The Office of General Counsel issued the following informal opinion on November 14, 2001, representing the position of the New York State Insurance Department.
Re: Office of General Counsel Opinion 99-37
Issue
Has this Department recently withdrawn General Counsel Opinion 99-37?
Conclusion
Yes, this Department recently concluded that General Counsel Opinion 99-37 did not reflect the state of the law.
Facts
Since this is a general inquiry, no facts were supplied.
Analysis
New York Insurance Law Article 78 (McKinney 2000) was enacted, 1993 N.Y. Laws 638, to regularize and regulate the purchase of policies of individuals with a terminal illness. New York Insurance Law § 7801(a) has, since the enactment of New York Insurance Law Article 78, defined, in pertinent part, a viatical settlement company:
Viatical settlement company means an individual, partnership, corporation or other entity not prohibited from acting as a viatical settlement company . . . that enters into an agreement with a person owning a life insurance policy insuring the life of a person who has a catastrophic or life threatening illness or condition, under the terms of which the viatical settlement company pays compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy, in return for the policyowner's assignment, transfer, sale, devise or bequest of the death benefit or ownership of the insurance policy to the viatical settlement company. . . .
New York Insurance Law § 7801(b) has similarly defined a viator:
Viator means the owner of a life insurance policy insuring the life of a person who has a catastrophic or life threatening illness or condition, who enters into an agreement under which the viatical settlement company will pay compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy, in return for the viator's assignment, transfer, sale, devise or bequest of the death benefit or ownership of the insurance policy to the viatical settlement company. Viator may also include a person insured under a group life insurance policy who is not prohibited from assigning his or her rights or benefits and who assigns those rights or benefits by a viatical settlement.
Based upon the above definitions, this Office concluded on April 21, 1999, Opinion 99-37, that the class of individuals that could validly contract with a viatical settlement company was limited to those individuals with "a catastrophic or life threatening illness or condition". This Office was recently called upon to reconsider the 1999 position.
In its review of the applicable statutes, this Department considered New York Insurance Law § 3205 (McKinney 2000), which regulates insurable interest with respect to life insurance. New York Insurance Law § 3205(a)(1) defines insurable interest:
The term insurable interest means: (A) in the case of persons closely related by blood or by law, a substantial interest engendered by love and affection; (B) in the case of other persons, a lawful and substantial economic interest in the continued life, health or bodily safety of the person insured, as distinguished from an interest which would arise only by, or would be enhanced in value by, the death, disablement or injury of the insured.
New York Insurance Law § 3205(b) sets forth specific restrictions on issuance of life insurance policies:
(1) Any person of lawful age may on his own initiative procure or effect a contract of insurance upon his own person for the benefit of any person, firm, association or corporation. Nothing herein shall be deemed to prohibit the immediate transfer or assignment of a contract so procured or effectuated.
(2) No person shall procure or cause to be procured, directly or by assignment or otherwise any contract of insurance upon the person of another unless the benefits under such contract are payable to the person insured or his personal representatives, or to a person having, at the time when such contract is made, an insurable interest in the person insured.
. . .
An individual naming another as beneficiary thereby confers the requisite insurable interest. Corder v. Prudential Insurance Company, 42 Misc. 2d 423, 348 N.Y.S. 2d 265 (Sup. Ct. Erie County 1964). Under New York Insurance Law § 3205(b), a viatical settlement company may legally make solicitations to purchase policies immediately upon their issuance, so long as the policy would initially be issued to one with an insurable interest at the time when the contract was made. It is also clear that the insured individual could validly assign his or her policy to any other individual or entity immediately and there is no statutory prohibition on soliciting such assignments from individuals owning existing policies.
Therefore, on August 29, 2001, this Office concluded that there is nothing in New York Insurance Law Article 78 that restricts a viatical settlement company to only purchasing the policy of a viator.
Accordingly, Opinion 99-37 no longer accurately reflects the Insurance Law and, thus, no longer has any viability.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.