A BILL TO BE ENTITLED
AN act to provide for the protection of consumers in life settlement transactions.
The General Assembly of North Carolina enacts:
SECTION 1.  Article 58 of Chapter 58 of the General Statutes is amended by adding a new Part to read:
"Part 6. Life Settlement Transactions.
"§ 58‑58‑320.  Definitions.
For the purposes of this Part:
(1)	"Life settlement contract" means a written agreement establishing the terms under which compensation or anything of value is or will be paid, which compensation or value is less than the expected death benefits of the policy, in return for the owner's present or future assignment, transfer, sale, devise, or bequest of the death benefit or ownership of any portion of the insurance policy or certificate of insurance. However, the minimum value of a life settlement contract shall be greater than the cash surrender value or accelerated death benefit available at the time of an application for the life settlement contract. Except as provided by sub‑subdivision (3)c. of this section, "life settlement contract" also includes the transfer for compensation or value of ownership or beneficial interest in a trust or other entity that owns the policy if the trust or other entity was formed or availed of for the principal purpose of acquiring one or more life insurance contracts.
   "Life settlement contract" includes a premium finance loan made for a life insurance policy by a lender to an owner on, before, or after the date of issuance of the policy if any of the following conditions apply:
a.	The loan proceeds are not used solely to pay (i) premiums for the policy or (ii) the costs of the loan, including, without limitation, interest, arrangement fees, utilization fees and similar fees, closing costs, legal fees and expenses, trustee fees and expenses, and third party collateral provider fees and expenses, including fees payable to letter of credit issuers.
b.	The owner or the insured receives on the date of the premium finance loan a guarantee of a future life settlement value of the policy.
c.	The owner or the insured agrees on the date of the premium finance loan to sell the policy or any portion of its death benefit on any date following the issuance of the policy.
   "Life settlement contract" does not include any of the following:
a.	A policy loan or accelerated death benefit provision contained in the life insurance policy, whether issued with the original policy or as a rider.
b.	A loan made by a bank or other licensed financial institution in which the lender takes an interest in a life insurance policy solely to secure repayment of the loan or, if there is a default on the loan and the policy is transferred, the further assignment of the policy by the lender, provided that the default itself is not pursuant to an agreement or understanding with any other person for the purpose of evading regulation under this Part.
c.	A loan made by a lender that does not violate Article 35 of this Chapter, provided that the premium finance loan is not described in the definition of life settlement contract above.
d.	An agreement where all the parties are closely related to the insured by blood or law or have a lawful substantial economic interest in the continued life, health, and bodily safety of the person insured, or are trusts established primarily for the benefit of the parties.
e.	Any designation, consent, or agreement by an insured who is an employee of an employer in connection with the purchase by the employer, or trust established by the employer, of life insurance on the life of the employee.
f.	A bona fide business succession planning arrangement established by any of the following:
1.	An agreement between one or more shareholders in a corporation or between a corporation and one or more of its shareholders.
2.	A trust established by shareholders of a corporation.
3.	An agreement between one or more partners in a partnership or between a partnership and one or more of its partners.
4.	A trust established by the partners of a partnership.
5.	An agreement between one or more members of a limited liability company or between a limited liability company and one or more of its members.
6.	A trust established by the members of a limited liability company.
g.	An agreement entered into by a service recipient and a service provider, a trust established by the service recipient, or a trust established by the service provider who performs significant services for the service recipient's trade or business.
h.	Any other contract, transaction, or arrangement exempted from the definition of life settlement contract by the Commissioner based on a determination that the contract, transaction, or arrangement is not of the type intended to be regulated under this Part.
(2)	"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 Part, 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 or chronic illness or condition except where specifically addressed. "Owner" does not include any of the following:
a.	Any provider or other licensee under this Part.
b.	A qualified institutional buyer as defined in Rule 144A of the Federal Securities Act of 1933, as amended.
c. 	A financing entity.
d.	A special purpose entity.
e.	A related provider trust.
(3)	"Provider" means a person, other than an owner, who enters into or effectuates a life settlement contract with an owner. "Provider" does not include any of the following:
a.	Any bank, savings bank, savings and loan association, credit union, or other licensed lending institution which takes an assignment of a life insurance policy or certificate issued pursuant to a group life insurance policy solely as collateral for a loan.
b.	A premium finance company making premium finance loans and exempted by the Commissioner from the licensing requirement under Article 35 of this Chapter that takes an assignment of a life insurance policy solely as collateral for a loan.
c.	The issuer of the life insurance policy.
d.	Any natural person who enters into or effectuates no more than one agreement in a calendar year for the transfer of a life insurance policy or certificate issued pursuant to a group life insurance policy for compensation or anything of value less than the expected death benefit payable under the policy.
e.	A purchaser of a life settlement.
f.	Any authorized or eligible insurer that provides stop-loss coverage or financial guaranty insurance to a provider, purchaser, financing entity, special purpose entity, or related provider trust.
g.	A financing entity.
h.	A special purpose entity.
i.	A related provider trust.
j.	A broker.
k.	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 life settlement provider.
"§ 58‑58‑325.  Prohibited practices.
It is a violation of this Part for any person to enter into a life settlement contract at any time before the application or issuance of a policy that is the subject of the life settlement contract or within a five‑year period commencing with the date of issuance of the insurance policy or certificate unless the owner certifies to the provider that one or more of the following conditions have been met within the five‑year period:
(1)	The policy was issued upon the owner's exercise of conversion rights arising out of a group or individual policy, provided the total of the time covered under the conversion policy plus the time covered under the prior policy is at least 24 months. The time covered under a group policy shall be calculated without regard to any change in insurance carriers, provided the coverage has been continuous and under the same group sponsorship.
(2)	The owner is a charitable organization exempt from taxation under 26 U.S.C. § 501(c)(3).
(3)	The owner is not a natural person.
(4)	The owner submits independent evidence to the provider that one or more of the following conditions have been met within the five‑year period:
a.	The insured is terminally or chronically ill.
b.	The owner's spouse dies.
c.	The owner divorces his or her spouse.
d.	The owner retires from full‑time employment.
e.	The owner becomes physically or mentally disabled and a physician determines that the disability prevents the owner from maintaining full‑time employment.
f.	The owner was the insured's employer at the time the policy or certificate was issued and the employment relationship terminated.
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 that seeks reorganization of the owner or that appoints a receiver, trustee, or liquidator to all or a substantial part of the owner's assets.
h.	The owner experiences a significant decrease in income that is unexpected and that impairs the owner's reasonable ability to pay the policy premium.
i.	The owner or insured disposes of his or her ownership interests in a closely held corporation.
j.	The owner enters into a life settlement contract more than two years after the date of issuance of a policy and, with respect to the policy, at all times prior to the date that is two years after policy issuance, both of the following conditions are met:
1.	Policy premiums have been funded exclusively with unencumbered assets, including an interest in the life insurance policy being financed only to the extent of its net cash surrender value.
2.	There is no agreement or understanding with any other person to guarantee any such liability or to purchase, or stand ready to purchase, the policy, including through an assumption or forgiveness of the loan.
"§ 58‑58‑330.  Exceptions. 
This Part does not apply to contracts or transactions exempted pursuant to rules adopted by the Commissioner where the Commissioner determines the protections of this Part are not necessary.
"§ 58‑58‑335.  Administrative rules.
The Commissioner may adopt administrative rules pursuant to this Part for the protection of consumers in life settlement transactions.
"§ 58‑58‑340.  Injunctions; civil remedies; cease and desist orders.
(a)	In addition to the penalties and other enforcement provisions of this Part, if any person violates this Part or any rule implementing this Part, the Commissioner may seek an injunction in a court of competent jurisdiction and may apply for temporary and permanent orders that the Commissioner determines are necessary to restrain the person from committing the violation.
(b)	Any person damaged by the acts of a person in violation of this Part may bring a civil action against the person committing the violation in a court of competent jurisdiction.
(c)	The Commissioner may issue, in accordance with G.S. 58‑63‑32, a cease and desist order upon a person that violates any provision of this Part, any rule or order adopted by the Commissioner, or any written agreement entered into with the Commissioner. The cease and desist order may be subject to judicial review under G.S. 58‑63‑35.
(d)	When the Commissioner finds that an activity in violation of this Part presents an immediate danger to the public that requires an immediate final order, the Commissioner may issue an emergency cease and desist order reciting with particularity the facts underlying the findings. The emergency cease and desist order is effective immediately upon service of a copy of the order on the respondent and remains effective for 90 days. If the Commissioner begins nonemergency cease and desist proceedings, the emergency cease and desist order remains effective, absent an order by a court of competent jurisdiction in accordance with G.S. 58‑63‑35.
(e)	In addition to the penalties and other enforcement provisions of this Part, any person who violates this Part is subject to G.S. 58‑2‑70.
"§ 58‑58‑345.  Unfair trade practices.
A violation of this Part is an unfair trade practice under Article 63 of this Chapter."
SECTION 2.  The title of Article 58 of Chapter 58 of the General Statutes reads as rewritten:
"Article 58.

Life Insurance, Viatical Settlements, and Life Settlements."
SECTION 3.  This act becomes effective October 1, 2007.