BILL NUMBER: AB 1425	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  MAY 19, 2011

INTRODUCED BY   Committee on Insurance (Assembly Members Solorio
(Chair), Carter, Feuer, Hayashi, Skinner, Torres, and Wieckowski)

                        MARCH 22, 2011

   An act to amend Section 10113.2 of, and to repeal and add Section
10113.35 of, the Insurance Code, relating to life insurance.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1425, as amended, Committee on Insurance. Life insurance.
   Existing law governs the regulation of life settlements, as
defined, by the Insurance Commissioner. Existing law prohibits a
person from entering into, brokering, or soliciting life settlements
unless that person holds a license, issued by the commissioner, to so
act. Existing law authorizes the commissioner to adopt rules and
regulations reasonably necessary to govern life settlement
transactions and to adopt rules and regulations under those
provisions as emergency regulations.
   This bill would revise and recast the provisions governing the
rulemaking authority of the commissioner and would instead authorize
the commissioner to adopt rules and regulations reasonably necessary
to implement specified provisions governing life settlements  ,
as specified  .
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 10113.2 of the Insurance Code is amended to
read:
   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, 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.
   (l) 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.
   (m) 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.
   (n) 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.
   (o) 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.
   (p) 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.
   (q) 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.
   (r) 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.
   (s) 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.
   (t) A violation of this section is a misdemeanor.
  SEC. 2.  Section 10113.35 of the Insurance Code is repealed.
  SEC. 3.  Section 10113.35 is added to the Insurance Code, to read:
   10113.35.   (a)    The commissioner may adopt
rules and regulations reasonably necessary to implement the
provisions of this act. 
   (b) This section shall be prospective only, and nothing in the act
adding this section shall be interpreted to interfere with or
overrule regulations adopted prior to the effective date of this act
by the Insurance Commissioner pursuant to the authority granted at
the time those regulations were adopted.