GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 2007

H                                                                                                                                                    1

HOUSE BILL 773*

 

 

 

 

Short Title:     Protect Military Personnel/Life Insurance.-AB

(Public)

Sponsors:

Representatives Martin, Glazier, Dickson, Lucas (Primary Sponsors);  Alexander, Brisson, Church, England, Faison, Farmer‑Butterfield, Folwell, Grady, Gulley, J. Harrell, Harrison, Holliman, McGee, Pierce, Ross, Tarleton, Underhill, and Wainwright.

Referred to:

Homeland Security, Military and Veterans Affairs, if favorable, Judiciary I.

March 15, 2007

A BILL TO BE ENTITLED

AN ACT TO PROTECT MEMBERS OF THE UNITED STATES ARMED FORCES FROM DISHONEST AND PREDATORY LIFE INSURANCE AND ANNUITY SALES PRACTICES.

The General Assembly of North Carolina enacts:

SECTION 1.  Article 58 of Chapter 58 of the General Statutes is amended by adding a new Part to read:

"Part 6. Dishonest and Predatory Sales to Military Personnel.

"§ 58‑58‑320. Purpose.

(a)       The purpose of this Part is to set forth standards to protect service members of the Armed Forces from dishonest and predatory insurance sales practices by declaring certain identified practices to be false, misleading, deceptive, or unfair.

(b)       Nothing in this Part shall be construed to create or imply a private cause of action for a violation of this Part.

"§ 58‑58‑325. Scope.

This Part applies to the solicitation or sale of any life or annuity product by an insurer or insurance producer to a member of the Armed Forces, wherever located.

"§ 58‑58‑330. Exemptions.

This Part does not apply to solicitations or sales involving:

(1)       Credit insurance.

(2)       Group life insurance or group annuities where there is no direct solicitation of individuals by an insurance producer.

(3)       An application to the existing insurer that issued the existing policy or contract when (i) a contractual change or a conversion privilege is being exercised, (ii) the existing policy or contract is being replaced by the same insurer pursuant to a program filed with and approved by the Commissioner, or (iii) a term conversion privilege is exercised among corporate affiliates.

(4)       Contracts offered by Servicemembers' Group Life Insurance or Veterans' Group Life Insurance.

(5)       Contracts used to fund:

a.         An employee pension or welfare benefit plan that is covered by the Employee Retirement and Income Security Act (ERISA).

b.         A plan described by sections 401(a), 401(k), 403(b), 408(k) or 408(p) of the Internal Revenue Code, if established or maintained by an employer.

c.         A government or church plan defined in section 414 of the Internal Revenue Code, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax exempt organization under section 457 of the Internal Revenue Code.

d.         A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor.

e.         Settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process.

f.          Prearranged funeral contracts.

"§ 58‑58‑335. Definitions.

As used in this Part:

(1)       "Armed Forces" means all components of the United States Army, Navy, Air Force, Marine Corps, and Coast Guard and their reserve components.

(2)       "Department of Defense personnel" means any service member and all civilian employees, including nonappropriated fund employees and special government employees, of the United States Department of Defense, or its successor agency.

(3)       "Insurance producer" has the same meaning as in G.S. 58‑33‑10(7).

(4)       "Life insurance" means insurance coverage on human lives, including benefits of endowment and annuities, and may include benefits in the event of death or dismemberment by accident and benefits for disability income; and unless otherwise specifically excluded, includes annuities.

(5)       "Military installation" means any federally owned, leased, or operated base, reservation, post, camp, building, or other facility to which service members are assigned for duty, including barracks, transient housing, and family quarters.

(6)       "Service member" means any active duty commissioned officer, any active duty warrant officer, or any enlisted member of the Armed Forces.

(7)       "Side fund" means a fund or reserve that is part of or otherwise attached to a life insurance policy, excluding annuities, by rider, by endorsement, or other mechanism that accumulates premium or deposits at interest, or by other means. "Side fund" does not include accumulated or cash value or secondary guarantees provided by a universal life policy nor does it include cash values provided by a whole life policy that are subject to the standard nonforfeiture law for life insurance.

(8)       "Specific appointment" means a prearranged appointment agreed upon by both parties and definite as to place and time.

"§ 58‑58‑340.  Practices declared false, misleading, deceptive, or unfair.

The following acts or practices are declared to be false, misleading, deceptive, or unfair:

(1)       Possessing, completing, submitting, or processing or assisting in the submission or processing of, any form or device used by the Armed Forces to direct a service member's pay to a third party, including using or assisting in using a service member's "MyPay" account or other similar Internet medium, for the purpose of establishing a direct deposit for the purchase of life insurance.

(2)       Establishing any account or fictitious account in the name of an applicant or insured service member at a depository institution for the purpose of receiving funds for the payment of premium or receiving any funds directly or indirectly through the use of Treasury Form 1199A, "Direct Deposit Sign‑Up Form", or its equivalent.

(3)       Using Department of Defense personnel, directly or indirectly, as a representative or agent in any official or business capacity with or without compensation.

(4)       Offering or giving anything of value, directly or indirectly, to Department of Defense personnel to procure their assistance in encouraging, assisting, or facilitating the solicitation or sale of life insurance to another service member.

(5)       Participating in or assisting in any Armed Forces sponsored education or orientation program.

(6)       Offering or giving anything of value, directly or indirectly, greater than five dollars ($5.00) in any 12‑month period, or in an amount specified by Department of Defense regulations, to any service member who has direct command authority over or direct responsibility for service members with a pay grade of E‑1 through E‑4.

(7)       Offering or giving anything with a value greater than five dollars ($5.00) to a service member for the service member's attendance at any event involving the solicitation or sale of life insurance.

(8)       Soliciting the purchase of any life insurance product on a military installation randomly or selectively from household to household without prior specific appointment or invitation.

(9)       Soliciting service members in a group or "mass" audience or in a "captive" audience where attendance is not voluntary.

(10)     Making appointments with, or soliciting service members during, their duty hours.

(11)     Making appointments with or soliciting service members on a military installation in barracks, day rooms, unit areas, or transient personnel housing.

(12)     Making any representation, or using any device, that has the tendency or capacity to confuse or mislead a service member into believing that the insurer, insurance producer, or product offered is affiliated, connected, or associated with, endorsed, sponsored, sanctioned, recommended by the United States government, the Armed Forces, or any state or federal agency, or any government entity.

(13)     Using any title, descriptive name, or identifier, other than titles that identify the insurance producer as a producer or agent for the insurer. Examples include, "Battalion Insurance Counselor", "Unit Insurance Advisor", "Servicemen's Group Life Insurance Conversion Consultant", or "Veteran's Benefits Counselor".

(14)     Soliciting the purchase of any life insurance product through the use of or in conjunction with any third-party eleemosynary or charitable organization that promotes the welfare of, or assists members of, the Armed Forces in a manner that has the tendency or capacity to confuse or mislead a service member into believing that the organization is affiliated, connected, or associated with, or endorsed, sponsored, sanctioned, or recommended by the United States Government or the Armed Forces.

(15)     Using or describing the credited interest rate on a life insurance policy in a manner that implies that the credited interest rate is a net return on premium paid.

(16)     Excluding annuities, representing that the life insurance product costs "nothing" or is "free", or otherwise misrepresenting the mortality costs for the product.

(17)     Making any representation regarding the availability, amount, cost, exclusions, or limitations to coverage provided to a service member or dependents by Servicemembers' Group Life Insurance or Veterans' Group Life Insurance that is false, misleading, or deceptive.

(18)     Making any representation about conversion requirements, including the costs of coverage, or exclusions or limitations to coverage, of Servicemembers' Group Life Insurance or Veterans' Group Life Insurance to private insurers that is false, misleading, or deceptive.

(19)     Deploying, using, or contracting for any lead generating materials that do not clearly and conspicuously disclose that the recipient will be contacted by an insurance producer for the purpose of soliciting the purchase of life insurance. For the purposes of this subdivision, "clearly and conspicuously" requires a type size of at least 16 points.

(20)     Failing to disclose that a solicitation for the sale of life insurance will be made when establishing a specific appointment for a meeting with a prospective purchaser.

(21)     Excluding annuities, failing to disclose in a clear and conspicuous manner the fact that the product being sold is life insurance, the amount of coverage, and the cost of the coverage.

(22)     Failing to make, at the time of sale or offer, the written disclosures required by the "Military Personnel Financial Services Protection Act", P.L. 109‑290.

(23)     Failing to provide the applicant at the time a policy is applied for (i) a copy of the application, (ii) a written disclosure that clearly and concisely sets out the coverage provided and the cost of the coverage, and (iii) an explanation of any free‑look period with instructions on how to cancel.

(24)     Excluding annuities, recommending the purchase of any life insurance product that includes a side fund to service members in pay grades E‑1 through E‑4, unless the insurer has reasonable grounds for believing that the life insurance, standing alone, is suitable. Sale of a life insurance product that includes a side fund to a service member in pay grades E‑1 through E‑4 or their equivalents, who is currently enrolled in Servicemembers' Group Life Insurance, is presumed unsuitable.

(25)     Excluding annuities, offering for sale or selling any life insurance contract that includes a side fund unless interest credited accrues from the date of deposit to the date of withdrawal and permits withdrawals without limit or penalty.

(26)     Excluding annuities, offering for sale or selling any life insurance contract that includes a side fund, unless the applicant has been provided with a schedule of effective rates of return based upon cash flows of the combined product. For this disclosure, the effective rate of return will consider all premiums or cash contributions made by the policyholder and all cash accumulations or cash surrender values available to the policyholder in addition to life insurance coverage.

(27)     Excluding annuities, offering for sale or selling any life insurance contract that includes a side fund that by default diverts or transfers accumulated funds to pay, reduce, or offset any premiums due, unless the applicant, in writing, affirmatively chooses that option.

(28)     Excluding annuities, offering for sale or selling any life insurance contract that, after considering all policy benefits, including endowment, return of premium, or persistency, does not comply with the standard nonforfeiture law for life insurance.

(29)     Offering for sale or selling any life insurance product that excludes coverage if the insured's death is related to war, declared or undeclared, or any act related to military service except for accidental death coverage, which may be excluded.

(30)     Suggesting, recommending, or encouraging a service member to cancel or terminate the service member's Servicemembers' Group Life Insurance policy or issuing a life insurance policy that replaces an existing Servicemembers' Group Life Insurance policy.

(31)     Accepting an application for life insurance or issuing a policy of life insurance on the life of an enlisted member of the United States Army with the pay grade of E‑1, E‑2, or E‑3 without first obtaining for the Company's files a completed copy of DA Form 2056, "Commercial Insurance Solicitation Record", or its equivalent, which confirms that the applicant has received counseling as required by Army Regulation 210‑7 or its equivalent.

"§ 58‑58‑345.  Overcoming the presumption of unsuitability.

(a)       The presumption of unsuitability regarding the sale of life insurance contracts that include a side fund to service members in pay grades E‑1 through E‑4 may be overcome if, after the completion of a needs assessment, the insurer demonstrates that the applicant's Servicemembers' Group Life Insurance death benefit, together with any other military survivors benefits, savings, and investments, survivors income, and other life insurance, are insufficient to meet the applicant's insurable needs for life insurance.

(b)       As used in this section, "insurable needs" are the risks associated with premature death, taking into consideration the financial obligations and immediate and future cash needs of the applicant's estate or survivors, or both.

(c)       Other military survivor's benefits provided by the federal government that must be included in a service member's needs assessment include the Death Gratuity, Funeral Reimbursement, Transition Assistance, Survivor and Dependents' Educational Assistance, Dependency and Indemnity Compensation, TRICARE Healthcare benefits, Survivor's Housing Benefits and Allowances, and Federal Income Tax Forgiveness.

"§ 58‑58‑350. Procedures and sanctions.

(a)       The provisions of G.S. 58‑63‑20, 58‑63‑25, 58‑63‑32, 58‑63‑35, 58‑63‑50, and 58‑63‑60 apply to this Part and are incorporated into this Part by reference.

(b)       A violation of this Part is a ground for license suspension, probation, revocation, nonrenewal, or denial under G.S. 58‑33‑46 and subjects the violator to G.S. 58‑2‑70."

SECTION 2.  This act becomes effective October 1, 2007, and applies to acts or offenses committed on or after that date.