2020 Hawaii Revised Statutes
Title 24. Insurance
431C. Life Settlements
431C-33 General rules.

§431C-33 General rules. (a) A provider entering into a life settlement contract with any owner of a policy, wherein the insured is terminally or chronically ill, shall first obtain:

(1) If the owner is the insured, a written statement from a licensed attending physician that the owner is of sound mind and under no constraint or undue influence to enter into a life settlement contract; and

(2) A document in which the insured consents to the release of the insured's medical records to a provider, broker, or insurance producer and, if the policy was issued less than two years from the date of application for a life settlement contract, to the insurance company that issued the policy.

The provider, broker, or its authorized representative shall be limited to contact for the purpose of determining the owner's health status or to verify the owner's address, once every three months if the insured has a life expectancy of more than one year, and no more than once per month if the insured has a life expectancy of one year or less.

(b) The insurer shall respond to a request for verification of coverage submitted by a provider, broker, or life insurance producer, not later than thirty calendar days of the date the request is 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 at this time regarding the validity of the insurance contract.

(c) Before or at the time of execution of the life settlement contract, the 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 chronic or terminal illness or condition, acknowledges that the insured has a chronic or terminal illness and that the chronic or terminal illness or condition was diagnosed after the policy was issued.

(d) An insurer shall not unreasonably delay effecting change of ownership or beneficiary in connection with any life settlement contract lawfully entered into in this State or with a resident of this State.

(e) If a broker or life insurance producer performs any of the activities required of the provider under this section, the provider shall be deemed to have fulfilled the requirements of this section.

(f) If a broker performs those verification of coverage activities required of the provider, the provider is deemed to have performed those activities.

(g) Within twenty days after an owner executes the life settlement contract, the provider shall give written notice to the insurer that issued that policy that the policy has become subject to a life settlement contract. The notice shall be accompanied by the documents required by section 431C-32(c).

(h) All life settlement contracts entered into in this State shall provide that the owner may rescind the contract on or before fifteen days after the date it is executed by all parties thereto. Rescission, if exercised by the owner, is effective only if both notice of the rescission is given, and the owner repays all proceeds and any premiums, loans, and loan interest paid on account of the provider within the rescission period. If the insured dies during the rescission period, the 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 provider.

(i) Within three business days after receipt from the owner of documents to effect the transfer of the policy, the provider shall pay the proceeds of the settlement to an escrow or trust account managed by a trustee or escrow agent in a state or federally chartered financial institution pending acknowledgment of the transfer by the issuer of the policy. The trustee or escrow agent shall be required to transfer the proceeds due to the owner within three business days of acknowledgment of the transfer from the insurer.

(j) Failure to tender the life settlement contract proceeds to the owner by the date disclosed to the owner shall render the contract voidable by the owner for lack of consideration until the time the proceeds are tendered to and accepted by the owner. A failure to give written notice of the right of rescission hereunder shall toll the right of rescission until thirty days after the written notice of the right of rescission has been given.

(k) Any fee paid by a provider, party, individual, or an owner to a 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 as prohibiting a broker from reducing such broker's fee below this percentage if the broker so chooses.

(l) The broker shall disclose to the owner anything of value paid or given to a broker and that relates to a life settlement contract.

(m) No person at any time prior to or at the time of the application for, or issuance of, a policy, or during a two-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. This prohibition shall not apply if the owner certifies to the provider that:

(1) The policy was issued upon the owner's exercise of conversion rights arising out of a group or individual policy; provided that the total of the time covered under the conversion policy plus the time covered under the prior policy is at least two years. The time covered under a group policy shall be calculated without regard to a change in insurance carriers; provided further that the coverage has been continuous and under the same group sponsorship; or

(2) The owner submits independent evidence to the provider that one or more of the following conditions have been met within the two-year period:

(A) The owner or insured is chronically or terminally ill;

(B) The owner or insured disposes of ownership interests in a closely-held corporation, pursuant to the terms of a buyout or other similar agreement in effect at the time the policy was initially issued;

(C) The owner's spouse dies;

(D) The owner divorces the owner's spouse;

(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.

Copies of the independent evidence required by paragraph (2) shall be submitted to the insurer when the provider submits a request to the insurer for verification of coverage. The copies shall be accompanied by a letter of attestation from the provider that the copies are true and correct copies of the documents received by the provider. Nothing in this section shall prohibit an insurer from exercising its right to contest the validity of any policy.

If the provider submits to the insurer a copy of independent evidence required by paragraph (2) when the provider submits a request to the insurer to effect the transfer of the policy to the provider, the copy shall be deemed to establish that the life settlement contract satisfies the requirements of this section. [L 2012, c 256, pt of §1]