The North Dakota House of Representatives unanimously approved legislation that would add new provisions to state law on stranger-originated life insurance, including protections for consumers and life insurers.

 

The bill, H.B. 1284, adds to current law the definition of STOLI under the Life Settlements Model Act developed by the National Conference of Insurance Legislators. It is co-sponsored by state Rep. George Keiser, R-Dist. 47. Keiser is the NCOIL vice president.

 

North Dakota adopted STOLI legislation in 2007 based on a National Association of Insurance Commissioners' model. H.B. 1284 would retain the five-year moratorium on the transfer of life insurance death benefits to investors for policies that have the characteristics of STOLI.

 

Under the NCOIL model, STOLI is identified as a fraudulent act. It is defined as a practice or plan to initiate a life insurance policy for the benefit of a third-party investor who, at the time of policy origination, has no insurable interest in the insured. Senior citizens are often targeted for such transactions, which are often entered into through fraud and pressure by the investor, and can violate insurable interest laws and leave seniors and their beneficiaries vulnerable to unexpected taxes and fees, loss of privacy and other concerns.

 

American Council of Life Insurers President and Chief Executive Officer Frank Keating, in a statement, said STOLI is a "twisted misuse" of life insurance.

 

The legislation adds consumer protections, including the NCOIL definition and limits on premium financing. It gives insurance companies the ability to ask questions about a new insurance contract to help draw out whether it is a potential STOLI transaction, said ACLI spokesman Steven Brostoff.

 

The bill now goes to the state Senate.

 

According to attorneys specializing in life settlements, lawsuits filed by life insurers over STOLI transactions are expected to increase, but they could face obstacles in trying to prove intent (BestWire, Oct. 23, 2008).