Massachusetts General Laws ch. 175 sec. 222 – General rules relating to life settlement contracts
Section 222. (a) A life settlement provider entering into a life settlement contract with an owner of a policy, where the insured has a terminal or chronic illness or condition, shall first obtain:
Terms Used In Massachusetts General Laws ch. 175 sec. 222
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Beneficiary: A person who is entitled to receive the benefits or proceeds of a will, trust, insurance policy, retirement plan, annuity, or other contract. Source: OCC
- Bequest: Property gifted by will.
- Contract: A legal written agreement that becomes binding when signed.
- Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
- Devise: To gift property by will.
- Escrow: Money given to a third party to be held for payment until certain conditions are met.
- Evidence: Information presented in testimony or in documents that is used to persuade the fact finder (judge or jury) to decide the case for one side or the other.
- Interests: includes any form of membership in a domestic or foreign nonprofit corporation. See Massachusetts General Laws ch. 156D sec. 11.01
- Jurisdiction: (1) The legal authority of a court to hear and decide a case. Concurrent jurisdiction exists when two courts have simultaneous responsibility for the same case. (2) The geographic area over which the court has authority to decide cases.
- Rescission: The cancellation of budget authority previously provided by Congress. The Impoundment Control Act of 1974 specifies that the President may propose to Congress that funds be rescinded. If both Houses have not approved a rescission proposal (by passing legislation) within 45 days of continuous session, any funds being withheld must be made available for obligation.
- Right of rescission: Right to cancel, within three business days, a contract that uses the home of a person as collateral, except in the case of a first mortgage loan. There is no fee to the borrower, who receives a full refund of all fees paid. The right of rescission is guaranteed by the Truth in Lending Act (TILA). Source: OCC
- Settlement: Parties to a lawsuit resolve their difference without having a trial. Settlements often involve the payment of compensation by one party in satisfaction of the other party's claims.
- Trust account: A general term that covers all types of accounts in a trust department, such as estates, guardianships, and agencies. Source: OCC
- Trustee: A person or institution holding and administering property in trust.
(1) if the owner is the insured, a written statement from a licensed attending physician that the owner is of sound mind; and
(2) a document in which the insured consents to the release of the insured’s medical records to a life settlement provider, life settlement broker or insurance producer and, if the policy was issued less than 2 years from the date of application for a life settlement contract, to the insurance company that issued the policy.
(b) Within 20 days after an owner executes the life settlement contract, the life settlement provider shall give written notice to the insurer that issued the insurance policy that the policy has become subject to a life settlement contract. The notice shall be accompanied by the documents required in clauses (1) and (2) of subsection (a).
(c) The insurer shall respond to a request for verification of coverage submitted by a life settlement provider, life settlement broker or life insurance producer not later than 30 calendar days after the date the request was received. The request for verification of coverage shall 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 regarding the validity of the insurance contract.
(d) Prior to or at the time of execution of the life settlement contract, the life settlement provider shall obtain a witnessed document in which the owner: (1) consents to the life settlement contract; (2) represents that the owner has a full and complete understanding of the life settlement contract; (3) represents that the owner has a full and complete understanding of the benefits of the policy; (4) acknowledges that the owner is entering into the life settlement contract freely and voluntarily; and (5) for persons with a terminal or chronic illness or condition, acknowledges that the insured has a terminal or chronic illness or condition and that the terminal or chronic illness or condition was diagnosed after the policy was issued.
(e) The insurer shall not unreasonably delay effecting a change of ownership or beneficiary with a life settlement contract lawfully entered into in the commonwealth or with a resident of the commonwealth.
(f) If a life settlement broker or life insurance producer performs any of the activities in subsections (a) and (b) or (d), the life settlement provider shall be deemed to have fulfilled the requirements of this section.
(g) If a life settlement broker performs those verification of coverage activities required of the life settlement provider, the life settlement provider shall be deemed to have fulfilled the requirements of this section.
(h) All medical information solicited or obtained by a licensee shall be subject to applicable provisions of this chapter and any other law relating to the confidentiality of medical information, if not otherwise provided in sections 213 to 223E, inclusive.
(i) A life settlement contract shall provide that the owner may rescind the life settlement contract not more than 15 days after the date it was executed by all parties. Rescission, if exercised by the owner, shall be effective only if: (1) notice of the rescission is given and (2) the owner repays all proceeds and any premiums, loans and loan interest paid on account of the life settlement provider within the rescission period. If the insured dies during the rescission period, the life settlement 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 life settlement provider. Failure to give written notice of the right of rescission shall toll the right of rescission until 30 days after the written notice of the right of rescission has been given.
(j) Within 3 business days after receipt from the owner of documents to effect the transfer of the policy pursuant to a life settlement contract, the life settlement provider shall pay the proceeds of the life settlement contract to an escrow or trust account managed by a trustee or escrow agent in a state or federally-chartered financial institution pending acknowledgement of the transfer by the issuer of the policy. The trustee or escrow agent shall transfer the proceeds due to the owner within 3 business days of acknowledgement of the transfer from the insurer.
(k) Failure to tender the life settlement contract proceeds to the owner by the date disclosed to the owner renders the life settlement contract voidable by the owner for lack of consideration until such time as the proceeds are tendered to and accepted by the owner.
(l) Any fee paid by a life settlement provider, party, individual or from an owner to a life settlement broker in exchange for services provided to the owner pertaining to a life settlement contract shall be computed as a percentage of the offer obtained, not the face value of the policy. Nothing in this section shall be construed to prohibit a life settlement broker from reducing the life settlement broker’s fee below this percentage if the broker so chooses.
(m) No person at any time prior to, or at the time of the application for, or issuance of a policy, or during a 2–year period commencing with the date of issuance of the policy shall enter into a life settlement contract regardless of the date the compensation is to be provided and regardless of the date the assignment, transfer, sale, devise, bequest or surrender of the policy is to occur.
(n)(1) The prohibition in subsection (m) shall not apply if:
(i) the owner certifies to the provider that the policy was issued upon the owner’s exercise of conversion rights arising out of a group or individual policy; provided, however, that the total of the time covered under the conversion policy plus the time covered under the prior policy shall be at least 24 months; and provided further, that the time covered under a group policy shall be calculated without regard to a change in insurance carriers, if the coverage has been continuous and under the same group sponsorship; or
(ii) the owner submits independent evidence to the life settlement provider that any of the following conditions have been met within the 2–year period:
(A) the owner or insured has a terminal or chronic illness or condition;
(B) the owner or insured disposes of the owner’s or insured’s ownership interests in a closely held corporation, pursuant to the terms of a buyout or other similar agreement in effect at the time the insurance policy was initially issued;
(C) the owner’s spouse dies;
(D) the owner obtains a divorce;
(E) the owner retires from full-time employment;
(F) the owner becomes physically or mentally disabled and a physician determines that the disability prevents the owner from maintaining full-time employment; or
(G) a final order, judgment or decree is entered by a court of competent jurisdiction on the application of a creditor of the owner adjudicating the owner bankrupt or insolvent, or approving a petition seeking reorganization of the owner or appointing a receiver, trustee or liquidator to all or a substantial part of the owner’s assets;
(2) Copies of the independent evidence required by clause (ii) of paragraph (1) shall be submitted to the insurer when the life settlement provider submits a request to the insurer for verification of coverage. The copies shall be accompanied by a letter of attestation from the life settlement provider that the copies are true and correct copies of the documents received by the life settlement provider. Nothing in this section shall prohibit an insurer from exercising its right to contest the validity of a policy.
(3) If the life settlement provider submits to the insurer a copy of independent evidence provided for in subclause (A) of clause (ii) of paragraph (1) when the life settlement provider submits a request to the insurer to effect the transfer of the policy to the life settlement provider, the copy shall be deemed to establish that the life settlement contract satisfies the requirements of this section.