of this code to any policy of
disability insurance that covers hospital, medical, or surgical
expenses and that is issued outside of California to an employer
whose principle place of business and majority of employees are
located outside of California.
10112.6. (a) Consistent with federal law, a sponsor of a
prescription drug plan authorized by the federal Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (P.L.
108-173) shall hold a valid license as a life and disability insurer
issued by the department or as a health care service plan issued by
the Department of Managed Health Care.
(b) An entity that is licensed as a life and disability insurer
and that operates a prescription drug plan shall be subject to the
provisions of this code, unless preempted by federal law.
10113. Every policy of life, disability, or life and disability
insurance issued or delivered within this State on or after the first
day of January, 1936, by any insurer doing such business within this
State shall contain and be deemed to constitute the entire contract
between the parties and nothing shall be incorporated therein by
reference to any constitution, by-laws, rules, application or other
writings, of either of the parties thereto or of any other person,
unless the same are indorsed upon or attached to the policy; and all
statements purporting to be made by the insured shall, in the absence
of fraud, be representations and not warranties. Any waiver of the
provisions of this section shall be void.
10113.1. The following provisions shall apply to this act:
(a) "Advertisement" means any written, electronic, or printed
communication or any communication by means of recorded telephone
messages or transmitted 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 purpose of 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
insurance policy or an interest in a life insurance policy pursuant
to a life settlement contract.
(b) "Broker" means a person who, on behalf of an owner, and for a
fee, commission, or other valuable consideration, offers or attempts
to negotiate life settlement contracts between an owner and
providers. A broker represents only the owner and owes a fiduciary
duty to the owner to act according to the owner's instructions, and
in the best interest of the owner, notwithstanding the manner in
which the broker is compensated. A broker does not include an
attorney, certified public accountant, or financial planner retained
in the type of practice customarily performed in his or her
professional capacity to represent the owner whose compensation is
not paid directly or indirectly by the provider or any other person,
except the owner.
(c) "Business of life settlements" means an activity involved in,
but not limited to, offering to enter into, soliciting, negotiating,
procuring, effectuating, monitoring, or tracking of life settlement
contracts.
(d) "Commissioner" means the Insurance Commissioner.
(e) "Financing entity" means an underwriter, placement agent,
lender, purchaser of securities, purchaser of a policy or certificate
from a provider, credit enhancer, or any entity that has a direct
ownership in a policy or certificate that is the subject of a life
settlement contract, as to which both of the following apply:
(1) It is an entity whose principal activity related to the
transaction is providing funds to effect the life settlement contract
or purchase of one or more policies.
(2) It is an entity that has an agreement in writing with one or
more providers to finance the acquisition of life settlement
contracts.
(f) "Financing transaction" means a transaction in which a
licensed provider obtains financing from a financing entity,
including, without limitation, any secured or unsecured financing,
any securitization transaction, or any securities offering which
either is registered or exempt from registration under federal and
state securities law.
(g) "Fraudulent life settlement act" includes all of the
following:
(1) Acts or omissions committed by any person that, for the
purpose of depriving another of property or for pecuniary gain,
commits or permits its employees or its agents to engage in acts,
including, but not limited to, the following:
(A) Presenting, causing to be presented, or preparing with
knowledge and belief that it will be presented to or by a provider,
premium finance lender, broker, insurer, insurance producer, or any
other person, false material information, or concealing material
information, as part of, in support of, or concerning a fact material
to one or more of the following:
(i) An application for the issuance of a life settlement contract
or insurance policy.
(ii) The underwriting of a life settlement contract or insurance
policy.
(iii) A claim for payment or benefit pursuant to a life settlement
contract or insurance policy.
(iv) Premiums paid on an insurance policy.
(v) Payments and changes in ownership or beneficiary made in
accordance with the terms of a life settlement contract or insurance
policy.
(vi) The reinstatement or conversion of an insurance policy.
(vii) The solicitation, offer to enter into, or effectuation of, a
life settlement contract or insurance policy.
(viii) The issuance of written evidence of life settlement
contracts or insurance.
(ix) Any application for, or the existence of or any payments
related to, a loan secured directly or indirectly by any interest in
a life insurance policy.
(B) Entering into stranger-originated life insurance (STOLI).
(C) Employing any device, scheme, or artifice to defraud in the
business of life settlements.
(2) Any of the following that any person does, or permits his or
her employees or agents to do, in the furtherance of a fraud, or to
prevent the detection of a fraud:
(A) Remove, conceal, alter, destroy, or sequester from the
commissioner the assets or records of a licensee or other person
engaged in the business of life settlements.
(B) Misrepresent or conceal the financial condition of a licensee,
financing entity, insurer, or other person.
(C) Transact the business of life settlements in violation of laws
requiring a license, certificate of authority, or other legal
authority for the transaction of the business of life settlements.
(D) File with the commissioner or the chief insurance regulatory
official of another jurisdiction a document containing false
information or otherwise concealing information about a material fact
from the commissioner.
(E) Engage in embezzlement, theft, misappropriation, or conversion
of moneys, funds, premiums, credits, or other property of a
provider, insurer, insured, owner, insurance policyowner, or any
other person engaged in the business of life settlements or
insurance.
(F) Enter into, broker, or otherwise deal in a life settlement
contract, the subject of which is a life insurance policy that was
obtained by presenting false information concerning any fact material
to the policy or by concealing, for the purpose of misleading
another, information requested concerning any fact material to the
policy, where the owner or the owner's agent intended to defraud the
policy's issuer.
(G) Attempt to commit, assist, aid, or abet in the commission of,
or conspiracy to commit the acts or omissions specified in this
subdivision.
(H) Misrepresent the state of residence of an owner to be a state
or jurisdiction that does not have a law substantially similar to
this act for the purpose of evading or avoiding the provisions of
this act.
(h) "Insured" means the person covered under the policy being
considered for sale in a life settlement contract.
(i) "Life expectancy" means the arithmetic mean of the number of
months the insured under the life insurance policy to be settled can
be expected to live considering medical records and appropriate
experiential data.
(j) "Life insurance producer" means any person licensed in this
state as a resident or nonresident insurance agent who has received
qualification or authority for life insurance coverage or a life line
of coverage pursuant to Chapter 5 (commencing with Section 1621) of
Part 2 of Division 1.
(k) "Life settlement contract" means a written agreement
solicited, negotiated, or entered into in this state between a
provider and an owner, establishing the terms under which
compensation or any thing of value will be paid, which compensation
or thing of value is less than the expected death benefit of the
insurance policy or certificate, in return for the owner's
assignment, transfer, sale, devise, or bequest of the death benefit
or any portion of an insurance policy or certificate of insurance for
compensation, provided, however, that the minimum value for a life
settlement contract shall be greater than a cash surrender value or
accelerated death benefit available at the time of an application for
a life settlement contract. "Life settlement contract" also includes
the transfer for compensation or value of ownership or beneficial
interest in a trust or other entity that owns such policy if the
trust or other entity was formed or availed of for the principal
purpose of acquiring one or more life insurance contracts, which life
insurance contract is owned by a person residing in this state.
(1) A "life settlement contract" includes a premium finance loan
made for a policy on or before the date of issuance of the policy
where one or more of the following conditions apply:
(A) The loan proceeds are not used solely to pay premiums for the
policy and any costs or expenses incurred by the lender or the
borrower in connection with the financing.
(B) The owner receives on the date of the premium finance loan a
guarantee of the future life settlement value of the policy.
(C) The owner agrees on the date of the premium finance loan to
sell the policy or any portion of the policy's death benefit on any
date following the issuance of the policy, not including an agreement
to sell the policy in the event of a default, provided that the
default is not pursuant to an agreement or understanding with any
other person for the purpose of evading regulation under this act.
(2) "Life settlement contract" does not include any of the
following:
(A) A policy loan by a life insurance company pursuant to the
terms of the life insurance policy or accelerated death provisions
contained in the life insurance policy, whether issued with the
original policy or as a rider.
(B) A premium finance loan, as defined herein, or any loan made by
a bank or other licensed financial institution, provided that
neither default on the loan nor the transfer of the policy in
connection with the default is pursuant to an agreement or
understanding with any other person for the purpose of evading
regulation under this act.
(C) A collateral assignment of a life insurance policy by an
owner.
(D) A loan made by a lender that does not violate Article 5.8
(commencing with Section 778) of Chapter 1 of Part 2, provided the
loan is not described in paragraph (1), and is not otherwise within
the definition of life settlement contract.
(E) An agreement where all of the parties satisfy one of the
following conditions:
(i) They are closely related to the insured by blood or law.
(ii) They have a lawful substantial economic interest in the
continued life, health, and bodily safety of the person insured.
(iii) They are trusts established primarily for the benefit of
those parties.
(F) Any designation, consent, or agreement by an insured who is an
employee of an employer in connection with the purchase by the
employer, or by a trust established by the employer of life insurance
on the life of the employee.
(G) A bona fide business succession planning arrangement:
(i) Between one or more shareholders in a corporation or between a
corporation and one or more of its shareholders or one or more
trusts established by its shareholders.
(ii) Between one or more partners in a partnership or between a
partnership and one or more of its partners or one or more trusts
established by its partners.
(iii) Between one or more members in a limited liability company
or between a limited liability company and one or more of its members
or one or more trusts established by its members.
(H) An agreement entered into by a service recipient, or a trust
established by the service recipient, and a service provider, or a
trust established by the service provider, who performs significant
services for the service recipient's trade or business.
(I) Any other contract, transaction, or arrangement from the
definition of "life settlement contract" that the commissioner
determines is not of the type intended to be regulated by this act.
(l) "Net death benefit" means the amount of the life insurance
policy or certificate to be settled less any outstanding debts or
liens.
(m) "Owner" means the owner of a life insurance policy or a
certificate holder under a group policy, with or without a terminal
illness, who enters or seeks to enter into a life settlement
contract. For the purposes of this article, an owner shall not be
limited to an owner of a life insurance policy or a certificate
holder under a group policy that insures the life of an individual
with a terminal illness or condition except where specifically
addressed. The term "owner" does not include any of the following:
(1) Any provider or other licensee under this act.
(2) A qualified institutional buyer as defined in Rule 144A of the
federal Securities Act of 1933, as amended.
(3) A financing entity.
(4) A special purpose entity.
(5) A related provider trust.
(n) "Patient identifying information" means an insured's address,
telephone number, facsimile number, electronic mail address,
photograph or likeness, employer, employment status, social security
number, or any other information that is likely to lead to the
identification of the insured.
(o) "Person" means any natural person or legal entity, including,
but not limited to, a partnership, limited liability company,
association, trust, or corporation.
(p) "Policy" means an individual or group policy, group
certificate, contract, or arrangement of life insurance owned by a
resident of this state, regardless of whether delivered or issued for
delivery in this state.
(q) "Premium finance loan" is a loan made primarily for the
purpose of making premium payments on a life insurance policy, which
loan is secured by an interest in such life insurance policy.
(r) "Provider" means a person, other than an owner, who enters
into or effectuates a life settlement contract with an owner. A
provider does not include any of the following:
(1) Any bank, savings bank, savings and loan association, or
credit union.
(2) A licensed lending institution or creditor or secured party
pursuant to a premium finance loan agreement which takes an
assignment of a life insurance policy or certificate issued pursuant
to a group life insurance policy as collateral for a loan.
(3) The insurer of a life insurance policy or rider to the extent
of providing accelerated death benefits or riders or cash surrender
value.
(4) A purchaser.
(5) Any authorized or eligible insurer that provides stop loss
coverage to a provider, purchaser, financing entity, special purpose
entity, or related provider trust.
(6) A financing entity.
(7) A related provider trust.
(8) A broker.
(9) An accredited investor or qualified institutional buyer as
defined respectively in Regulation D, Rule 501 or Rule 144A of the
federal Securities Act of 1933, as amended, who purchases a life
settlement policy from a provider.
(s) "Purchaser" means a person who pays compensation or anything
of value as consideration for a beneficial interest in a trust which
is vested with, or for the assignment, transfer, or sale of, an
ownership or other interest in a life insurance policy or a
certificate issued pursuant to a group life insurance policy which
has been the subject of a life settlement contract.
(t) "Related provider trust" means a titling trust or other trust
established by a licensed provider or a financing entity for the sole
purpose of holding the ownership or beneficial interest in purchased
policies in connection with a financing transaction. In order to
qualify as a related provider trust, the trust must have a written
agreement with the licensed provider under which the licensed
provider is responsible for ensuring compliance with all statutory
and regulatory requirements and under which the trust agrees to make
all records and files relating to life settlement transactions
available to the Department of Insurance as if those records and
files were maintained directly by the licensed provider.
(u) "Settled policy" means a life insurance policy or certificate
that has been acquired by a provider pursuant to a life settlement
contract.
(v) "Special purpose entity" means a corporation, partnership,
trust, limited liability company, or other legal entity whose
securities pay a fixed rate of return commensurate with established
asset-backed capital markets, or has been formed solely to provide
either directly or indirectly access to institutional capital
markets:
(1) For a financing entity or provider.
(2) In connection with a transaction in which the securities in
the special purpose entity are acquired by the owner or by a
"qualified institutional buyer" as defined in Rule 144 promulgated
under the federal Securities Act of 1933, as amended.
(w) "Stranger-originated life insurance" or "STOLI" is an act,
practice, or arrangement to initiate the issuance of a life insurance
policy in this state for the benefit of a third-party investor who,
at the time of policy origination, has no insurable interest, under
the laws of this state, in the life of the insured. STOLI practices
include, but are not limited to, cases in which life insurance is
purchased with resources or guarantees from or through a person or
entity, that, at the time of policy inception, could not lawfully
initiate the policy himself, herself, or itself, and where, at the
time of inception, there is an arrangement or agreement, to directly
or indirectly transfer the ownership of the policy or the policy
benefits to a third party. Trusts that are created to give the
appearance of insurable interest and that are used to initiate
policies for investors violate insurable interest laws and the
prohibition against wagering on life. STOLI arrangements do not
include lawful life settlement contracts as permitted by the act that
added this section or those practices set forth in paragraph (2) of
subdivision (k), provided that they are not for the purpose of
evading regulation under this act.
(x) "Terminally ill" means having an illness or sickness that can
reasonably be expected to result in death in 24 months or less.
(y) "This act" shall refer to the act in the 2009-10 Regular
Session that added Sections 10113.1 to 10113.35, inclusive, and as it
may from time to time be amended.
10113.2. (a) This section applies to any person entering into,
brokering, or soliciting life settlements pursuant to this section
and Sections 10113.1 and 10113.3.
(b) (1) Except as provided in subparagraph (B) or (D), no person
may enter into, broker, or solicit life settlements pursuant to
Section 10113.1 unless that person has been licensed by the
commissioner under this section. The person shall file an application
for a license in the form prescribed by the commissioner, and the
application shall be accompanied by a fee established by the
commissioner. The license fees for a provider license shall be
reasonable and sufficient to cover the costs incurred by the
department to implement this act. The license and renewal fees for a
broker shall be reasonable and sufficient to cover the costs incurred
by the department to implement this act and shall not exceed the
license and renewal fees established for an insurance producer who is
acting as a life settlement broker. The applicant shall provide any
information the commissioner may require. The commissioner may issue
a license, or deny the application if, in his or her discretion, it
is determined that it is contrary to the interests of the public to
issue a license to the applicant. The reasons for a denial shall be
set forth in writing.
(A) An individual acting as a broker under this section shall
complete at least 15 hours of continuing education related to life
settlements and life settlement transactions, as required and
approved by the commissioner, prior to operating as a broker. This
requirement shall not apply to a life insurance producer who
qualifies under subparagraph (D).
(B) A person licensed as an attorney, certified public accountant,
or financial planner accredited by a nationally recognized
accreditation agency, who is retained to represent the owner, and
whose compensation is not paid directly or indirectly by the provider
or purchaser, may negotiate a life settlement contract on behalf of
the owner without having to obtain a license as a broker.
(C) A person licensed to act as a viatical settlement broker or
provider as of December 31, 2009, shall be deemed qualified for
licensure as a life settlement broker or provider, and shall be
subject to all the provisions of this article as if the person were
originally licensed as a life settlement broker or provider.
(D) (i) A life insurance producer who has been duly licensed as a
life agent for at least one year or as a licensed nonresident
producer in this state for one year shall be deemed to meet the
licensing requirements of this section and shall be permitted to
operate as a broker.
(ii) Not later than 10 days from the first day of operating as a
broker, the life insurance producer shall notify the commissioner
that he or she is acting as a broker, on a form prescribed by the
commissioner, and shall pay any applicable fee to be determined by
the commissioner.
(iii) The fee established by the commissioner shall be reasonable
and sufficient to cover the costs incurred by the department to
implement this act, but shall not be in excess of the license and
renewal fees paid by a life insurance producer. The fee shall be paid
by the life insurance producer for each license term the producer
intends to operate as a broker. The fee shall be calculated pursuant
to Section 1750. The notification to the commissioner shall include
an acknowledgment by the life insurance producer that he or she will
operate as a broker in accordance with this act.
(iv) The insurer that issued the policy that is the subject of a
life settlement contract shall not be responsible for any act or
omission of a broker or provider arising out of, or in connection
with, the life settlement transaction, unless the insurer receives
compensation for the replacement of the life settlement contract for
the provider or broker.
(E) The commissioner shall review the examination for the
licensing of life insurance agents and may recommend any changes to
the examination to the department's curriculum committee in order to
carry out the purposes of this section and Sections 10113.1 and
10113.3.
(2) Whenever it appears to the commissioner that it is contrary to
the interests of the public for a person licensed pursuant to this
section to continue to transact life settlements business, he or she
shall issue a notice to the licensee stating the reasons therefor.
If, after a hearing, the commissioner concludes that it is contrary
to the interests of the public for the licensee to continue to
transact life settlements business, he or she may revoke the person's
license, or issue an order suspending the license for a period as
determined by the commissioner. Any hearing conducted pursuant to
this paragraph shall be in accordance with Chapter 5 (commencing with
Section 11500) of Part 1 of Division 3 of Title 2 of the Government
Code, except that the hearing may be conducted by administrative law
judges chosen pursuant to Section 11502 or appointed by the
commissioner, and the commissioner shall have the powers granted
therein.
(3) Each licensee shall owe and pay in advance to the commissioner
an annual renewal fee in an amount to be determined by the
commissioner pursuant to paragraph (1) of subdivision (b). This fee
shall be for each license year, as defined by Section 1629.
(4) Any licensee that intends to discontinue transacting life
settlements in this state shall so notify the commissioner, and shall
surrender its license.
(c) A life settlements licensee shall file with the department a
copy of all life settlement forms used in this state. No licensee may
use any life settlement form in this state unless it has been
provided in advance to the commissioner. The commissioner may
disapprove a life settlement form if, in his or her discretion, the
form, or provisions contained therein, are contrary to the interests
of the public, or otherwise misleading or unfair to the consumer. In
the case of disapproval, the licensee may, within 15 days of notice
of the disapproval, request a hearing before the commissioner or his
or her designee, and the hearing shall be held within 30 days of the
request.
(d) Life settlements licensees shall be required to provide any
applicant for a life settlement contract, at the time of application
for the life settlement contract, all of the following disclosures in
writing and signed by the owner, in at least 12-point type:
(1) That there are possible alternatives to life settlements,
including, but not limited to, accelerated benefits options that may
be offered by the life insurer.
(2) The fact that some or all of the proceeds of a life settlement
may be taxable and that assistance should be sought from a
professional tax adviser.
(3) Consequences for interruption of public assistance as provided
by information provided by the State Department of Health Care
Services and the State Department of Social Services under Section
11022 of the Welfare and Institutions Code.
(4) That the proceeds from a life settlement could be subject to
the claims of creditors.
(5) That entering into a life settlement contract may cause other
rights or benefits, including conversion rights and waiver of premium
benefits that may exist under the policy or certificate of a group
policy to be forfeited by the owner and that assistance should be
sought from a professional financial adviser.
(6) That a change in ownership of the settled policy could limit
the insured's ability to purchase insurance in the future on the
insured's life because there is a limit to how much coverage insurers
will issue on one life.
(7) That the owner has a right to rescind a life settlement
contract within 30 days of the date it is executed by all parties and
the owner has received all required disclosures, or 15 days from
receipt by the owner of the proceeds of the settlement, whichever is
sooner. Rescission, if exercised by the owner, is effective only if
both notice of rescission is given and the owner repays all proceeds
and any premiums, loans, and loan interest paid on account of the
provider within the rescission period. If the insured dies during the
rescission period, the contract shall be deemed to have been
rescinded subject to repayment by the owner or the owner's estate of
all proceeds and any premiums, loans, and loan interest to the
provider.
(8) That proceeds will be sent to the owner within three business
days after the provider has received the insurer or group
administrator's acknowledgment that ownership of the policy or the
interest in the certificate has been transferred and the beneficiary
has been designated in accordance with the terms of the life
settlement contract.
(9) The date by which the funds will be available to the owner and
the transmitter of the funds.
(10) The disclosure document shall include the following language:
"All medical, financial, or personal information solicited or
obtained by a provider or broker about an insured, including the
insured's identity or the identity of family members, a spouse, or a
significant other may be disclosed as necessary to effect the life
settlement contract between the owner and provider. If you are asked
to provide this information, you will be asked to consent to the
disclosure. The information may be provided to someone who buys the
policy or provides funds for the purchase. You may be asked to renew
your permission to share information every two years."
(11) That the insured may be contacted by either the provider or
the broker or its authorized representative for the purpose of
determining the insured's health status or to verify the insured's
address. This contact is limited to once every three months if the
insured has a life expectancy of more than one year, and no more than
once per month if the insured has a life expectancy of one year or
less.
(12) Any affiliations or contractual relations between the
provider and the broker, and the affiliation, if any, between the
provider and the issuer of the policy to be settled.
(13) That a broker represents exclusively the owner, and not the
insurer or the provider or any other person, and owes a fiduciary
duty to the owner, including a duty to act according to the owner's
instructions and in the best interest of the owner.
(14) The name, business address, and telephone number of the
broker.
(e) Prior to the execution of the life settlement contract by all
parties, the life settlement provider entering into a life settlement
contract with the owner shall provide, in a document signed by the
owner, the gross purchase price the life settlement provider is
paying for the policy, the amount of the purchase price to be paid to
the owner, the amount of the purchase price to be paid to the owner'
s life settlement broker, and the name, business address, and
telephone number of the life settlement broker. For purposes of this
section, "gross purchase price" means the total amount or value paid
by the provider for the purchase of one or more life insurance
policies, including commissions and fees.
(f) The broker shall provide the owner and the insured with at
least all of the following disclosures in writing prior to the
signing of the life settlement contract by all parties. The
disclosures shall be clearly displayed in the life settlement
contract or in a separate document signed by the owner:
(1) The name, business address, and telephone number of the
broker.
(2) A full, complete, and accurate description of all of the
offers, counteroffers, acceptances, and rejections relating to the
proposed life settlement contract.
(3) A disclosure of any affiliations or contractual arrangements
between the broker and any person making an offer in connection with
the proposed life settlement contract.
(4) All estimates of the life expectancy of the insured which are
obtained by the licensee in connection with the life settlement,
unless such disclosure would violate any California or federal
privacy laws.
(5) The commissioner may consider any failure to provide the
disclosures or rights described in this section as a basis for
suspending or revoking a broker's or provider's license pursuant to
paragraph (2) of subdivision (b).
(g) All medical information solicited or obtained by any person
soliciting or entering into a life settlement is subject to Article
6.6 (commencing with Section 791) of Chapter 1 of Part 2 of Division
1, concerning confidentiality of medical information.
(h) Except as otherwise allowed or required by law, a provider,
broker, insurance company, insurance producer, information bureau,
rating agency, or company, or any other person with actual knowledge
of an insured's identity shall not disclose the identity of an
insured or information that there is a reasonable basis to believe
that could be used to identify the insured or the insured's financial
or medical information to any other person unless the disclosure is
one of the following:
(1) It is necessary to effect a life settlement contract between
the owner and a provider and the owner and insured have provided
prior written consent to the disclosure.
(2) It is necessary to effectuate the sale of life settlement
contracts, or interests therein, as investments, provided the sale is
conducted in accordance with applicable state and federal securities
law and provided further that the owner and the insured have both
provided prior written consent to the disclosure.
(3) It is provided in response to an investigation or examination
by the commissioner or any other governmental officer or agency or
any other provision of law.
(4) It is a term or condition to the transfer of a policy by one
provider to another provider, in which case the receiving provider
shall be required to comply with the confidentiality requirements of
Article 6.6 (commencing with Section 791) of Chapter 1 of Part 2 of
Division 1.
(5) It is necessary to allow the provider or broker or their
authorized representatives to make contacts for the purpose of
determining health status. For the purposes of this section, the term
"authorized representative" shall not include any person who has or
may have any financial interest in the settlement contract other than
a provider, licensed broker; further, a provider or broker shall
require its authorized representative to agree in writing to adhere
to the privacy provisions of this act.
(6) It is required to purchase stop loss coverage.
(i) In addition to other questions an insurance carrier may
lawfully pose to a life insurance applicant, insurance carriers may
inquire in the application for insurance whether the proposed owner
intends to pay premiums with the assistance of financing from a
lender that will use the policy as collateral to support the
financing.
(1) If the premium finance loan provides funds which can be used
for a purpose other than paying for the premiums, costs, and expenses
associated with obtaining and maintaining the life insurance policy
and loan, the application may be rejected as a prohibited practice
under this act.
(2) If the financing does not violate paragraph (1), the existence
of premium financing may not be the sole criterion employed by an
insurer in a decision whether to reject an application for life
insurance. The insurance carrier may make disclosures to the
applicant, either on the application or an amendment to the
application to be completed no later than the delivery of the policy,
including, but not limited to, the following:
"If you have entered into a loan arrangement where the policy is
used as collateral, and the policy changes ownership at some point in
the future in satisfaction of the loan, the following may be true:
"(A) A change of ownership could lead to a stranger owning an
interest in the insured's life.
"(B) A change of ownership could in the future limit your ability
to purchase insurance on the insured's life because there is a limit
to how much coverage insurers will issue on a life.
"(C) You should consult a professional adviser since a change in
ownership in satisfaction of the loan may result in tax consequences
to the owner, depending on the structure of the loan."
(3) In addition to the disclosures in paragraph (2), the insurance
carrier may require the following certifications from the applicant
or the insured:
"(A) I have not entered into any agreement or arrangement under
which I have agreed to make a future sale of this life insurance
policy.
"(B) My loan arrangement for this policy provides funds
sufficient to pay for some or all of the premiums, costs, and
expenses associated with obtaining and maintaining my life insurance
policy, but I have not entered into any agreement by which I am to
receive consideration in exchange for procuring this policy.
"(C) The borrower has an insurable interest in the insured."
(j) Life insurers shall provide individual life insurance
policyholders with a statement informing them that if they are
considering making changes in the status of their policy, they should
consult with a licensed insurance or financial advisor. The
statement may accompany or be included in notices or mailings
otherwise provided to the policyholders.
(k) The commissioner may adopt rules and regulations reasonably
necessary to govern life settlement transactions.
(l) The commissioner may, whenever he or she deems it reasonably
necessary to protect the interests of the public, examine the
business and affairs of any licensee or applicant for a license. The
commissioner shall have the authority to order any licensee or
applicant to produce any records, books, files, or other information
as is reasonably necessary to ascertain whether or not the licensee
or applicant is acting or has acted in violation of the law or
otherwise contrary to the interests of the public. The expenses
incurred in conducting any examination shall be paid by the licensee
or applicant.
(m) The commissioner may investigate the conduct of any licensee,
its officers, employees, agents, or any other person involved in the
business of the licensee, or any applicant for a license, whenever
the commissioner has reason to believe that the licensee or applicant
for a license may have acted, or may be acting, in violation of the
law, or otherwise contrary to the interests of the public. The
commissioner may initiate an investigation on his or her own, or upon
a complaint filed by any other person.
(n) The commissioner may issue orders to licensees whenever he or
she determines that it is reasonably necessary to ensure or obtain
compliance with this section, or Section 10113.3. This authority
includes, but is not limited to, orders directing a licensee to cease
and desist in any practice that is in violation of this section, or
Section 10113.3, or otherwise contrary to the interests of the
public. Any licensee to which an order pursuant to this subdivision
is issued may, within 15 days of receipt of that order, request a
hearing at which the licensee may challenge the order.
(o) The commissioner may, after notice and a hearing at which it
is determined that a licensee has violated this section or Section
10113.3 or any order issued pursuant to this section, order the
licensee to pay a monetary penalty of up to ten thousand dollars
($10,000), which may be recovered in a civil action. Any hearing
conducted pursuant to this subdivision shall be in accordance with
Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of
Title 2 of the Government Code, except that the hearing may be
conducted by administrative law judges chosen pursuant to Section
11502 or appointed by the commissioner, and the commissioner shall
have the powers granted therein.
(p) Each licensed provider shall file with the commissioner on or
before March 1 of each year an annual statement in the form
prescribed by the commissioner. The information that the commissioner
may require in the annual statement shall include, but not be
limited to, the total number, aggregate face amount, and life
settlement proceeds of policies settled during the immediately
preceding calendar year, together with a breakdown of the information
by policy issue year. The annual statement shall also include the
names of the insurance companies whose policies have been settled and
the brokers that have settled those policies, and that information
shall be received in confidence within the meaning of subdivision (d)
of Section 6254 of the Government Code and exempt from disclosure
pursuant to the Public Records Act (Chapter 3.5 (commencing with
Section 6250) of Division 7 of Title 1 of the Government Code). The
annual statement shall not include individual transaction data
regarding the business of life settlements or information that there
is a reasonable basis to believe could be used to identify the owner
or the insured.
(q) No person who is not a resident of California may receive or
maintain a license unless a written designation of an agent for
service of process is filed and maintained with the commissioner. The
provisions of Article 3 (commencing with Section 1600) of Chapter 4
of Part 2 shall apply to life settlements licensees as if they were
foreign insurers, their license a certificate of authority, and the
life settlements a policy, and the commissioner may modify the
agreement set forth in Section 1604 accordingly.
(r) No person licensed pursuant to this section shall engage in
any false or misleading advertising, solicitation, or practice. In no
case shall a broker or provider, directly or indirectly, market,
advertise, solicit, or otherwise promote the purchase of a new policy
for the sole purpose of or with a primary emphasis on settling the
policy or use the words "free," "no cost," or words of similar import
in the marketing, advertising, soliciting, or otherwise promoting of
the purchase of a policy. The provisions of Article 6 (commencing
with Section 780) and Article 6.5 (commencing with Section 790) of
Chapter 1 of Part 2 shall apply to life settlements licensees as if
they were insurers, their license a certificate of authority or
producer's license, and the life settlements a policy, and the
commissioner shall liberally construe these provisions so as to
protect the interests of the public.
(s) Any person who enters into a life settlement with a life
settlements licensee shall have the absolute right to rescind the
settlement within 30 days of the date it is executed by all parties
and the owner has received all required disclosures, or 15 days from
receipt by the owner of the proceeds of the settlement, whichever is
sooner, and any waiver or settlement language contrary to this
subdivision shall be void. Rescission, if exercised by the owner, is
effective only if both notice of rescission is given and the owner
repays all proceeds and any premiums, loans, and loan interest paid
on account of the provider within the rescission period. If the
insured dies during the rescission period, the contract shall be
deemed to have been rescinded subject to repayment by the owner or
the owner's estate of all proceeds and any premiums, loans, and loan
interest to the provider.
(t) Records of all consummated transactions and life settlement
contracts shall be maintained by the provider for three years after
the death of the insured and shall be available to the commissioner
for inspection during reasonable business hours.
(u) A violation of this section is a misdemeanor.
10113.3. (a) A provider entering into a life settlement contract
with any owner of a policy, wherein the insured is terminally ill,
shall first obtain the following:
(1) If the owner is the insured, a written statement from a
licensed attending physician that the owner is of sound mind and
under no constraint or undue influence to enter into a settlement
contract.
(2) A document in which the insured consents to the release of his
or her medical records to a provider, settlement broker, or
insurance producer and, if the policy was issued less than two years
from the date of application for a settlement contract, to the
insurance company that issued the policy.
(b) The insurer shall respond to a request for verification of
coverage submitted by a provider, settlement broker, or life
insurance producer not later than 30 calendar days of the date the
request is received. The request for verification of coverage must be
made on a form approved by the commissioner. The insurer shall
complete and issue the verification of coverage or indicate in which
respects it is unable to respond. In its response, the insurer shall
indicate whether, based on the medical evidence and documents
provided, the insurer intends to pursue an investigation at this time
regarding the validity of the insurance contract.
(c) Before or at the time of execution of the settlement contract,
the provider shall obtain a witnessed document in which the owner
consents to the settlement contract, represents that the owner has a
full and complete understanding of the settlement contract and a full
and complete understanding of the benefits of the policy,
acknowledges that the owner is entering into the settlement contract
freely and voluntarily, and, for persons with a terminal illness or
condition, acknowledges that the insured has a terminal illness and
that the terminal illness or condition was diagnosed after the po
10110. Every person has an insurable interest in the life and
health of:
(a) Himself.
(b) Any person on whom he depends wholly or in part for education
or support.
(c) Any person under a legal obligation to him for the payment of
money or respecting property or services, of which death or illness
might delay or prevent the performance.
(d) Any person upon whose life any estate or interest vested in
him depends.
10110.1. (a) An insurable interest, with reference to life and
disability insurance, is an interest based upon a reasonable
expectation of pecuniary advantage through the continued life,
health, or bodily safety of another person and consequent loss by
reason of that person's death or disability or a substantial interest
engendered by love and affection in the case of individuals closely
related by blood or law.
(b) An individual has an unlimited insurable interest in his or
her own life, health, and bodily safety and may lawfully take out a
policy of insurance on his or her own life, health, or bodily safety
and have the policy made payable to whomsoever he or she pleases,
regardless of whether the beneficiary designated has an insurable
interest.
(c) Except as provided in Section 10110.4, an employer has an
insurable interest, as referred to in subdivision (a), in the life or
physical or mental ability of any of its directors, officers, or
employees or the directors, officers, or employees of any of its
subsidiaries or any other person whose death or physical or mental
disability might cause financial loss to the employer; or, pursuant
to any contractual arrangement with any shareholder concerning the
reacquisition of shares owned by the shareholder at the time of his
or her death or disability, on the life or physical or mental ability
of that shareholder for the purpose of carrying out the contractual
arrangement; or, pursuant to any contract obligating the employer as
part of compensation arrangements or pursuant to a contract
obligating the employer as guarantor or surety, on the life of the
principal obligor. The trustee of an employer or trustee of a
pension, welfare benefit plan, or trust established by an employer
providing life, health, disability, retirement, or similar benefits
to employees and retired employees of the employer or its affiliates
and acting in a fiduciary capacity with respect to those employees,
retired employees, or their dependents or beneficiaries has an
insurable interest in the lives of employees and retired employees
for whom those benefits are to be provided. The employer shall obtain
the written consent of the individual being insured.
(d) Trusts and special purpose entities that are used to apply for
and initiate the issuance of policies of insurance for investors,
where one or more beneficiaries of those trusts or special purpose
entities do not have an insurable interest in the life of the
insured, violate the insurable interest laws and the prohibition
against wagering on life.
(e) Any device, scheme, or artifice designed to give the
appearance of an insurable interest where there is no legitimate
insurable interest violates the insurable interest laws.
(f) An insurable interest shall be required to exist at the time
the contract of life or disability insurance becomes effective, but
need not exist at the time the loss occurs.
(g) Any contract of life or disability insurance procured or
caused to be procured upon another individual is void unless the
person applying for the insurance has an insurable interest in the
individual insured at the time of the application.
(h) Notwithstanding subdivisions (a), (f), and (g), a charitable
organization that meets the requirements of Section 214 or 23701d of
the Revenue and Taxation Code may effectuate life or disability
insurance on an insured who consents to the issuance of that
insurance.
(i) This section shall not be interpreted to define all instances
in which an insurable interest exists.
10110.2. An insurer shall be entitled to rely upon all statements,
declarations, and representations made by an applicant for insurance
relative to the insurable interest that the applicant has in the
insured, and no insurer shall incur any legal liability except as set
forth in the policy, by virtue of any untrue statements,
declarations, or representations so relied upon in good faith by the
insurer.
10110.3. (a) An insurer may not issue an individual life insurance
policy to an applicant that insures the life of the applicant's
spouse unless the applicant's spouse has signed the policy
application or has otherwise been notified in advance of the issuance
of the policy.
(b) This section shall apply to policies of individual life
insurance with face amounts exceeding fifty thousand dollars
($50,000) that are issued on or after July 1, 2004.
10110.4. (a) Except as allowed in subdivision (c), an insurer may
not issue or deliver a corporate-owned life insurance policy.
(b) "Corporate-owned life insurance policy" means a life insurance
policy that is purchased by a California employer, that designates
the employer as the beneficiary of the policy, and that insures the
life of a California resident who is a current or former employee of
the employer.
(c) This section does not apply to a policy insuring the life of a
current or former exempt employee. An exempt employee is an
administrative, executive, or professional employee who is exempt
under Section 515 of the Labor Code and the regulations adopted
pursuant thereto.
(d) Except as provided in subdivision (f), it is a violation of
public policy for a California employer to purchase or hold a
corporate-owned life insurance policy.
(e) (1) A corporate-owned life insurance policy purchased on or
after the effective date of this section is void.
(2) Except as provided in subdivision (f), a corporate-owned life
insurance policy purchased prior to the effective date of this
section shall become void on the next premium payment date on or
after the date five years from the effective date of this section,
but no later than January 1, 2010.
(f) A corporate-owned life insurance policy purchased prior to the
effective date of this section that insures the life of a current or
former nonexempt employee shall continue in force after the
effective date of this section provided that no further premium
payments are made after the effective date of this section. However,
an employer who has purchased and holds such a corporate-owned life
insurance policy shall disclose in writing to the current or former
nonexempt employee whose life is insured by the policy, within 90
days of the effective date of this section, all of the following
information:
(1) The existence of the corporate-owned life insurance policy on
the life of the nonexempt employee.
(2) The identity of the insurer under the policy.
(3) The benefit amount under the policy, unless the full amount of
the benefit is used to defray the costs of nonexempt employee
benefits.
(4) How benefits paid under the policy would be used.
(5) The name of the beneficiary under the policy.
(g) For a former employee, the disclosure requirements shall be
deemed satisfied if the employer mails the required information to
the former employee's last known address.
10110.5. A policy or endorsement issued by an admitted life and
disability insurer may contain a provision for a waiver of premium
payments in the event of involuntary unemployment of the insured.
Insurers issuing policies or endorsements which contain that
provision shall establish any additional reserves and file any
additional financial reports that the commissioner may require.
10111. In life or disability insurance, the only measure of
liability and damage is the sum or sums payable in the manner and at
the times as provided in the policy to the person entitled thereto.
10111.2. (a) Under a policy of disability income insurance, as
defined in subdivision (i) of Section 799.01, payment of benefits to
the insured shall be made within 30 calendar days after the insurer
has received all information needed to determine liability for a
claim. However, the 30-calendar-day period shall not include any time
during which the insurer is doing any of the following:
(1) Awaiting a response for relevant medical information from a
health care provider.
(2) Awaiting a response from the claimant to a request for
additional relevant information.
(3) Investigating possible fraud that has been reported to the
department's Fraud Division in compliance with subdivision (a) of
Section 1872.4.
(b) If the insurer has not received all information needed to
determine liability for a claim within 30 calendar days after receipt
of the claim, the insurer shall notify the insured in writing and
include a written list of all information it reasonably needs to
determine liability for the claim. In that event, the 30-calendar-day
period set out in subdivision (a) shall commence when the insured
has provided to the insurer all information in that notification. If
no notice is sent by the insurer within 30 calendar days after the
claim is filed by the insured, interest shall begin to accrue on the
payment of benefits on the 31st calendar day after receipt of the
claim, at the rate of 10 percent per year.
(c) When the insurer has received all information needed to
determine liability for a claim, and the insurer determines that
liability exists and fails to make payment of benefits to the insured
within 30 calendar days after the insurer has received that
information, any delayed payment shall bear interest, beginning the
31st calendar day, at the rate of 10 percent per year. Liability
shall, in all cases, be determined by the insurer within 30 calendar
days of receiving all information set out in the insurer's written
notification to the insured.
(d) Nothing in this section is intended to restrict any other
remedies available to an insured by statute or any other law.
10111.5. An insurer shall not be liable for payments claimed under
an individual or group policy of life insurance if the duty to make
those payments depends upon a factual determination of whether the
death of the insured was an accident or a suicide and that fact
cannot be established without an autopsy and the autopsy is
prohibited under Section 27491.43 of the Government Code. Insurers
refusing or delaying payments in those circumstances in good faith
shall not be liable for exemplary or punitive damages.
10111.7. (a) An insurer shall not deny or refuse to accept an
application for life insurance, or refuse to insure, refuse to renew,
cancel, restrict, or otherwise terminate a policy of life insurance,
or charge a different rate for the same life insurance coverage,
based solely upon the applicant's or insured's past or future lawful
travel destinations.
(b) Nothing in this section shall prohibit an insurer from
excluding or limiting coverage under a life insurance policy, or
refusing to offer life insurance, based upon lawful travel, or from
charging a different rate for that coverage, when that action is
based upon sound actuarial principles or is related to actual and
reasonably expected experience.
10112. Subject to Section 2459 of the Probate Code, in respect to
life or disability insurance, or annuity contracts (except as
provided in Sections 2500 to 2507, inclusive, of the Probate Code and
Section 3500 of the Probate Code and Chapter 4 (commencing with
Section 3600) of Part 8 of Division 4 of the Probate Code),
heretofore or hereafter issued to or upon the life of any person not
of the full age of 18 years for the benefit of such minor or for the
benefit of the father, mother, husband, wife, child, brother, or
sister, of such minor, or issued to such minor, subject to written
consent of a parent or guardian, upon the life of any person in whom
such minor has an insurable interest for the benefit of himself or
such minor's father, mother, husband, wife, child, brother or sister,
such minor shall not, by reason only of such minority, be deemed
incompetent to contract for such insurance or annuity, or for the
surrender thereof, or to exercise all contractual rights thereunder,
or, subject to approval of a parent or guardian, to give a valid
discharge for any benefit accruing or for any money payable
thereunder; provided, that all such contracts made by a minor under
the age of 16 years, as determined by the nearest birthday, shall
have the written consent of a parent or guardian, and that the
exercise of all contractual rights under such contracts, or the
surrender thereof, or the giving of a valid discharge for any benefit
accruing or money payable thereunder, in the case of a minor under
the age of 16 years, as determined by the nearest birthday, shall
have the written consent of a parent or guardian.
All such contracts made by a minor not of the full age of 18 years
which may result in any personal liability for assessment shall have
the written assumption of any such liability by a parent or guardian
in consideration of the issuance of the contract. Such assumption
shall be in a form approved by the commissioner, reasonably designed
to inform the parent or guardian of the liability thus assumed.
Such assumption of liability may be made a part of and included
with any written consent of such parent or guardian required under
other provisions of this section and it may be provided therein that
such assumption shall cover only up to the anniversary date of the
policy nearest to the member's birthday at which he or she attains
age 18.
10112.2. To the extent required under federal law, a group or
individual health insurance policy issued, amended, renewed, or
delivered on or after September 23, 2010, shall comply with Section
2713 of the federal Public Health Service Act (42 U.S.C. Sec.
300gg-13) and any rules or regulations issued under that section.
10112.3. (a) For purposes of this section, the following
definitions shall apply:
(1) "Exchange" means the California Health Benefit Exchange
established in Title 22 (commencing with Section 100500) of the
Government Code.
(2) "Federal act" means the federal Patient Protection and
Affordable Care Act (Public Law 111-148), as amended by the federal
Health Care and Education Reconciliation Act of 2010 (Public Law
111-152), and any amendments to, or regulations or guidance issued
under, those acts.
(3) "Qualified health plan" has the same as that term is defined
in Section 1301 of the federal act.
(4) "Small employer" has the same meaning as that term is defined
in Section 10700.
(b) Health insurers participating in the Exchange shall fairly and
affirmatively offer, market, and sell in the Exchange at least one
product within each of the five levels of coverage contained in
subdivisions (d) and (e) of Section 1302 of the federal act. The
board established under Section 100500 of the Government Code may
require insurers to sell additional products within each of those
levels of coverage. This subdivision shall not apply to an insurer
that solely offers supplemental coverage in the Exchange under
paragraph (10) of subdivision (a) of Section 100504 of the Government
Code.
(c) (1) Health insurers participating in the Exchange that sell
any products outside the Exchange shall do both of the following:
(A) Fairly and affirmatively offer, market, and sell all products
made available to individuals in the Exchange to individuals
purchasing coverage outside the Exchange.
(B) Fairly and affirmatively offer, market, and sell all products
made available to small employers in the Exchange to small employers
purchasing coverage outside the Exchange.
(2) For purposes of this subdivision, "product" does not include
contracts entered into pursuant to Part 6.2 (commencing with Section
12693) of Division 2 between the Managed Risk Medical Insurance Board
and health insurers for enrolled Healthy Families beneficiaries or
to contracts entered into pursuant to Chapter 7 (commencing with
Section 14000) of, or Chapter 8 (commencing with Section 14200) of,
Part 3 of Division 9 of the Welfare and Institutions Code between the
State Department of Health Care Services and health insurers for
enrolled Medi-Cal beneficiaries.
(d) Commencing January 1, 2014, a health insurer, with respect to
policies that cover hospital, medical, or surgical benefits, may only
sell the five levels of coverage contained in subdivisions (d) and
(e) of Section 1302 of the federal act, except that a health insurer
that does not participate in the Exchange may, with respect to
policies that cover hospital, medical, or surgical benefits only sell
the four levels of coverage contained in subdivision (d) of Section
1302 of the federal act.
(e) Commencing January 1, 2014, a health insurer that does not
participate in the Exchange shall, with respect to policies that
cover hospital, medical, or surgical expenses, offer at least one
standardized product that has been designated by the Exchange in each
of the four levels of coverage contained in subdivision (d) of
Section 1302 of the federal act. This subdivision shall only apply if
the board of the Exchange exercises its authority under subdivision
(c) of Section 100504 of the Government Code. Nothing in this
subdivision shall require an insurer that does not participate in the
Exchange to offer standardized products in the small employer market
if the insurer only sells products in the individual market. Nothing
in this subdivision shall require an insurer that does not
participate in the Exchange to offer standardized products in the
individual market if the insurer only sells products in the small
employer market. This subdivision shall not be construed to prohibit
the insurer from offering other products provided that it complies
with subdivision (d).
10112.4. The commissioner shall, in coordination with the Director
of the Department of Managed Health Care, review the Internet portal
developed by the United States Secretary of Health and Human Services
under subdivision (a) of Section 1103 of the federal Patient
Protection and Affordable Care Act (Public Law 111-148) and paragraph
(5) of subdivision (c) of Section 1311 of that act, and any
enhancements to that portal expected to be implemented by the
secretary on or before January 1, 2015. The review shall examine
whether the Internet portal provides sufficient information regarding
all health benefit products offered by health care service plans and
health insurers in the individual and small employer markets in
California to facilitate fair and affirmative marketing of all
individual and small employer products, particularly outside the
Health Benefit Exchange created under Title 22 (commencing with
Section 100500) of the Government Code. If the commissioner and the
Director of the Department of Managed Health Care jointly determine
that the Internet portal does not adequately achieve those purposes,
they shall jointly develop and maintain an electronic clearinghouse
to achieve those purposes. In performing this function, the
commissioner and the Director of the Department of Managed Health
Care shall routinely monitor individual and small employer benefit
filings with, and complaints submitted by individuals and small
employers to, their respective departments, and shall use any other
available means to maintain the clearinghouse.
10112.5. (a) Notwithstanding any other provision of law, every
policy or certificate of disability insurance covering hospital,
medical, or surgical expenses marketed, issued, or delivered to a
resident of this state, regardless of the situs of the contract or
master group policyholder, shall be subject to all provisions of this
code.
(b) Subdivision (a) shall not apply to a policy of disability
insurance that covers hospital, medical, or surgical expenses and
that is issued outside of California to an employer whose principle
place of business and majority of employees are located outside of
California.
(c) Nothing in subdivision (b) shall be construed to limit the
applicability of any other provision of this code to any policy of
disability insurance that covers hospital, medical, or surgical
expenses and that is issued outside of California to an employer
whose principle place of business and majority of employees are
located outside of California.
10112.6. (a) Consistent with federal law, a sponsor of a
prescription drug plan authorized by the federal Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (P.L.
108-173) shall hold a valid license as a life and disability insurer
issued by the department or as a health care service plan issued by
the Department of Managed Health Care.
(b) An entity that is licensed as a life and disability insurer
and that operates a prescription drug plan shall be subject to the
provisions of this code, unless preempted by federal law.
10113. Every policy of life, disability, or life and disability
insurance issued or delivered within this State on or after the first
day of January, 1936, by any insurer doing such business within this
State shall contain and be deemed to constitute the entire contract
between the parties and nothing shall be incorporated therein by
reference to any constitution, by-laws, rules, application or other
writings, of either of the parties thereto or of any other person,
unless the same are indorsed upon or attached to the policy; and all
statements purporting to be made by the insured shall, in the absence
of fraud, be representations and not warranties. Any waiver of the
provisions of this section shall be void.
10113.1. The following provisions shall apply to this act:
(a) "Advertisement" means any written, electronic, or printed
communication or any communication by means of recorded telephone
messages or transmitted 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 purpose of 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
insurance policy or an interest in a life insurance policy pursuant
to a life settlement contract.
(b) "Broker" means a person who, on behalf of an owner, and for a
fee, commission, or other valuable consideration, offers or attempts
to negotiate life settlement contracts between an owner and
providers. A broker represents only the owner and owes a fiduciary
duty to the owner to act according to the owner's instructions, and
in the best interest of the owner, notwithstanding the manner in
which the broker is compensated. A broker does not include an
attorney, certified public accountant, or financial planner retained
in the type of practice customarily performed in his or her
professional capacity to represent the owner whose compensation is
not paid directly or indirectly by the provider or any other person,
except the owner.
(c) "Business of life settlements" means an activity involved in,
but not limited to, offering to enter into, soliciting, negotiating,
procuring, effectuating, monitoring, or tracking of life settlement
contracts.
(d) "Commissioner" means the Insurance Commissioner.
(e) "Financing entity" means an underwriter, placement agent,
lender, purchaser of securities, purchaser of a policy or certificate
from a provider, credit enhancer, or any entity that has a direct
ownership in a policy or certificate that is the subject of a life
settlement contract, as to which both of the following apply:
(1) It is an entity whose principal activity related to the
transaction is providing funds to effect the life settlement contract
or purchase of one or more policies.
(2) It is an entity that has an agreement in writing with one or
more providers to finance the acquisition of life settlement
contracts.
(f) "Financing transaction" means a transaction in which a
licensed provider obtains financing from a financing entity,
including, without limitation, any secured or unsecured financing,
any securitization transaction, or any securities offering which
either is registered or exempt from registration under federal and
state securities law.
(g) "Fraudulent life settlement act" includes all of the
following:
(1) Acts or omissions committed by any person that, for the
purpose of depriving another of property or for pecuniary gain,
commits or permits its employees or its agents to engage in acts,
including, but not limited to, the following:
(A) Presenting, causing to be presented, or preparing with
knowledge and belief that it will be presented to or by a provider,
premium finance lender, broker, insurer, insurance producer, or any
other person, false material information, or concealing material
information, as part of, in support of, or concerning a fact material
to one or more of the following:
(i) An application for the issuance of a life settlement contract
or insurance policy.
(ii) The underwriting of a life settlement contract or insurance
policy.
(iii) A claim for payment or benefit pursuant to a life settlement
contract or insurance policy.
(iv) Premiums paid on an insurance policy.
(v) Payments and changes in ownership or beneficiary made in
accordance with the terms of a life settlement contract or insurance
policy.
(vi) The reinstatement or conversion of an insurance policy.
(vii) The solicitation, offer to enter into, or effectuation of, a
life settlement contract or insurance policy.
(viii) The issuance of written evidence of life settlement
contracts or insurance.
(ix) Any application for, or the existence of or any payments
related to, a loan secured directly or indirectly by any interest in
a life insurance policy.
(B) Entering into stranger-originated life insurance (STOLI).
(C) Employing any device, scheme, or artifice to defraud in the
business of life settlements.
(2) Any of the following that any person does, or permits his or
her employees or agents to do, in the furtherance of a fraud, or to
prevent the detection of a fraud:
(A) Remove, conceal, alter, destroy, or sequester from the
commissioner the assets or records of a licensee or other person
engaged in the business of life settlements.
(B) Misrepresent or conceal the financial condition of a licensee,
financing entity, insurer, or other person.
(C) Transact the business of life settlements in violation of laws
requiring a license, certificate of authority, or other legal
authority for the transaction of the business of life settlements.
(D) File with the commissioner or the chief insurance regulatory
official of another jurisdiction a document containing false
information or otherwise concealing information about a material fact
from the commissioner.
(E) Engage in embezzlement, theft, misappropriation, or conversion
of moneys, funds, premiums, credits, or other property of a
provider, insurer, insured, owner, insurance policyowner, or any
other person engaged in the business of life settlements or
insurance.
(F) Enter into, broker, or otherwise deal in a life settlement
contract, the subject of which is a life insurance policy that was
obtained by presenting false information concerning any fact material
to the policy or by concealing, for the purpose of misleading
another, information requested concerning any fact material to the
policy, where the owner or the owner's agent intended to defraud the
policy's issuer.
(G) Attempt to commit, assist, aid, or abet in the commission of,
or conspiracy to commit the acts or omissions specified in this
subdivision.
(H) Misrepresent the state of residence of an owner to be a state
or jurisdiction that does not have a law substantially similar to
this act for the purpose of evading or avoiding the provisions of
this act.
(h) "Insured" means the person covered under the policy being
considered for sale in a life settlement contract.
(i) "Life expectancy" means the arithmetic mean of the number of
months the insured under the life insurance policy to be settled can
be expected to live considering medical records and appropriate
experiential data.
(j) "Life insurance producer" means any person licensed in this
state as a resident or nonresident insurance agent who has received
qualification or authority for life insurance coverage or a life line
of coverage pursuant to Chapter 5 (commencing with Section 1621) of
Part 2 of Division 1.
(k) "Life settlement contract" means a written agreement
solicited, negotiated, or entered into in this state between a
provider and an owner, establishing the terms under which
compensation or any thing of value will be paid, which compensation
or thing of value is less than the expected death benefit of the
insurance policy or certificate, in return for the owner's
assignment, transfer, sale, devise, or bequest of the death benefit
or any portion of an insurance policy or certificate of insurance for
compensation, provided, however, that the minimum value for a life
settlement contract shall be greater than a cash surrender value or
accelerated death benefit available at the time of an application for
a life settlement contract. "Life settlement contract" also includes
the transfer for compensation or value of ownership or beneficial
interest in a trust or other entity that owns such policy if the
trust or other entity was formed or availed of for the principal
purpose of acquiring one or more life insurance contracts, which life
insurance contract is owned by a person residing in this state.
(1) A "life settlement contract" includes a premium finance loan
made for a policy on or before the date of issuance of the policy
where one or more of the following conditions apply:
(A) The loan proceeds are not used solely to pay premiums for the
policy and any costs or expenses incurred by the lender or the
borrower in connection with the financing.
(B) The owner receives on the date of the premium finance loan a
guarantee of the future life settlement value of the policy.
(C) The owner agrees on the date of the premium finance loan to
sell the policy or any portion of the policy's death benefit on any
date following the issuance of the policy, not including an agreement
to sell the policy in the event of a default, provided that the
default is not pursuant to an agreement or understanding with any
other person for the purpose of evading regulation under this act.
(2) "Life settlement contract" does not include any of the
following:
(A) A policy loan by a life insurance company pursuant to the
terms of the life insurance policy or accelerated death provisions
contained in the life insurance policy, whether issued with the
original policy or as a rider.
(B) A premium finance loan, as defined herein, or any loan made by
a bank or other licensed financial institution, provided that
neither default on the loan nor the transfer of the policy in
connection with the default is pursuant to an agreement or
understanding with any other person for the purpose of evading
regulation under this act.
(C) A collateral assignment of a life insurance policy by an
owner.
(D) A loan made by a lender that does not violate Article 5.8
(commencing with Section 778) of Chapter 1 of Part 2, provided the
loan is not described in paragraph (1), and is not otherwise within
the definition of life settlement contract.
(E) An agreement where all of the parties satisfy one of the
following conditions:
(i) They are closely related to the insured by blood or law.
(ii) They have a lawful substantial economic interest in the
continued life, health, and bodily safety of the person insured.
(iii) They are trusts established primarily for the benefit of
those parties.
(F) Any designation, consent, or agreement by an insured who is an
employee of an employer in connection with the purchase by the
employer, or by a trust established by the employer of life insurance
on the life of the employee.
(G) A bona fide business succession planning arrangement:
(i) Between one or more shareholders in a corporation or between a
corporation and one or more of its shareholders or one or more
trusts established by its shareholders.
(ii) Between one or more partners in a partnership or between a
partnership and one or more of its partners or one or more trusts
established by its partners.
(iii) Between one or more members in a limited liability company
or between a limited liability company and one or more of its members
or one or more trusts established by its members.
(H) An agreement entered into by a service recipient, or a trust
established by the service recipient, and a service provider, or a
trust established by the service provider, who performs significant
services for the service recipient's trade or business.
(I) Any other contract, transaction, or arrangement from the
definition of "life settlement contract" that the commissioner
determines is not of the type intended to be regulated by this act.
(l) "Net death benefit" means the amount of the life insurance
policy or certificate to be settled less any outstanding debts or
liens.
(m) "Owner" means the owner of a life insurance policy or a
certificate holder under a group policy, with or without a terminal
illness, who enters or seeks to enter into a life settlement
contract. For the purposes of this article, an owner shall not be
limited to an owner of a life insurance policy or a certificate
holder under a group policy that insures the life of an individual
with a terminal illness or condition except where specifically
addressed. The term "owner" does not include any of the following:
(1) Any provider or other licensee under this act.
(2) A qualified institutional buyer as defined in Rule 144A of the
federal Securities Act of 1933, as amended.
(3) A financing entity.
(4) A special purpose entity.
(5) A related provider trust.
(n) "Patient identifying information" means an insured's address,
telephone number, facsimile number, electronic mail address,
photograph or likeness, employer, employment status, social security
number, or any other information that is likely to lead to the
identification of the insured.
(o) "Person" means any natural person or legal entity, including,
but not limited to, a partnership, limited liability company,
association, trust, or corporation.
(p) "Policy" means an individual or group policy, group
certificate, contract, or arrangement of life insurance owned by a
resident of this state, regardless of whether delivered or issued for
delivery in this state.
(q) "Premium finance loan" is a loan made primarily for the
purpose of making premium payments on a life insurance policy, which
loan is secured by an interest in such life insurance policy.
(r) "Provider" means a person, other than an owner, who enters
into or effectuates a life settlement contract with an owner. A
provider does not include any of the following:
(1) Any bank, savings bank, savings and loan association, or
credit union.
(2) A licensed lending institution or creditor or secured party
pursuant to a premium finance loan agreement which takes an
assignment of a life insurance policy or certificate issued pursuant
to a group life insurance policy as collateral for a loan.
(3) The insurer of a life insurance policy or rider to the extent
of providing accelerated death benefits or riders or cash surrender
value.
(4) A purchaser.
(5) Any authorized or eligible insurer that provides stop loss
coverage to a provider, purchaser, financing entity, special purpose
entity, or related provider trust.
(6) A financing entity.
(7) A related provider trust.
(8) A broker.
(9) An accredited investor or qualified institutional buyer as
defined respectively in Regulation D, Rule 501 or Rule 144A of the
federal Securities Act of 1933, as amended, who purchases a life
settlement policy from a provider.
(s) "Purchaser" means a person who pays compensation or anything
of value as consideration for a beneficial interest in a trust which
is vested with, or for the assignment, transfer, or sale of, an
ownership or other interest in a life insurance policy or a
certificate issued pursuant to a group life insurance policy which
has been the subject of a life settlement contract.
(t) "Related provider trust" means a titling trust or other trust
established by a licensed provider or a financing entity for the sole
purpose of holding the ownership or beneficial interest in purchased
policies in connection with a financing transaction. In order to
qualify as a related provider trust, the trust must have a written
agreement with the licensed provider under which the licensed
provider is responsible for ensuring compliance with all statutory
and regulatory requirements and under which the trust agrees to make
all records and files relating to life settlement transactions
available to the Department of Insurance as if those records and
files were maintained directly by the licensed provider.
(u) "Settled policy" means a life insurance policy or certificate
that has been acquired by a provider pursuant to a life settlement
contract.
(v) "Special purpose entity" means a corporation, partnership,
trust, limited liability company, or other legal entity whose
securities pay a fixed rate of return commensurate with established
asset-backed capital markets, or has been formed solely to provide
either directly or indirectly access to institutional capital
markets:
(1) For a financing entity or provider.
(2) In connection with a transaction in which the securities in
the special purpose entity are acquired by the owner or by a
"qualified institutional buyer" as defined in Rule 144 promulgated
under the federal Securities Act of 1933, as amended.
(w) "Stranger-originated life insurance" or "STOLI" is an act,
practice, or arrangement to initiate the issuance of a life insurance
policy in this state for the benefit of a third-party investor who,
at the time of policy origination, has no insurable interest, under
the laws of this state, in the life of the insured. STOLI practices
include, but are not limited to, cases in which life insurance is
purchased with resources or guarantees from or through a person or
entity, that, at the time of policy inception, could not lawfully
initiate the policy himself, herself, or itself, and where, at the
time of inception, there is an arrangement or agreement, to directly
or indirectly transfer the ownership of the policy or the policy
benefits to a third party. Trusts that are created to give the
appearance of insurable interest and that are used to initiate
policies for investors violate insurable interest laws and the
prohibition against wagering on life. STOLI arrangements do not
include lawful life settlement contracts as permitted by the act that
added this section or those practices set forth in paragraph (2) of
subdivision (k), provided that they are not for the purpose of
evading regulation under this act.
(x) "Terminally ill" means having an illness or sickness that can
reasonably be expected to result in death in 24 months or less.
(y) "This act" shall refer to the act in the 2009-10 Regular
Session that added Sections 10113.1 to 10113.35, inclusive, and as it
may from time to time be amended.
10113.2. (a) This section applies to any person entering into,
brokering, or soliciting life settlements pursuant to this section
and Sections 10113.1 and 10113.3.
(b) (1) Except as provided in subparagraph (B) or (D), no person
may enter into, broker, or solicit life settlements pursuant to
Section 10113.1 unless that person has been licensed by the
commissioner under this section. The person shall file an application
for a license in the form prescribed by the commissioner, and the
application shall be accompanied by a fee established by the
commissioner. The license fees for a provider license shall be
reasonable and sufficient to cover the costs incurred by the
department to implement this act. The license and renewal fees for a
broker shall be reasonable and sufficient to cover the costs incurred
by the department to implement this act and shall not exceed the
license and renewal fees established for an insurance producer who is
acting as a life settlement broker. The applicant shall provide any
information the commissioner may require. The commissioner may issue
a license, or deny the application if, in his or her discretion, it
is determined that it is contrary to the interests of the public to
issue a license to the applicant. The reasons for a denial shall be
set forth in writing.
(A) An individual acting as a broker under this section shall
complete at least 15 hours of continuing education related to life
settlements and life settlement transactions, as required and
approved by the commissioner, prior to operating as a broker. This
requirement shall not apply to a life insurance producer who
qualifies under subparagraph (D).
(B) A person licensed as an attorney, certified public accountant,
or financial planner accredited by a nationally recognized
accreditation agency, who is retained to represent the owner, and
whose compensation is not paid directly or indirectly by the provider
or purchaser, may negotiate a life settlement contract on behalf of
the owner without having to obtain a license as a broker.
(C) A person licensed to act as a viatical settlement broker or
provider as of December 31, 2009, shall be deemed qualified for
licensure as a life settlement broker or provider, and shall be
subject to all the provisions of this article as if the person were
originally licensed as a life settlement broker or provider.
(D) (i) A life insurance producer who has been duly licensed as a
life agent for at least one year or as a licensed nonresident
producer in this state for one year shall be deemed to meet the
licensing requirements of this section and shall be permitted to
operate as a broker.
(ii) Not later than 10 days from the first day of operating as a
broker, the life insurance producer shall notify the commissioner
that he or she is acting as a broker, on a form prescribed by the
commissioner, and shall pay any applicable fee to be determined by
the commissioner.
(iii) The fee established by the commissioner shall be reasonable
and sufficient to cover the costs incurred by the department to
implement this act, but shall not be in excess of the license and
renewal fees paid by a life insurance producer. The fee shall be paid
by the life insurance producer for each license term the producer
intends to operate as a broker. The fee shall be calculated pursuant
to Section 1750. The notification to the commissioner shall include
an acknowledgment by the life insurance producer that he or she will
operate as a broker in accordance with this act.
(iv) The insurer that issued the policy that is the subject of a
life settlement contract shall not be responsible for any act or
omission of a broker or provider arising out of, or in connection
with, the life settlement transaction, unless the insurer receives
compensation for the replacement of the life settlement contract for
the provider or broker.
(E) The commissioner shall review the examination for the
licensing of life insurance agents and may recommend any changes to
the examination to the department's curriculum committee in order to
carry out the purposes of this section and Sections 10113.1 and
10113.3.
(2) Whenever it appears to the commissioner that it is contrary to
the interests of the public for a person licensed pursuant to this
section to continue to transact life settlements business, he or she
shall issue a notice to the licensee stating the reasons therefor.
If, after a hearing, the commissioner concludes that it is contrary
to the interests of the public for the licensee to continue to
transact life settlements business, he or she may revoke the person's
license, or issue an order suspending the license for a period as
determined by the commissioner. Any hearing conducted pursuant to
this paragraph shall be in accordance with Chapter 5 (commencing with
Section 11500) of Part 1 of Division 3 of Title 2 of the Government
Code, except that the hearing may be conducted by administrative law
judges chosen pursuant to Section 11502 or appointed by the
commissioner, and the commissioner shall have the powers granted
therein.
(3) Each licensee shall owe and pay in advance to the commissioner
an annual renewal fee in an amount to be determined by the
commissioner pursuant to paragraph (1) of subdivision (b). This fee
shall be for each license year, as defined by Section 1629.
(4) Any licensee that intends to discontinue transacting life
settlements in this state shall so notify the commissioner, and shall
surrender its license.
(c) A life settlements licensee shall file with the department a
copy of all life settlement forms used in this state. No licensee may
use any life settlement form in this state unless it has been
provided in advance to the commissioner. The commissioner may
disapprove a life settlement form if, in his or her discretion, the
form, or provisions contained therein, are contrary to the interests
of the public, or otherwise misleading or unfair to the consumer. In
the case of disapproval, the licensee may, within 15 days of notice
of the disapproval, request a hearing before the commissioner or his
or her designee, and the hearing shall be held within 30 days of the
request.
(d) Life settlements licensees shall be required to provide any
applicant for a life settlement contract, at the time of application
for the life settlement contract, all of the following disclosures in
writing and signed by the owner, in at least 12-point type:
(1) That there are possible alternatives to life settlements,
including, but not limited to, accelerated benefits options that may
be offered by the life insurer.
(2) The fact that some or all of the proceeds of a life settlement
may be taxable and that assistance should be sought from a
professional tax adviser.
(3) Consequences for interruption of public assistance as provided
by information provided by the State Department of Health Care
Services and the State Department of Social Services under Section
11022 of the Welfare and Institutions Code.
(4) That the proceeds from a life settlement could be subject to
the claims of creditors.
(5) That entering into a life settlement contract may cause other
rights or benefits, including conversion rights and waiver of premium
benefits that may exist under the policy or certificate of a group
policy to be forfeited by the owner and that assistance should be
sought from a professional financial adviser.
(6) That a change in ownership of the settled policy could limit
the insured's ability to purchase insurance in the future on the
insured's life because there is a limit to how much coverage insurers
will issue on one life.
(7) That the owner has a right to rescind a life settlement
contract within 30 days of the date it is executed by all parties and
the owner has received all required disclosures, or 15 days from
receipt by the owner of the proceeds of the settlement, whichever is
sooner. Rescission, if exercised by the owner, is effective only if
both notice of rescission is given and the owner repays all proceeds
and any premiums, loans, and loan interest paid on account of the
provider within the rescission period. If the insured dies during the
rescission period, the contract shall be deemed to have been
rescinded subject to repayment by the owner or the owner's estate of
all proceeds and any premiums, loans, and loan interest to the
provider.
(8) That proceeds will be sent to the owner within three business
days after the provider has received the insurer or group
administrator's acknowledgment that ownership of the policy or the
interest in the certificate has been transferred and the beneficiary
has been designated in accordance with the terms of the life
settlement contract.
(9) The date by which the funds will be available to the owner and
the transmitter of the funds.
(10) The disclosure document shall include the following language:
"All medical, financial, or personal information solicited or
obtained by a provider or broker about an insured, including the
insured's identity or the identity of family members, a spouse, or a
significant other may be disclosed as necessary to effect the life
settlement contract between the owner and provider. If you are asked
to provide this information, you will be asked to consent to the
disclosure. The information may be provided to someone who buys the
policy or provides funds for the purchase. You may be asked to renew
your permission to share information every two years."
(11) That the insured may be contacted by either the provider or
the broker or its authorized representative for the purpose of
determining the insured's health status or to verify the insured's
address. This contact is limited to once every three months if the
insured has a life expectancy of more than one year, and no more than
once per month if the insured has a life expectancy of one year or
less.
(12) Any affiliations or contractual relations between the
provider and the broker, and the affiliation, if any, between the
provider and the issuer of the policy to be settled.
(13) That a broker represents exclusively the owner, and not the
insurer or the provider or any other person, and owes a fiduciary
duty to the owner, including a duty to act according to the owner's
instructions and in the best interest of the owner.
(14) The name, business address, and telephone number of the
broker.
(e) Prior to the execution of the life settlement contract by all
parties, the life settlement provider entering into a life settlement
contract with the owner shall provide, in a document signed by the
owner, the gross purchase price the life settlement provider is
paying for the policy, the amount of the purchase price to be paid to
the owner, the amount of the purchase price to be paid to the owner'
s life settlement broker, and the name, business address, and
telephone number of the life settlement broker. For purposes of this
section, "gross purchase price" means the total amount or value paid
by the provider for the purchase of one or more life insurance
policies, including commissions and fees.
(f) The broker shall provide the owner and the insured with at
least all of the following disclosures in writing prior to the
signing of the life settlement contract by all parties. The
disclosures shall be clearly displayed in the life settlement
contract or in a separate document signed by the owner:
(1) The name, business address, and telephone number of the
broker.
(2) A full, complete, and accurate description of all of the
offers, counteroffers, acceptances, and rejections relating to the
proposed life settlement contract.
(3) A disclosure of any affiliations or contractual arrangements
between the broker and any person making an offer in connection with
the proposed life settlement contract.
(4) All estimates of the life expectancy of the insured which are
obtained by the licensee in connection with the life settlement,
unless such disclosure would violate any California or federal
privacy laws.
(5) The commissioner may consider any failure to provide the
disclosures or rights described in this section as a basis for
suspending or revoking a broker's or provider's license pursuant to
paragraph (2) of subdivision (b).
(g) All medical information solicited or obtained by any person
soliciting or entering into a life settlement is subject to Article
6.6 (commencing with Section 791) of Chapter 1 of Part 2 of Division
1, concerning confidentiality of medical information.
(h) Except as otherwise allowed or required by law, a provider,
broker, insurance company, insurance producer, information bureau,
rating agency, or company, or any other person with actual knowledge
of an insured's identity shall not disclose the identity of an
insured or information that there is a reasonable basis to believe
that could be used to identify the insured or the insured's financial
or medical information to any other person unless the disclosure is
one of the following:
(1) It is necessary to effect a life settlement contract between
the owner and a provider and the owner and insured have provided
prior written consent to the disclosure.
(2) It is necessary to effectuate the sale of life settlement
contracts, or interests therein, as investments, provided the sale is
conducted in accordance with applicable state and federal securities
law and provided further that the owner and the insured have both
provided prior written consent to the disclosure.
(3) It is provided in response to an investigation or examination
by the commissioner or any other governmental officer or agency or
any other provision of law.
(4) It is a term or condition to the transfer of a policy by one
provider to another provider, in which case the receiving provider
shall be required to comply with the confidentiality requirements of
Article 6.6 (commencing with Section 791) of Chapter 1 of Part 2 of
Division 1.
(5) It is necessary to allow the provider or broker or their
authorized representatives to make contacts for the purpose of
determining health status. For the purposes of this section, the term
"authorized representative" shall not include any person who has or
may have any financial interest in the settlement contract other than
a provider, licensed broker; further, a provider or broker shall
require its authorized representative to agree in writing to adhere
to the privacy provisions of this act.
(6) It is required to purchase stop loss coverage.
(i) In addition to other questions an insurance carrier may
lawfully pose to a life insurance applicant, insurance carriers may
inquire in the application for insurance whether the proposed owner
intends to pay premiums with the assistance of financing from a
lender that will use the policy as collateral to support the
financing.
(1) If the premium finance loan provides funds which can be used
for a purpose other than paying for the premiums, costs, and expenses
associated with obtaining and maintaining the life insurance policy
and loan, the application may be rejected as a prohibited practice
under this act.
(2) If the financing does not violate paragraph (1), the existence
of premium financing may not be the sole criterion employed by an
insurer in a decision whether to reject an application for life
insurance. The insurance carrier may make disclosures to the
applicant, either on the application or an amendment to the
application to be completed no later than the delivery of the policy,
including, but not limited to, the following:
"If you have entered into a loan arrangement where the policy is
used as collateral, and the policy changes ownership at some point in
the future in satisfaction of the loan, the following may be true:
"(A) A change of ownership could lead to a stranger owning an
interest in the insured's life.
"(B) A change of ownership could in the future limit your ability
to purchase insurance on the insured's life because there is a limit
to how much coverage insurers will issue on a life.
"(C) You should consult a professional adviser since a change in
ownership in satisfaction of the loan may result in tax consequences
to the owner, depending on the structure of the loan."
(3) In addition to the disclosures in paragraph (2), the insurance
carrier may require the following certifications from the applicant
or the insured:
"(A) I have not entered into any agreement or arrangement under
which I have agreed to make a future sale of this life insurance
policy.
"(B) My loan arrangement for this policy provides funds
sufficient to pay for some or all of the premiums, costs, and
expenses associated with obtaining and maintaining my life insurance
policy, but I have not entered into any agreement by which I am to
receive consideration in exchange for procuring this policy.
"(C) The borrower has an insurable interest in the insured."
(j) Life insurers shall provide individual life insurance
policyholders with a statement informing them that if they are
considering making changes in the status of their policy, they should
consult with a licensed insurance or financial advisor. The
statement may accompany or be included in notices or mailings
otherwise provided to the policyholders.
(k) The commissioner may adopt rules and regulations reasonably
necessary to govern life settlement transactions.
(l) The commissioner may, whenever he or she deems it reasonably
necessary to protect the interests of the public, examine the
business and affairs of any licensee or applicant for a license. The
commissioner shall have the authority to order any licensee or
applicant to produce any records, books, files, or other information
as is reasonably necessary to ascertain whether or not the licensee
or applicant is acting or has acted in violation of the law or
otherwise contrary to the interests of the public. The expenses
incurred in conducting any examination shall be paid by the licensee
or applicant.
(m) The commissioner may investigate the conduct of any licensee,
its officers, employees, agents, or any other person involved in the
business of the licensee, or any applicant for a license, whenever
the commissioner has reason to believe that the licensee or applicant
for a license may have acted, or may be acting, in violation of the
law, or otherwise contrary to the interests of the public. The
commissioner may initiate an investigation on his or her own, or upon
a complaint filed by any other person.
(n) The commissioner may issue orders to licensees whenever he or
she determines that it is reasonably necessary to ensure or obtain
compliance with this section, or Section 10113.3. This authority
includes, but is not limited to, orders directing a licensee to cease
and desist in any practice that is in violation of this section, or
Section 10113.3, or otherwise contrary to the interests of the
public. Any licensee to which an order pursuant to this subdivision
is issued may, within 15 days of receipt of that order, request a
hearing at which the licensee may challenge the order.
(o) The commissioner may, after notice and a hearing at which it
is determined that a licensee has violated this section or Section
10113.3 or any order issued pursuant to this section, order the
licensee to pay a monetary penalty of up to ten thousand dollars
($10,000), which may be recovered in a civil action. Any hearing
conducted pursuant to this subdivision shall be in accordance with
Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of
Title 2 of the Government Code, except that the hearing may be
conducted by administrative law judges chosen pursuant to Section
11502 or appointed by the commissioner, and the commissioner shall
have the powers granted therein.
(p) Each licensed provider shall file with the commissioner on or
before March 1 of each year an annual statement in the form
prescribed by the commissioner. The information that the commissioner
may require in the annual statement shall include, but not be
limited to, the total number, aggregate face amount, and life
settlement proceeds of policies settled during the immediately
preceding calendar year, together with a breakdown of the information
by policy issue year. The annual statement shall also include the
names of the insurance companies whose policies have been settled and
the brokers that have settled those policies, and that information
shall be received in confidence within the meaning of subdivision (d)
of Section 6254 of the Government Code and exempt from disclosure
pursuant to the Public Records Act (Chapter 3.5 (commencing with
Section 6250) of Division 7 of Title 1 of the Government Code). The
annual statement shall not include individual transaction data
regarding the business of life settlements or information that there
is a reasonable basis to believe could be used to identify the owner
or the insured.
(q) No person who is not a resident of California may receive or
maintain a license unless a written designation of an agent for
service of process is filed and maintained with the commissioner. The
provisions of Article 3 (commencing with Section 1600) of Chapter 4
of Part 2 shall apply to life settlements licensees as if they were
foreign insurers, their license a certificate of authority, and the
life settlements a policy, and the commissioner may modify the
agreement set forth in Section 1604 accordingly.
(r) No person licensed pursuant to this section shall engage in
any false or misleading advertising, solicitation, or practice. In no
case shall a broker or provider, directly or indirectly, market,
advertise, solicit, or otherwise promote the purchase of a new policy
for the sole purpose of or with a primary emphasis on settling the
policy or use the words "free," "no cost," or words of similar import
in the marketing, advertising, soliciting, or otherwise promoting of
the purchase of a policy. The provisions of Article 6 (commencing
with Section 780) and Article 6.5 (commencing with Section 790) of
Chapter 1 of Part 2 shall apply to life settlements licensees as if
they were insurers, their license a certificate of authority or
producer's license, and the life settlements a policy, and the
commissioner shall liberally construe these provisions so as to
protect the interests of the public.
(s) Any person who enters into a life settlement with a life
settlements licensee shall have the absolute right to rescind the
settlement within 30 days of the date it is executed by all parties
and the owner has received all required disclosures, or 15 days from
receipt by the owner of the proceeds of the settlement, whichever is
sooner, and any waiver or settlement language contrary to this
subdivision shall be void. Rescission, if exercised by the owner, is
effective only if both notice of rescission is given and the owner
repays all proceeds and any premiums, loans, and loan interest paid
on account of the provider within the rescission period. If the
insured dies during the rescission period, the contract shall be
deemed to have been rescinded subject to repayment by the owner or
the owner's estate of all proceeds and any premiums, loans, and loan
interest to the provider.
(t) Records of all consummated transactions and life settlement
contracts shall be maintained by the provider for three years after
the death of the insured and shall be available to the commissioner
for inspection during reasonable business hours.
(u) A violation of this section is a misdemeanor.
10113.3. (a) A provider entering into a life settlement contract
with any owner of a policy, wherein the insured is terminally ill,
shall first obtain the following:
(1) If the owner is the insured, a written statement from a
licensed attending physician that the owner is of sound mind and
under no constraint or undue influence to enter into a settlement
contract.
(2) A document in which the insured consents to the release of his
or her medical records to a provider, settlement broker, or
insurance producer and, if the policy was issued less than two years
from the date of application for a settlement contract, to the
insurance company that issued the policy.
(b) The insurer shall respond to a request for verification of
coverage submitted by a provider, settlement broker, or life
insurance producer not later than 30 calendar days of the date the
request is received. The request for verification of coverage must be
made on a form approved by the commissioner. The insurer shall
complete and issue the verification of coverage or indicate in which
respects it is unable to respond. In its response, the insurer shall
indicate whether, based on the medical evidence and documents
provided, the insurer intends to pursue an investigation at this time
regarding the validity of the insurance contract.
(c) Before or at the time of execution of the settlement contract,
the provider shall obtain a witnessed document in which the owner
consents to the settlement contract, represents that the owner has a
full and complete understanding of the settlement contract and a full
and complete understanding of the benefits of the policy,
acknowledges that the owner is entering into the settlement contract
freely and voluntarily, and, for persons with a terminal illness or
condition, acknowledges that the insured has a terminal illness and
that the terminal illness or condition was diagnosed after the po
