KRS 304.15-717: Circumstances under which life settlement transactions are unlawful --

Required statement regarding false information -- Furnishing information

regarding fraudulent life settlement acts.

(1) It is unlawful for any person:

(a) To knowingly or intent ionally enter into a life settlement contract when the

subject life insurance policy was obtained by means of a false, deceptive, or

misleading application for the life insurance policy;

(b) To knowingly or intentionally interfere with the enforcement of the provisions

of this subtitle or investigations of suspected or actual violations of this

subtitle;

(c) To knowingly or intentionally permit a person convicted of a felony involving

dishonesty or breach of trust to participate in the business of life sett lements

as defined in KRS 304.15-020(5);

(d) To commit a fraudulent life settlement act;

(e) To misrepresent that the life settlement provider, life settlement broker, other

licensee, or any other person has been guaranteed, sponsored, recommended,

or approved by the state, or by any local, state, or federal agency or officer

thereof;

(f) To act as a life settlement broker if the person is acting as a life settlement

provider in the same life settlement contract;

(g) For any person to pay any compensation o r provide anything of value to an

insured's physician, attorney, accountant, or any other person who provides

medical, legal, or financial advice to the insured as a finder's or referral fee;

(h) To engage in any transaction, practice, or course of busines s if such person

knows or reasonably should have known that the intent was to avoid the

notice requirements of KRS 304.15-020 and 304.15-700 to 304.15-720;

(i) To engage in any fraudulent act or practice in connection with any transaction

relating to any settlement involving an owner who is a resident of this state;

(j) To issue, solicit, market, or otherwise promote the purchase of a life insurance

policy for the sole purpose of or with a primary emphasis on settling the

policy;

(k) To enter into a life se ttlement contact on a policy that was the subject of a

premium finance agreement as described in KRS 304.15-020(17)(b)2.;

(l) With respect to any life settlement contract or life insurance policy and a

broker, to knowingly solicit an offer from, effectuate a life settlement contract

with or make a sale to any provider, financing entity, or related provider trust,

or any insurer that is controlling, controlled by, or under common control with

such broker unless disclosed to the owner;

(m) With respect to any life settlement contract or life insurance policy and a

provider, to knowingly enter into a life settlement contract with an owner if, in

connection with such life settlement contract, anything of value will be paid to

a broker or provider that is control ling, controlled by, or under common

control with such provider, the financing entity, or related provider trust that is

involved in such life settlement, or any insurer unless disclosed to the owner;

(n) With respect to a provider, to enter into a life settlement contract unless the

life settlement promotional, advertising, and marketing materials, as may be

prescribed by administrative regulation, have been filed with the

commissioner. Marketing materials shall not expressly reference that the

insurance is "free" for any period of time. The inclusion of any reference in

the marketing materials that would cause an owner to reasonably believe that

the insurance is free for any period of time shall be considered a violation of

KRS 304.15-700 to 304.15-720;

(o) With respect to any insurance company, insurance producer, broker, or

provider, or any other person, to make any statement or representation to the

applicant or policyholder in connection with the sale or financing of a life

insurance policy to the effect that the insurance is free or without cost to the

policyholder for any period of time unless provided in the policy; or

(p) If an insurer, to:

1. Engage in or permit any discrimination between individuals of the same

class, same poli cy amount, and equal expectation of life in the rates

charged for any life insurance policy or annuity contract based upon an

individual's having entered into a life settlement contract or being

insured under a settled policy;

2. Make any false or misleadi ng statement as to the business of life

settlements or financing premiums due for a policy or to any owner or

insured for the purpose of inducing or tending to induce the owner or

insured not to enter into a life settlement contract; or

3. Engage in any transaction, act, practice, or course of business, or dealing

which restricts, limits, or impairs in any way the lawful transfer of

ownership, change of beneficiary, or assignment of a policy.

This subsection shall not prohibit a statement that the person i s licensed, if that

statement is true and the effect of the statement is not misrepresented.

(2) A life settlement contract and an application for a life settlement contract, regardless

of the form of transmission, shall contain the following statement or a substantially

similar statement:

"Any person who knowingly presents false information in an application for

insurance or life settlement contract is guilty of a crime and upon conviction

may be subject to fines or confinement in prison, or both."

The lack of a statement required by this section does not constitute a defense in any

prosecution for a fraudulent life settlement act.

(3) (a) A person engaged in the business of life settlements who has knowledge or a

reasonable belief that a fraudulent life settlement act is being, will be, or has

been committed shall provide the information required to the commissioner,

in a manner prescribed by the commissioner.

(b) Any person who has knowledge or a reasonable belief that a fraudulent life

settlement act is being, will be, or has been committed may provide the

information required to the commissioner, in a manner prescribed by the

commissioner in administrative regulations.

(4) (a) Civil liability may not be imposed on and a cause of action may not arise from

a person's furnishing information concerning suspected, anticipated, or

completed fraudulent life settlement acts, or suspected or completed

fraudulent insurance acts, if the information is provided to or received from:

1. The commissioner or the commiss ioner's employees, agents, or

representatives;

2. Federal, state, or local law enforcement or regulatory officials, or their

employees, agents, or representatives;

3. A person involved in the prevention and detection of fraudulent life

settlement acts or that person's agents, employees, or representatives;

4. The National Association of Insurance Commissioners (NAIC), the

National Association of Securities Dealers (NASD), the North American

Securities Administrators Association (NASAA), or their employees,

agents, or representatives, or any other regulatory body overseeing life

insurance or life settlement contracts;

5. The insurer that issued the policy covering the life of the insured; or

6. The licensee and any agents, employees, or representatives.

(b) This subsection shall not apply to a statement made with actual malice. In an

action brought against a person for filing a report or furnishing other

information concerning a fraudulent life settlement act or a fraudulent

insurance act, the party bringing t he action shall plead specifically any

allegation that this subsection shall not apply because the person filing the

report or furnishing the information did so with actual malice.

(c) A person who furnishes information concerning fraudulent life settlemen t acts

and who is a party in a civil cause of action for libel, slander, or another

relevant tort arising out of activities in carrying out the provisions of this

chapter shall be entitled to an award of attorney's fees and court costs if he is

the prevail ing party in the suit and the party bringing the action was not

substantially justified in filing the cause of action. For purposes of this

paragraph, a proceeding is "substantially justified" if a person had a

reasonable basis in law or fact at the time the cause of action was initiated.

(d) This subsection shall not abrogate or modify common law or statutory

privileges or immunities enjoyed by a person.

(e) This subsection shall not apply to a person who furnishes information

concerning his own suspected, anticipated, or completed fraudulent life

settlement acts or suspected, anticipated, or completed fraudulent insurance

acts.

(5) The documents and evidence provided pursuant to subsection (4) of this section or

obtained by the commissioner in an investiga tion of suspected or actual fraudulent

life settlement acts shall be privileged and confidential and shall not be a public

record and shall not be subject to discovery or subpoena in a civil or criminal

action, except that:

(a) This subsection shall not pr ohibit release by the commissioner of documents

and evidence obtained in an investigation of suspected or actual fraudulent life

settlement acts:

1. In administrative or judicial proceedings to enforce laws administered by

the commissioner;

2. To federal, state, or local law enforcement or regulatory agencies, to an

organization established for the purpose of detecting and preventing

fraudulent life settlement acts, or to the National Association of

Insurance Commissioners (NAIC); or

3. At the discretion of the commissioner, to a person in the business of life

settlements that is aggrieved by a fraudulent life settlement act; and

(b) The release of documents and evidence provided by paragraph (a) of this

subsection shall not abrogate or modify th e privilege granted by this

subsection.

(6) This section shall not:

(a) Preempt the authority or relieve the duty of other law enforcement or

regulatory agencies to investigate, examine, and prosecute suspected

violations of law;

(b) Prevent or prohibit a person from voluntarily disclosing information

concerning fraudulent life settlement acts to a law enforcement or regulatory

agency other than the Department of Insurance;

(c) Limit the powers granted elsewhere by the laws of this state to the

commissioner or an insurance fraud unit to investigate and examine possible

violations of law and to take appropriate action against wrongdoers; or

(d) Preempt, supersede, or limit any provision of any state securities law or any

rule, order, administrative regulation, or notice issued thereunder.

(7) A life settlement provider shall adopt antifraud initiatives reasonably calculated to

detect, prosecute, and prevent fraudulent life settlement acts. The commissioner

may order or, if a licensee requests, may grant modifi cations of the required

initiatives listed in this subsection as necessary to ensure an effective antifraud

program. The modifications may be more or less restrictive than the required

initiatives so long as the modifications reasonably may be expected to accomplish

the purpose of this section. Antifraud initiatives shall include the following:

(a) Fraud investigators, who may be life settlement providers or employees or

independent contractors of those life settlement providers; and

(b) An antifraud plan t hat shall be filed with the commissioner and that shall

include but is not limited to the following:

1. The procedures for detecting and investigating possible fraudulent life

settlement acts and procedures for resolving material inconsistencies

between medical records and insurance applications;

2. The procedures for reporting possible fraudulent life settlement acts to

the commissioner;

3. The plan for antifraud education and training of underwriters and other

personnel; and

4. A chart outlining the organ izational arrangement of the antifraud

personnel who are responsible for the investigation and reporting of

possible fraudulent life settlement acts and investigating unresolved

material inconsistencies between medical records and insurance

applications.

Antifraud plans filed with the commissioner shall be privileged and

confidential and shall not be a public record and shall not be subject to

discovery or subpoena in a civil or criminal action.