The Office of General Counsel issued the following opinion on May 20, 2004 representing the position of the New York State Insurance Department.
Re: Viatical Settlement Companies, Exception from Licensing Requirement
Issue
Does the exception for a "licensed lending institution" from the licensing requirement as a viatical settlement company, found in New York Insurance Law § 7801(a) (McKinney 2000), include a lending institution licensed in a jurisdiction other than New York?
Conclusion
Such an institution would not have to be licensed as a viatical settlement company in New York.
Facts
Since this was a general inquiry, no facts were furnished.
Analysis
New York Insurance Law § 7801(a) defines a viatical settlement company:
"Viatical settlement company" means an individual, partnership, corporation or other entity not prohibited from acting as a viatical settlement company . . . law 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. Viatical settlement company does not include: (1) any bank, savings bank, savings and loan association, credit union or other licensed lending institution which takes an assignment of a life insurance policy as collateral for a loan; . . . . (emphasis added).
In enacting New York Insurance Law Article 78 (McKinney 2000 and 2004 Supplement, 1993 N.Y. Laws 638, the Legislature recognized that a lender may, as collateral for a loan, obtain a security interest in a life insurance policy. The term "licensed lending institution is not defined in statute. However, the term "licensed lender" is defined in New York Banking Law § 2(7) (McKinney 2001):
The term, "licensed lender," when used in this chapter [Banking Law], means any person or other entity duly authorized by the superintendent to engage in business pursuant to the provisions of article nine of this chapter. . . .
New York Banking Law Article 9 (McKinney 2001) sets forth the requirements for and restrictions upon licensed lenders.
In construing New York Insurance Law § 7801(a), the Department would regard any institution licensed by another jurisdiction under the equivalent of New York Banking Law Article 9, which takes an assignment of a life insurance policy on a New York resident as collateral for a loan, as being a "licensed lending institution" and thus exempt from licensure as a viatical settlement company. Whether any such institution making loans to New York residents would have to be licensed in accordance with the New York Banking Law (McKinney 2001 and 2004 Supplement) would have to be determined by the New York Banking Department.
For further information one may contact Principal Attorney Alan Rachlin at the New York City Office.