On January 8, 2013, Massachusetts adopted legislation designed to prohibit stranger originated life insurance transactions (“STOLI”), i.e., initiating or causing the issuance of a life insurance policy for the benefit of a person or entity without an insurable interest in the life of the insured, and to restrict life settlements. Prior to the adoption of the new legislation, Massachusetts only regulated viatical settlements.
The new legislation, H 4296 (the “Act”), among other things:
- Makes STOLI transactions illegal;
- Repeals existing viatical settlement law, and replaces it with life settlement law with specific additional requirements if the owner of the policy is terminally ill (note, existing viatical settlement licensees are considered qualified as life settlement brokers or providers, as the case may be);
- Regulates life settlement contracts, including mandating that contract and disclosure forms be filed with and approved by the Insurance Commissioner;
- Establishes licensing and training requirements for life settlement brokers and providers;
- Requires that life settlement providers file annual statements with the Insurance Commissioner;
- Grants the Insurance Commissioner the authority to examine any licensee, and provides the Insurance Commissioner with subpoena powers;
- Prohibits settlement of a policy during a 2-year period from the date of issuance (with limited exceptions); and
- Prohibits fraudulent life settlement acts (which are defined to include acts or omissions in obtaining a life settlement contract with the intent to defraud, and acts committed by a person or such person’s employees or agents in furtherance of a fraud or to prevent detection of the fraud, among other things) and authorizes the Insurance Commissioner to investigate fraudulent life settlement acts, and authorizes penalties for violations, including monetary penalties, and license revocation.