Fla. regulators may inspect all records of Viatical provider

A federal judge in Florida has affirmed the state Office of Insurance Regulation's right to inspect all the business records of viatical settlement provider Coventry First LLC. The decision applies to all 14 viatical settlement providers licensed in Florida, the state OIR said.

U.S. District Court Judge Stephan P. Mickle in Tallahassee ruled Coventry First is a viatical settlement provider licensed in Florida so it's subject to state law as it relates to allowing state regulator review of its business records, according to the OIR. The OIR doesn't have jurisdiction over some transactions involving consumers outside of Florida but it can examine all of Coventry First's business records, the state regulator said of the judge's ruling.

Alan Buerger, chief executive officer and co-founder of Coventry First, based near Philadelphia, told BestWire the company will appeal. "This ruling would mean that every state insurance department could examine all business done nationally by property and casualty insurers, life insurers and life settlement providers," said Buerger. Coventry First, which sued the OIR, also is one of the biggest life settlement providers in the United States.

Coventry First argued that although it is licensed in Florida, it didn't qualify as a viatical settlement provider under Florida law for purposes of review of its out-of-state transactions, according to the OIR. It also argued McCarty acted illegally by seeking review of its business records.

The ruling "validates the office?s authority to safeguard Florida consumers by assuring that companies engaged in the viatical settlement industry are not evading Florida law or engaging in practices that would render them ineligible to do business in this state,? said Insurance Commissioner Kevin McCarty in a statement.

Generally, a viatical settlement is an agreement in which the owner of a life insurance policy who has a catastrophic or life-threatening illness assigns the policy's ownership or death benefits to a viatical settlement provider in exchange for a discount of face amount of the policy. The provider, as the policy's owner, pays the premiums for the policy and when the original policyholder dies, the provider cashes in the policy for its full amount (BestWire, Oct. 19, 2001).

"The history of this industry has been problematic," McCarty said.

Consumer protection laws in Florida relating to viatical settlement agreements require various disclosures, which include disclosing that these transactions have tax consequences; are subject to creditors; and, that entering into an agreement can impact eligibility for Medicaid or other government benefits, the OIR said.

The OIR sought to review Coventry First's business records from Jan. 1, 2005 through Dec. 31, 2007 so it could verify, among other things, that ownership of life insurance policies wasn't changed to avoid state law and that Coventry had an anti-fraud plan in place.

From 2004 through 2007, Coventry First bought 2,142 policies from viators, or policyowners, in all states in which it does business, totaling $710.9 million, with the policies having a face value of $4.4 billion, the OIR said.

The life settlement market, meanwhile, is an outgrowth of the viatical settlement market.

A life settlement is an insurance policy sold by its owner ? typically the insured or a trust ? for an amount greater than the surrender value of the policy but lower than the face amount of the policy, according to A.M. Best. The buyer of the life settlement becomes the new owner and beneficiary of the life insurance policy, is responsible for making future premium payments and collects the death benefits when the insured dies (BestWire, Feb. 22. 2005).

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)

Copyright (C) 2009 by A. M. Best Company, Inc.