SF 166

2nd Engrossment - 86th Legislature (2009 - 2010) Posted on 02/09/2010 02:11am

A bill for an act
relating to insurance; regulating life insurance; prohibiting stranger-originated
life insurance; proposing coding for new law in Minnesota Statutes, chapter 60A;
repealing Minnesota Statutes 2008, sections 61A.073; 61A.074.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

new text begin [60A.078] SHORT TITLE.
new text end

new text begin Sections 60A.078 to 60A.0789 may be cited as the "Insurable Interest Act."
new text end

Sec. 2.

new text begin [60A.0782] DEFINITIONS.
new text end

new text begin Subdivision 1. new text end

new text begin Terms. new text end

new text begin For the purpose of this act, unless the context clearly
indicates otherwise, the terms in this section have the meanings given them.
new text end

new text begin Subd. 2. new text end

new text begin Act. new text end

new text begin "Act" means sections 60A.078 to 60A.0789.
new text end

new text begin Subd. 3. new text end

new text begin Business entity. new text end

new text begin "Business entity" includes, but is not limited to, a joint
venture, partnership, corporation, limited liability company, and business trust.
new text end

new text begin Subd. 4. new text end

new text begin Chronically ill. new text end

new text begin "Chronically ill" means:
new text end

new text begin (1) being unable to perform at least two activities of daily living, such as eating,
toileting, transferring, bathing, dressing, or continence;
new text end

new text begin (2) requiring substantial supervision to protect the individual from threats to health
and safety due to severe cognitive impairment; or
new text end

new text begin (3) having a level of disability similar to that described in clause (1) as determined
by the United States Secretary of Health and Human Services.
new text end

new text begin Subd. 5. new text end

new text begin Commissioner. new text end

new text begin "Commissioner" means the commissioner of commerce.
new text end

new text begin Subd. 6. new text end

new text begin Legitimate settlement contracts. new text end

new text begin "Legitimate settlement contracts"
mean settlement contracts that comply with Minnesota law governing viatical settlement
contracts and that are not part of or in furtherance of an act, practice, or arrangement that
is prohibited by this act.
new text end

new text begin Subd. 7. new text end

new text begin Life expectancy evaluation. new text end

new text begin "Life expectancy evaluation" means an
evaluation conducted by any person other than the insurer or its authorized representatives
for the purpose of projecting or estimating how long a particular individual is expected to
live.
new text end

new text begin Subd. 8. new text end

new text begin Person. new text end

new text begin "Person" means any natural person or legal entity, including, but
not limited to, a partnership, limited liability company, association, trust, or corporation.
new text end

new text begin Subd. 9. new text end

new text begin Policy. new text end

new text begin "Policy" means an individual or group policy, group certificate,
contract, or arrangement of life insurance affecting the rights of a resident of this state
or bearing a reasonable relation to this state, regardless of whether delivered or issued
for delivery in this state.
new text end

new text begin Subd. 10. new text end

new text begin Policyowner. new text end

new text begin "Policyowner" means the owner of a policy.
new text end

new text begin Subd. 11. new text end

new text begin Settlement contract. new text end

new text begin (a) "Settlement contract" means an agreement
between a policyowner and another person establishing the terms under which
compensation or anything of value will be paid or which compensation or value is
less than the expected death benefit of the insurance policy, in return for the owner's
assignment, transfer, sale, devise, or bequest of the death benefit or ownership of any
portion of the policy. Settlement contract also includes:
new text end

new text begin (1) the transfer for compensation or value of ownership or beneficial interest in a
trust or other entity that owns such a policy if the trust or other entity was formed or
availed of for the principal purpose of acquiring one or more policies, which policy insures
the life of an individual who is a resident of this state; and
new text end

new text begin (2) a premium finance loan made for a policy by a lender to a policyowner on,
before, or after the date of issuance of the policy where:
new text end

new text begin (i) the policyowner or the insured receives a guarantee of a future settlement value
of the policy; or
new text end

new text begin (ii) the policyowner or the insured agrees to sell the policy or any portion of its death
benefit on any date following the issuance of the policy.
new text end

new text begin (b) Settlement contract does not include:
new text end

new text begin (1) a policy loan or accelerated death benefit made by the insurer under the policy's
terms;
new text end

new text begin (2) a premium finance loan in which loan proceeds are used solely to pay premiums
for the policy and loan-related costs, 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;
new text end

new text begin (3) a loan made by a bank or other licensed financial institution in which the lender
takes an interest in a policy solely to secure repayment of a loan or, if there is a default
on the loan and the policy is transferred, the transfer of such a policy by the lender, as
long as the default itself is not pursuant to an agreement or understanding with any other
person for the purpose of evading regulation under this act;
new text end

new text begin (4) an agreement in which 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 for the benefit of such parties;
new text end

new text begin (5) any designation, consent, or agreement by an insured who is an employee or an
employer in connection with the purchase by the employer, or by a trust established by the
employer, of life insurance on the life of the employee;
new text end

new text begin (6) a bona fide business succession planning arrangement:
new text end

new text begin (i) between shareholders in a corporation or between a corporation and one or more
of its shareholders or one or more trusts established by its shareholders;
new text end

new text begin (ii) between partners in a partnership or between a partnership and one or more of its
partners or one or more trusts established by its partner; or
new text end

new text begin (iii) between members in a limited liability company or between a limited liability
company and one or more of its members or one or more trusts established by its
members; or
new text end

new text begin (7) an agreement entered into by a service recipient, or a trust established by the
service recipient, and a service provider, or a trust established by the service provider, who
performs significant services for the service recipient's trade or business.
new text end

new text begin Subd. 12. new text end

new text begin Stranger-originated life insurance practices. new text end

new text begin "Stranger-originated life
insurance practices" or "STOLI practices" mean an act, practice, or arrangement to initiate
a life insurance policy for the benefit of a third-party investor who, at the time of policy
origination, has no insurable interest in the insured. STOLI practices include, but are not
limited to, cases in which life insurance is purchased with resources or guarantees from or
through a person or entity, who, at the time of policy inception, could not lawfully initiate
the policy themselves, and where, at the time of inception, there is an arrangement or
agreement, whether verbal or written, to directly or indirectly transfer the ownership of
the policy and/or the policy benefits to a third party. Trusts that are created to give the
appearance of insurable interest and are used to initiate policies for investors violate the
insurable interest requirements and the prohibition against STOLI practices.
new text end

new text begin Subd. 13. new text end

new text begin Terminally ill. new text end

new text begin "Terminally ill" means having an illness or sickness that
can reasonably be expected to result in death in 24 months or less.
new text end

Sec. 3.

new text begin [60A.0783] INSURABLE INTEREST REQUIRED.
new text end

new text begin Subdivision 1. new text end

new text begin Insurance on life of another. new text end

new text begin A person may not procure or cause
to be procured or effected a policy upon the life of another individual unless the benefits
under the policy are payable to the insured, the personal representatives of the insured's
estate, or to a person having, at the time the policy is issued, an insurable interest in the
individual insured.
new text end

new text begin Subd. 2. new text end

new text begin What constitutes an insurable interest. new text end

new text begin Insurable interest, with reference
to insurance on the life of another, includes only the following interests.
new text end

new text begin (a) An individual has an insurable interest in the life of another person to whom the
individual is closely related by blood or by law or in whom the individual has a substantial
interest engendered by love and affection.
new text end

new text begin (b) An individual has an insurable interest in the life of another person if such
individual has a lawful and substantial economic interest in the continued life of the
individual insured, as distinguished from an interest that would arise only by or would be
enhanced in value by the death of the individual insured.
new text end

new text begin (c) An individual party to a contract for the purchase or sale of an interest in any
business entity and, if applicable, a trust or the trustee of a trust of which the individual is
a settlor, has an insurable interest in the life of each other individual party to the contract,
but only for the purpose of carrying out the intent and purpose of the contract.
new text end

new text begin (d) A trust, or the trustee of a trust, has an insurable interest in the life of an
individual insured under a life insurance policy owned by the trust, or the trustee of the
trust acting in a fiduciary capacity, if the insured is the settlor of the trust; an individual
closely related by blood or law to the settlor; or an individual in whom the settlor otherwise
has an insurable interest if, in each of the situations described in this paragraph, the life
insurance proceeds are primarily for the benefit of trust beneficiaries having an insurable
interest in the life of the insured and the trust is not used, directly or indirectly, as part of or
in furtherance of an act, practice, or arrangement that is otherwise prohibited by this act.
new text end

new text begin (e) A guardian, trustee, or other fiduciary, acting in a fiduciary capacity, has an
insurable interest in the life of any person for whose benefit the fiduciary holds property,
and in the life of any other individual in whose life the person has an insurable interest so
long as the life insurance proceeds are used primarily for the benefit of persons having an
insurable interest in the life of the insured and the guardianship or fiduciary relationship
is not used, directly or indirectly, as part of or in furtherance of an act, practice, or
arrangement that is otherwise prohibited by this act.
new text end

new text begin (f) An organization in section 170(c) of the United States Internal Revenue Code
of 1986, as amended through December 31, 2008, has an insurable interest in the life of
any person who consents in writing to the organization's ownership or purchase of that
insurance.
new text end

new text begin (g) A trustee, sponsor, or custodian of assets held in any plan governed by the
Employee Retirement Income Security Act of 1974, 29 United States Code, subsection
1001, et seq., or in any other retirement or employee benefit plan, has an insurable interest
in the life of any participant in the plan provided consent is obtained in writing from the
participant before the insurance is purchased. An employer, trustee, sponsor, or custodian
may not retaliate or take adverse action against any participant who does not consent to
the issuance of insurance on the participant's life.
new text end

new text begin (h) A business entity has an insurable interest in the life of any of the owners,
directors, officers, partners, and managers of the business entity or any affiliate or
subsidiary of the business entity, or key employees or key persons of the business entity
or affiliate or subsidiary, provided consent is obtained in writing from key employees or
persons before the insurance is purchased. The business entity or affiliate or subsidiary
may not retaliate or take adverse action against any key employee or person who does
not consent to the issuance of insurance on the key employee or key person's life. For
purposes of this subdivision, a "key employee" or "key person" means an individual
whose position or compensation is described in section 101(j)(2)(A)(ii) of the Internal
Revenue Code of 1986, as amended through December 31, 2008.
new text end

new text begin (i) A financial institution or other person to whom a debt is owed, whether for the
purposes of premium financing or otherwise, has an insurable interest in the life of the
borrower limited to the amount of debt owed plus reasonable interest and service charges.
new text end

new text begin Subd. 3. new text end

new text begin Insured's own life. new text end

new text begin An individual has an insurable interest in their own life
and an individual of competent legal capacity that procures or effects a policy on their
own life may designate any person as the beneficiary, provided the policy is not part of or
in furtherance of an act, practice, or arrangement that is otherwise prohibited by this act.
new text end

new text begin Subd. 4. new text end

new text begin Reliance on statements. new text end

new text begin An insurer is entitled to rely upon all reasonable
statements, declarations, and representations made by an applicant for life insurance
relative to the existence of an insurable interest; and no insurer shall incur legal
liability, except as set forth in the policy, by virtue of untrue statements, declarations, or
representations so relied upon in good faith by the insurer.
new text end

new text begin Subd. 5. new text end

new text begin Consent of insured. new text end

new text begin A policy upon the life of an individual, other than
a policy of noncontributory group life insurance, may not be effectuated unless, on or
before the time the policy is effectuated, the individual insured, having legal capacity to
contract, applies for or consents in writing to the policy and its terms. Consent may be
given by another in the following cases:
new text end

new text begin (1) a parent or a person having legal custody of a minor may consent to the issuance
of a policy on a dependent child;
new text end

new text begin (2) a court-appointed guardian of a person may consent to the issuance of a policy
on the person under guardianship;
new text end

new text begin (3) a court-appointed conservator of a person's estate may consent to the issuance of
a policy on the person whose estate is under conservatorship;
new text end

new text begin (4) an attorney-in-fact may consent to the issuance of a policy on the person that
appointed the attorney-in-fact for the limited purpose of replacing one or more policies
with one or more new policies, provided the aggregate amount of life insurance on the
person as the result of the replacement remains the same or decreases;
new text end

new text begin (5) a trustee of a revocable trust may consent to the issuance of a policy on the
life of a settlor of the trust; and
new text end

new text begin (6) a court of general jurisdiction may give consent to the issuance of a policy upon
a showing of facts the court considers sufficient to justify the issuance of the policy.
new text end

Sec. 4.

new text begin [60A.0784] PROHIBITED PRACTICES.
new text end

new text begin It is unlawful for any person to:
new text end

new text begin (1) procure or cause to be procured or effected a policy in violation of section
60A.0783;
new text end

new text begin (2) engage in STOLI practices or otherwise wager on life;
new text end

new text begin (3) solicit, market, or otherwise promote the purchase of a policy for the purpose of
or with an emphasis on the subsequent sale of the policy in the secondary market;
new text end

new text begin (4) enter into a premium finance agreement with any person or agency, or any
person affiliated with such person or agency, pursuant to which the lender or any person
affiliated with the lender shall receive any proceeds, fees, or other consideration, directly
or indirectly, from the policy or policyowner or any other person with respect to the
premium finance agreement or any settlement contract or other transaction related to
such policy that are in addition to the amounts required to pay the principal, interest, and
service charges related to policy premiums pursuant to the premium finance agreement or
subsequent sale of such agreement; provided, further, that any payments, charges, fees,
or other amounts in addition to the amounts required to pay the principal, interest, and
service charges related to policy premiums paid under the premium finance agreement
shall be remitted to the insured or to the insured's estate if the insured is not living at the
time of the determination of the overpayment; or
new text end

new text begin (5) enter into or to offer to enter into a settlement contract prior to the issuance of a
policy that is the subject of the settlement contract or proposed settlement contract.
new text end

Sec. 5.

new text begin [60A.0785] PRESUMPTION OF STOLI PRACTICES; LEGITIMATE
INSURANCE TRANSACTIONS.
new text end

new text begin Subdivision 1. new text end

new text begin Presumption of STOLI practices. new text end

new text begin A settlement contract entered
into within the five-year period commencing with the date the policy is issued creates a
rebuttable presumption of STOLI practices if the insured underwent a life-expectancy
evaluation within the time period beginning 18 months before the issuance of the policy
and, during the same time period, the results of the life expectancy were shared with
or used by any person for the purpose of determining the actual or potential value of
the policy in the secondary market; and:
new text end

new text begin (1) there was an agreement or understanding, before issuance of the policy, between
the insured and another person to guarantee any liability or to purchase, or stand ready to
purchase, the policy, including through an assumption or forgiveness of a loan; or
new text end

new text begin (2) the policyowner funded a portion of the policy premiums by other than the
following means:
new text end

new text begin (i) policy premiums were funded using personal assets provided by the insured or
by a person who is closely related to the insured by blood or law or who has a lawful
substantial economic interest in the continued life, health, and bodily safety of the insured;
or
new text end

new text begin (ii) policy premiums were funded by full recourse liability financing incurred by
the insured.
new text end

new text begin Subd. 2. new text end

new text begin Presumption inapplicable under certain circumstances. new text end

new text begin The rebuttable
presumption created under subdivision 1 is inapplicable if one or more of the following
conditions exist within the five-year period commencing with the date the policy is issued:
new text end

new text begin (1) the policyowner or insured is terminally ill or chronically ill;
new text end

new text begin (2) the policyowner's spouse dies;
new text end

new text begin (3) the sole beneficiary of the policy is a natural person closely related to the
policyowner by blood or law and the beneficiary dies;
new text end

new text begin (4) the policyowner divorces the policyowner's spouse;
new text end

new text begin (5) the policyowner retires from full-time employment;
new text end

new text begin (6) the policyowner becomes physically or mentally disabled and a physician
determines that the disability prevents the policyowner from maintaining full-time
employment; or
new text end

new text begin (7) 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 policyowner in default,
bankrupt, or insolvent, or approving a petition seeking reorganization of the policyowner
or appointing a receiver, trustee, or liquidator to all or a substantial part of the
policyowner's assets.
new text end

new text begin Subd. 3. new text end

new text begin Legitimate insurance transactions. new text end

new text begin Nothing in this act prevents:
new text end

new text begin (1) any policyowner, whether or not the policyowner is also the subject of the
insurance, from entering into a legitimate settlement contract;
new text end

new text begin (2) any person from soliciting a person to enter into a legitimate settlement contract;
new text end

new text begin (3) a person from enforcing the payment of proceeds from the interest obtained
under a legitimate settlement contract; or
new text end

new text begin (4) the assignment, sale, transfer, devise, or bequest with respect to the death benefit
or ownership of any portion of a policy, provided the assignment, sale, transfer, devise, or
bequest is not part of or in furtherance of STOLI practices.
new text end

Sec. 6.

new text begin [60A.0787] PROCESSING CHANGE OF OWNERSHIP OR
BENEFICIARY REQUESTS.
new text end

new text begin Subdivision 1. new text end

new text begin Obligation to process change of ownership or beneficiary
requests. new text end

new text begin Upon receipt of a properly completed request for change of ownership or
beneficiary of a policy and, if applicable, the completed questionnaire described in
this section, the insurer shall respond in writing within 30 calendar days with written
acknowledgment confirming that the change has been effected or specifying the reasons
why the requested change cannot be processed. The insurer shall not unreasonably delay
effecting change of ownership or beneficiary and shall not otherwise interfere with any
permitted settlement contract entered into in this state.
new text end

new text begin Subd. 2. new text end

new text begin Written questionnaire. new text end

new text begin If the insurer receives a request for change of
ownership or beneficiary within the five-year period commencing with the date the policy
is issued, the insurer may require, as a condition of effecting the requested change, that the
policyowner complete and return a written questionnaire designed to determine whether
the change request relates to or is made in accordance with a settlement contract and, if so,
whether the presumption under section 60A.0785 applies. The questionnaire shall be in a
form approved by the commissioner and shall include, but not be limited to, the following:
new text end

new text begin (1) the definition of settlement contract;
new text end

new text begin (2) an inquiry regarding whether the request for change of ownership or beneficiary
relates to or is made in accordance with a settlement contract;
new text end

new text begin (3) if the answer to clause (2) is "yes," then a request that the policyowner identify
which, if any, of the conditions listed in section 60A.0785 have been met;
new text end

new text begin (4) if the policyowner represents that one or more of the conditions listed in section
60A.0785, clauses (1) to (7), have been met, then a request that the policyowner provide
independent evidence to support the representation;
new text end

new text begin (5) a disclosure that presenting false material information, or concealing material
information, in connection with the questionnaire is defined under the laws of this state
as a fraudulent act; and
new text end

new text begin (6) a signed certification by the policyowner that the answers and information
provided in and pursuant to the questionnaire are true and complete to the best of their
knowledge and belief.
new text end

new text begin Subd. 3. new text end

new text begin Other inquiries. new text end

new text begin Nothing in this section should be interpreted to limit an
insurer's ability to make other inquiries to detect STOLI practices.
new text end

new text begin Subd. 4. new text end

new text begin Fraternal benefit societies. new text end

new text begin Nothing in this act shall prohibit a fraternal
benefit society regulated under chapter 64B from enforcing the terms of its bylaws or rules
regarding permitted beneficiaries and owners.
new text end

Sec. 7.

new text begin [60A.0788] FRAUDULENT ACTS.
new text end

new text begin Subdivision 1. new text end

new text begin Fraudulent acts. new text end

new text begin A person who commits a fraudulent act as defined
in this section commits insurance fraud and may be sentenced under section 609.611,
subdivision 3.
new text end

new text begin Subd. 2. new text end

new text begin List of fraudulent acts. new text end

new text begin All of the following acts are fraudulent when
committed by a person who, with intent to defraud and for the purpose of depriving
another of property or for pecuniary gain, commits, or permits any of its employees or its
agents to commit them:
new text end

new text begin (1) failing to disclose to the insurer where the insurer has requested such disclosure
that the prospective insured has undergone a life expectancy evaluation;
new text end

new text begin (2) misrepresenting a person's state of residence or facilitating the change of the state
in which a person resides for the express purpose of evading or avoiding the provisions
of this act; and
new text end

new text begin (3) presenting, causing to be presented, or preparing with knowledge or belief that it
will be presented to an insurer any false material information, or concealing any material
information, as part of, in support of, or concerning a fact material to one or more of
the following:
new text end

new text begin (i) a questionnaire as provided for under section 60A.0787; or
new text end

new text begin (ii) any other documents or communications, whether written or verbal, which are
intended to detect STOLI practices or demonstrate compliance with this act.
new text end

Sec. 8.

new text begin [60A.0789] REMEDIES.
new text end

new text begin Subdivision 1. new text end

new text begin Actions to recover death benefits. new text end

new text begin (a) If the beneficiary, assignee, or
other payee receives the death benefits under a life insurance policy initiated by STOLI
practices or a policy procured or effected in violation of section 60A.0783, the personal
representative of the insured's estate or other lawfully acting agent may maintain an action
to recover such benefits from the person receiving them.
new text end

new text begin (b) Where a person receives the death benefit as a result of a nonwillful violation of
this act, the court may limit the recovery to unjust enrichment, calculated as the benefits
received plus interest from the date of receipt, less premiums paid under the policy by
the recipient and any consideration paid by the recipient to the insured in connection
with the policy.
new text end

new text begin (c) Where a person receives the death benefits as the result of a willful violation of
this act, the court may, in addition to actual damages, order the defendant or defendants to
pay exemplary damages in an amount up to two times the death benefits. A pattern of
violations of this act and conduct involving one or more fraudulent acts are evidence of
willfulness. The exemplary damages shall be paid to one or more governmental agencies
charged with combating consumer fraud, including the Department of Commerce.
new text end

new text begin (d) The court may award reasonable attorney fees, together with costs and
disbursements, to any party that recovers damages in any action brought under this
subdivision.
new text end

new text begin Subd. 2. new text end

new text begin Enforceability of contracts. new text end

new text begin Any contract, agreement, arrangement, or
transaction prohibited under this act is voidable.
new text end

new text begin Subd. 3. new text end

new text begin Declaratory judgment action. new text end

new text begin If, prior to payment of the death benefits,
the insurer believes the policy was initiated by STOLI practices, the insurer may bring a
declaratory judgment action seeking a court order declaring the policy void.
new text end

new text begin Subd. 4. new text end

new text begin Statute of limitations. new text end

new text begin An action under this act must be brought within
three years after the death of the insured.
new text end

new text begin Subd. 5. new text end

new text begin Effect on other law. new text end

new text begin This act shall not:
new text end

new text begin (1) preempt or limit other civil remedies, including, but not limited to, declaratory
judgments, injunctive relief, and interpleaders;
new text end

new text begin (2) preempt the authority or relieve the duty of other law enforcement or regulatory
agencies to investigate, examine, and prosecute suspected violations of law;
new text end

new text begin (3) limit the powers granted elsewhere by the laws of this state to the commissioner
or an insurance fraud unit or the attorney general to investigate and examine possible
violations of law and to take appropriate actions against wrongdoers; or
new text end

new text begin (4) limit the power of this state to punish a person for conduct that constitutes a
crime under other laws of this state.
new text end

Sec. 9. new text begin REPEALER.
new text end

new text begin Minnesota Statutes 2008, sections 61A.073; and 61A.074, new text end new text begin are repealed.
new text end

Sec. 10. new text begin EFFECTIVE DATE.
new text end

new text begin This act is effective for policies issued on or after August 1, 2009.
new text end