Kansas Session Laws Chapter 103

CHAPTER 103 SENATE BILL No. 151 An Act concerning insurance companies; relating to viatical settlements; repealing K.S.A.
40-2,140, 40-2,141, 40-2,142, 40-2,143, 40-2,144, 40-2,145, 40-2,146, 40-2,147, 40-
2,148, 40-2,149, 40-2,150, 40-2,151 and 40-2,152.
Be it enacted by the Legislature of the State of Kansas:

Section 1. This shall be known as the viatical settlements act.

Sec. 2. As used in this act the following terms shall apply:

(a) ``Commissioner'' means the commissioner of insurance.

(b) ``Financing entity'' means an underwriter, placement agent,
lender, purchaser of securities, purchaser of a policy or certificate from
a viatical settlement provider, credit enhancer or any person that may be
a party to a viatical settlement contract and that has a direct ownership
in a policy or certificate that is the subject of a viatical settlement contract
but whose sole activity related to the transaction is providing funds to
effect the viatical settlement and who has an agreement in writing with
a licensed viatical settlement provider to act as a participant in a financing
transaction.

(c) ``Financing transaction'' means a transaction in which a licensed
viatical settlement provider or a financing entity obtains financing for
viatical settlement contracts, viaticated policies or interests therein in-
cluding, without limitation, any secured or unsecured financing, any se-
curitization transaction or any securities offering either registered or ex-
empt from registration under federal and state securities law, or any direct
purchase of interests in a policy or certificate, if the financing transaction
complies with federal and state securities law.

(d) ``Person'' means an individual, partnership, limited liability com-
pany, association, trust, corporation or other legal entity.

(e) (1) ``Viatical settlement representative'' means a person who is an
authorized agent of a licensed viatical settlement provider or viatical set-
tlement broker, as applicable, who acts or aids in any manner in the
solicitation of a viatical settlement. Viatical settlement representative shall
not include:

(A) An attorney, an accountant, a financial planner or any person
exercising a power of attorney granted by a viator; or

(B) any person who is retained to represent a viator and whose com-
pensation is paid by or at the direction of the viator regardless of whether
the viatical settlement is consummated.

(2) A viatical settlement representative is deemed to represent only
the viatical settlement provider or viatical settlement broker.

(f) ``Viatical settlement broker'' means a person that on behalf of a
viator and for a fee, commission or other valuable consideration, offers,
or attempts to negotiate viatical settlements between a viator and one or
more viatical settlements providers. Irrespective of the manner in which
the viatical settlement broker is compensated, a viatical settlement broker
is deemed to represent only the viator and owes a fiduciary duty to the
viator to act according to the viator's instructions and in the best interest
of the viator. The term viatical settlement broker does not include an
attorney, accountant or financial planner retained to represent the viator
and whose compensation is paid directly by or at the direction of the
viator.

(g) ``Viatical settlement contract'' means a written agreement entered
into between a viatical settlement provider and a viator. The agreement
shall establish the terms under which the viatical settlement provider will
pay compensation or anything of value, which compensation or value is
less than the expected death benefit of the insurance policy or certificate,
in return, for the viator's assignment, transfer, sale, devise or bequest of
the death benefit or ownership of all or a portion of the insurance policy
or certificate of insurance to the viatical settlement provider. The term
viatical settlement contract also includes any contract for a loan or other
financial transaction secured primarily by an individual or group life in-
surance policy, other than a loan by a life insurance company pursuant to
the terms of the life insurance contract, or a loan secured by the cash
value of a policy.

(h) ``Viatical settlement provider'' means a person, other than a viator,
that: (1) Enters into a viatical settlement contract; or (2) obtains financing
from a financing entity for the purchase, acquisition, transfer or other
assignment of one or more viatical settlement contracts, viaticated policies
or interests therein, or otherwise sells, assigns, transfers, pledges, hy-
pothecates or otherwise disposes of one or more viatical settlement con-
tracts, viaticated policies or interests therein.

The term viatical settlement provider shall not include:

(1) A bank, savings bank, savings and loan association, credit union
or other licensed lending institution that takes an assignment of a life
insurance policy as collateral for a loan;

(2) the issuer of a life insurance policy providing accelerated benefits
under K.S.A. 40-401, and amendments thereto, and pursuant to the con-
tract; or

(3) a natural person who enters into no more than one agreement in
a calendar year for the transfer of life insurance policies for any value less
than the expected death benefits.

(i) ``Viator'' means the owner of a life insurance policy or a certificate
holder under a group policy insuring the life of an individual with a cat-
astrophic, life threatening or chronic illness or condition who enters or
seeks to enter into a viatical settlement contract.

(j) ``Viaticated policy'' means a life insurance policy or certificate that
has been acquired by a viatical settlement provider pursuant to a viatical
settlement contract.

Sec. 3. (a) A person shall not operate as a viatical settlement provider,
viatical settlement representative or a viatical settlement broker without
first having obtained a license from the commissioner.

(b) Application for a viatical settlement provider, viatical settlement
representative or viatical settlement broker license shall be made to the
commissioner by the applicant on a form prescribed by the commissioner.
Each application shall be accompanied by a nonrefundable fee of $1,000.

(c) Any license issued pursuant to this section shall expire on the
anniversary of its date of issuance unless the licensee pays the renewal
fee. Any license issued pursuant to this section may be renewed from
year to year on the anniversary of the date of issuance upon payment of
the annual renewal fee of $500. Failure to pay the fee by the renewal
date results in expiration of the license.

(d) The applicant shall provide information on forms required by the
commissioner. The commissioner shall have the authority, at any time, to
require the applicant to fully disclose the identity of all stockholders,
partners, officers, members and employees, and the commissioner, in the
exercise of the commissioner's discretion, may refuse to issue a license in
the name of a legal entity if not satisfied that any officer, employee, stock-
holder, partner or member thereof who may materially influence the
applicant's conduct meets the standards of this act.

(e) A license issued to a legal entity authorizes all members, officers
and designated employees to act as viatical settlement providers, viatical
settlement brokers or viatical settlement representatives, as applicable,
under the license, and all those persons shall be named in the application
and any supplements to the application.

(f) Upon the filing of an application and the payment of the license
fee, the commissioner shall make an investigation of each applicant and
issue a license if the commissioner finds that the applicant:

(1) Has provided a detailed plan of operation;

(2) is competent and trustworthy and intends to act in good faith in
the capacity involved by the license applied for;

(3) has a good business reputation and has had a experience, training
or education so as to be qualified in the business for which the license is
applied for; and

(4) has provided a certificate of good standing from the state of its
domicile except that no such certificate shall be required.

(g) The commissioner shall not issue a license to a nonresident ap-
plicant, unless: (1) A written designation of an agent for service of process
is filed and maintained with the commissioner; or (2) the applicant has
filed with the commissioner, the applicant's written irrevocable consent
that any action against the applicant may be commenced against the ap-
plicant by service of process on the commissioner.

Sec. 4. The commissioner after notice and opportunity for a hearing
conducted in accordance with provisions of the Kansas administrative
procedures act, may deny, suspend, revoke or refuse to renew the license
of a viatical settlement provider, viatical settlement representative or vi-
atical settlement broker if the commissioner finds that:

(a) There was any material misrepresentation in the applicant for the
license.

(b) The licensee or any officer, partner, member or key management
personnel: (1) Has been convicted of any fraudulent or dishonest practice;
(2) is subject toa final administrative action; or (3) is otherwise shown to
be untrustworthy or incompetent.

(c) The viatical settlement provider demonstrates a pattern of unrea-
sonable payments to viators.

(d) The licensee has been found guilty of, or has pleaded guilty or
nolo contendre to, any felony, or to a misdemeanor involving fraud or
moral turpitude, regardless of whether a judgment of conviction has been
entered by a court.

(e) The viatical settlement provider has entered into any viatical set-
tlement contract that has not been approved pursuant to this act.

(f) The viatical settlement provider has failed to honor contractual
obligations set out in a viatical settlement contract.

(g) The licensee no longer meets the requirements for issuance of
the original license.

(h) The viatical settlement provider has assigned, transferred or
pledged a viaticated policy to a person other than a viatical settlement
provider licensed in this state or a financing entity.

(i) The licensee has violated any provision of this act.

Sec. 5. A person shall not use a viatical settlement contract or provide
to a viator a disclosure statement form in this state unless filed and ap-
proved by the commissioner. The commissioner may disapprove a viatical
settlement contract or disclosure statement form, if in the commissioner's
discretion, the contract or provisions contained therein are unreasonable,
contrary to the interests of the public, or otherwise misleading or unfair
to the viator.

Sec. 6. On or before March 1 of each year each licensee shall file
with the commissioner an annual statement containing such information
as the commissioner may prescribe by rule and regulation.

Sec. 7. Except as otherwise required by law, a viatical settlement
provider, viatical settlement representative, viatical settlement broker, in-
surance company, insurance agent, insurance broker, information bureau,
rating agency or company or any other person with actual knowledge of
a viator's identity, shall not disclose that identity as a viator to any other
person unless the disclosure is:

(a) Necessary to effect a viatical settlement between the viator and a
viatical settlement provider and the viator has provided prior written con-
sent to the disclosure;

(b) provided in response to an investigation by the commissioner or
any other governmental officer or agency; or

(c) a term or condition to the transfer of a viatical policy by one
viatical settlement provider to another viatical settlement provider.

Sec. 8. (a) The commissioner may, when the commissioner deems it
reasonably necessary to protect the interests of the public, examine the
business and affairs of any license or applicant for a license. The com-
missioner shall have the authority to order any licensee or applicant to
produce any records, books, files or other information reasonably nec-
essary 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.

(b) Names and individual identification data for all viators shall be
considered private and confidential information and shall not be disclosed
by the commissioner, unless required by law.

(c) Records of all transactions of viatical settlement contracts shall be
maintained by the viatical settlement provider and shall be available to
the commissioner for inspection during reasonable business hours. A vi-
atical settlement provider shall maintain records of each viatical settle-
ment until five years after the death of the insured.

Sec. 9. (a) A viatical settlement provider, viatical settlement repre-
sentative or viatical settlement broker shall disclose the following infor-
mation to the viator no later than the time of application that:

(1) Possible alternatives to viatical settlement contracts for individuals
with catastrophic, life threatening or chronic illnesses, including, any ac-
celerated death benefits offered under the viator's life insurance policy
exist and what those alternatives are;

(2) some or all of the proceeds of the viatical settlement may be free
from federal income tax and from state franchise and income taxes, and
that assistance should be sought from a professional tax advisor;

(3) proceeds of the viatical settlement could be subject to the claims
of creditors;

(4) receipt of the proceeds of a viatical settlement may adversely ef-
fect the viator's eligibility for medicaid or other government benefits or
entitlements and that advice should be obtained from the appropriate
government agencies;

(5) the viator's right to rescind a viatical settlement contract 15 cal-
endar days after the receipt of the viatical settlement proceeds by the
viator;

(6) funds will be sent to the viator within two business days after the
viatical settlement provider has received the insurer or group administra-
tor's acknowledgment that ownership of the policy or interest in the cer-
tificate has been transferred and the beneficiary has been designated
pursuant to the viatical settlement contract; and

(7) entering into a viatical settlement contract may cause other rights
or benefits, including conversion rights and waivers of premium benefits
that may exist under the policy or certificate, to be forfeited by the viator
and that assistance should be sought from a financial advisor.

(b) A viatical settlement provider shall disclose the following infor-
mation to the viator prior to the date the viatical settlement contract is
signed by all parties:

(1) The affiliation, if any, between the viatical settlement provider
and the issuer of an insurance policy to be viaticated;

(2) if an insurance policy to be viaticated has been issued as a joint
policy or involves family riders or any coverage of a life other than the
insured under the policy to be viaticated, the viator shall be informed of
the possible loss of coverage on the other lives and be advised to consult
with the viator's insurance producer or the company issuing the policy
for advice on the proposed viatication; and

(3) the dollar amount of the current death benefit payable to the
viatical settlement provider under the policy or certificate. The viatical
settlement provider shall also disclose the availability of any additional
guaranteed insurance benefits, the dollar amount of any accidental death
and dismemberment benefits under the policy or certificate and the vi-
atical settlement provider's interest in those benefits.

Sec. 10. (a) A viatical settlement provider entering into a viatical set-
tlement contract shall first obtain:

(1) A written statement from a licensed attending physician that the
viator is of sound mind and under no constraint or undue influence to
enter into a viatical settlement contract whenever the viator is the insured.

(2) A witnessed document in which the viator:

(A) Consents to the viatical settlement contract;

(B) acknowledges that the insured has a catastrophic, life threatening
or chronic illness or condition;

(C) represents that the viator has a full and complete understanding
of the viatical settlement contract;

(D) has a full and complete understanding of the benefits of the life
insurance policy; and

(E) acknowledges that the viator has entered into the viatical settle-
ment contract freely and voluntarily.

(3) A document in which the insured consents to the release of the
insured's medical records to a viatical settlement provider or viatical set-
tlement broker.

(b) All medical information solicited or obtained by any licensee shall
be subject to the applicable provision of state law relating to confidenti-
ality of medical information.

(c) All viatical settlement contracts entered into in this state shall
provide the viator with an unconditional right to rescind the contract for
at least 15 calendar days from the receipt for the viatical settlement pro-
ceeds. If the insured dies during the recision period, the viatical settle-
ment contract shall be deemed to have been rescinded, subject to repay-
ment to the viatical settlement provider of all viatical settlement proceeds.

(d) Immediately upon the viatical settlement provider's receipt of
documents to effect the transfer of the insurance policy, the viatical set-
tlement provider shall pay the proceeds of the viatical settlement to an
escrow or trust account in a state or federally chartered financial insti-
tution whose deposits are insured by the federal deposit insurance cor-
poration (FDIC). The account shall be managed by a trustee or escrow
agent independent of the parties to the contract. The trustee or escrow
agent shall transfer the proceeds to the viator immediately upon the vi-
atical settlement provider's receipt of acknowledgment of the transfer of
the insurance policy.

(e) Failure to tender consideration to the viator for the viatical set-
tlement contract within the required time period renders the viatical set-
tlement contract voidable by the viator for lack of consideration until the
time consideration is tendered to and accepted by the viator.

(f) Contacts with the insured for the purpose of determining the
health status of the insured by the viatical settlement provider, viatical
settlement broker or viatical settlement representative after the viatical
settlement has occurred shall only be made by the viatical settlement
provider or broker licensed in this state and shall be limited to after the
viatical settlement has occurred and shall be limited to once every three
months for insureds with a life expectancy of more than one year, and to
no more than one per month for insureds with a life expectancy of one
year or less. The provider or broker shall explain the procedure for these
contacts at the time the viatical settlement contract is entered into. The
limitations set forth in this subsection shall not apply to any contacts with
an insured under a viaticated policy for reasons other than determining
the insured's health status.

Sec. 11. The commissioner shall have the authority to promulgate
rules and regulations to:

(a) Establish requirements for evaluating reasonableness of payments
under viatical settlement contracts. This authority includes, but is not
limited to, regulation of discount rates used to determine the amount
paid in exchange for assignment, transfer, sale, devise or bequest of a
benefit under a life insurance policy.

(b) Establish appropriate licensing requirements, fees not to exceed
$200 and requirements for continued licensure for viatical settlement
providers, representatives and brokers.

(c) Establish requirements for a bond or any other mechanism for
financial accountability for viatical settlement providers.

(d) Establish requirements governing the relationship and responsi-
bilities of both insurers and viatical settlement providers, brokers and
representatives during the viatication of a life insurance policy or certif-
icate.

(e) Establish requirements for any other matters necessary for the
proper enforcement of the act.

Sec. 12. A violation of this act shall also be considered an unfair or
deceptive act or practice under K.S.A. 40-2404, and amendments thereto
and subject to the penalties contained in K.S.A. 40-2401 et seq. and
amendments thereto.

Sec. 13. A viatical settlement provider, viatical settlement represen-
tative or viatical settlement broker transacting business in this state may
continue to do so pending approval or disapproval of the viatical settle-
ment provider's, viatical settlement representative's or viatical settlement
broker's application for a license provided that the required application
is filed with the commissioner by July 1, 1999.

Sec. 14. K.S.A. 40-2,140, 40-2,141, 40-2,142, 40-2,143, 40-2,144, 40-
2,145, 40-2,146, 40-2,147, 40-2,148, 40-2,149, 40-2,150, 40-2,151 and 40-
2,152 are hereby repealed.

Sec. 15. This act shall take effect and be in force from and after its
publication in the Kansas register.

Approved April 14, 1999.
Published in the Kansas Register April 22, 1999.
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