By Ryan Sawal
I. What is a Viatical Settlement Transaction?
Viatical Settlement transactions (or life settlement transactions) are transactions between a company or individual known as a “viatical settlement provider” and the owner of a life insurance policy known as a “viator.”
A viatical settlement transaction allows the policy holder to reap a portion of the policy’s amount in exchange for the ultimate benefits of the policy, which may be collected upon at a later date by the policy purchaser. These transactions can be mutually beneficial to all parties involved however, they are also highly regulated and are governed by Florida Statutes sections 626.91 et seq., known as the Florida Viatical Settlement Act (“FVSA”). To properly proceed with a viatical settlement transaction in Florida, there are a few important things you need to know
II. Parties to a Viatical Settlement Transaction
The main transaction governed by the FVSA is a “viatical settlement contract.” This is defined as a written agreement entered into between a viatical settlement provider, or its related provider trust, and a viator [and which] includes an agreement to transfer ownership or change the beneficiary designation of a life insurance policy at a later date [. . .].”[1]
A “viator” is defined by the FVSA as “the owner of a life insurance policy or a certificate holder under a group policy . . . not a previously viaticated, who enters or seeks to enter into a viatical settlement contract.”[2] However a viator may not be viatical settlement provider or any person acquiring a policy or interest in a policy from a viatical settlement provider, nor does it include an independent third-party trustee or escrow agent.[3] This party serves as the seller of the life insurance policy and receives payment either via a lump sum or intermittent installments at a value less than the full amount for their policy.
It should be noted that under the FVSA, the physical condition of the viator does not affect the Act’s application. In other jurisdictions, there may be a distinction between a life settlement agreement (i.e., an agreement to purchase a life insurance policy from a healthy policy holder) and a viatical settlement agreement (i.e., an agreement to purchase a life insurance policy from a terminally ill policy holder expected to die within 24 months or alternatively, a chronically ill policy holder). However, Florida makes no such distinction, having removed language referencing a “catastrophic or life threatening illness or condition” from its definition of viator in 2000.[4]
A “viatical settlement provider” is defined as “a person who, in [Florida], or with a resident of [Florida] effectuates a viatical settlement contract.”[5] There are a few exceptions to this general definition, including a life and health insurer that has lawfully issued a life insurance policy providing accelerated benefits to terminally ill policy holders or certificate holders, a viator in Florida, a financing entity, etc. This party serves as the purchaser of the life insurance policy and it able to collect on the value of the policy upon the death of the viator.
Under certain circumstances where there may be a “viatical settlement broker” who for a fee, acts on behalf of a viator in Florida and “offers of attempts to negotiate viatical settlement contracts between a viator resident in [Florida] and one or more viatical settlement providers.”[6] This middleman may work to create an arrangement benefitting both the viator and viatical settlement provider, but is deemed to only represent the viator and must act in the best interest of the viator.
III. Who is Required to be Licensed Under the FVSA?
Under the FVSA, anyone performing the functions of a viatical settlement broker or of a viatical settlement provider must be licensed in the State of Florida.[7][8] For a viatical settlement broker, today only a life agent licensed under Florida Statutes chapter 626 may perform the functions of a viatical settlement broker. To act as a viatical settlement broker you do not need to already be a life agent however, you must still first obtain a license from the Florida Office of Insurance Regulations (“FOIR”).
The Eleventh Circuit has been clear that generally the FVSA only applies to contracts between in-state settlement companies who contract with in-state residents.[9] Despite this general rule, his limitation does not affect licensing requirements for viatical settlement brokers. Pursuant to section 626.99245(2), the limitation of certain FVSA provisions only to contracts between Florida residents “does not affect the requirement of . . . [section] 626.9912(1)” requiring viatical settlement brokers to register for a license with the FOIR.[10] Therefore the applicability of the viatical settlement provider licensing requirements is entirely dependent on: (1) the residency of the of the policy purchasing entity, (2) the location of the persons acting on behalf of the policy purchasing company, and (3) the residency of the policy holder.
If the policy purchasing company is operating within Florida it will be required to obtain the license; additionally, if the policy purchasing company is operating outside of Florida, but is attempting to contract with policy holders residing in Florida, it will also need to obtain the license. It should be noted that if a viatical settlement provider operating in Florida wants to contract with a potential viator in a different state, the FVSA will not regulate that transaction and there may be additional licensing requirements in the viator’s state of residence.[11]
If you are interested in viatical settlement transactions or want assistance in obtaining a viatical settlement provider license, contact the law office of Ayala Law P.A. at (305) 570-2208 eduardo@ayalalawpa.com.
[1] § 626.9911(12), Fla. Stat.
[2] § 626.9911(16), Fla. Stat.
[3] Id.
[4] § 626.991(7), Fla. Stat. (2000).
[5] § 626.9911(14), Fla. Stat.
[6] § 626.9911(11), Fla. Stat.
[7] § 626.9912, Fla. Stat.
[8] § 626.9916, Fla. Stat.
[9] See W. Coast Life Ins. Co. v. Life Brokerage Partners LLC No. 08-80897-CIV, 2010 WL 11426150, at *6 (S.D. Fla. Mar. 25, 2010); see also American United Life Ins. Co. v. Martinez, 480 F. 3d 1043, 1058-59 (11th Cir. 2007).
[10] § 626.99245(2), Fla. Stat.
[11] § 626.99245(1), Fla. Stat.
