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Judge Affirms OIR Right to Inspect Records of Viatical Settlement Provider

Posted: 5:50 PM Apr 6, 2009
Last Updated: 5:50 PM Apr 6, 2009
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TALLAHASSEE, Fla. – Florida Insurance Commissioner Kevin McCarty today announced that a U.S. District Court judge in Tallahassee has issued an order granting a motion by the Office of Insurance Regulation (Office) to dismiss Coventry First LLC’s (Coventry) motion for injunctive relief to prohibit the Office from examining Coventry’s viatical settlement agreements with consumers outside of Florida.

U.S. District Court Judge Stephan P. Mickle ruled that because Coventry is a licensed Florida viatical settlement provider, it is subject to Florida law as it relates to allowing state regulator review of its business records; and that although the Office has no jurisdiction over specific transactions that involve consumers outside of Florida, the Office does have the right to inspect all of Coventry’s business records.

“I am very pleased with this ruling, because it 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 Commissioner McCarty. “The history of this industry has been problematic.

“Viatical settlements are complicated transactions that when run through out-of-state trusts deprive consumers of the protections of our laws. Being able to look at all of a Florida company’s business records will help us get a better picture of a company’s overall business practices.”

Florida consumer protection laws related to viatical settlement agreements require various important disclosures to consumers. Among them are the following: viatical settlement agreements have tax consequences; they are subject to creditors; and, entering into a viatical settlement agreement can impact eligibility for Medicaid or other government benefits. In Florida, there also is a 15-day rescission provision.

The Office was seeking to review Coventry’s business records for the period Jan. 1, 2005 through Dec. 31, 2007 in order to verify that: 1) the Florida transactions reported by Coventry occurred in Florida; 2) the non-Florida transactions reported by Coventry occurred outside of Florida; 3) ownership of life insurance policies was not changed to avoid Florida law; and, 4) Coventry had an anti-fraud plan in place.

Coventry argued that although it is licensed in Florida as a viatical settlement provider it did not qualify as a viatical settlement provider under Florida law for purposes of review of its out-of-state transactions. Judge Mickle rejected this argument. Coventry also argued that Commissioner McCarty acted illegally in his attempts to seek review of Coventry’s business records. This argument also was rejected.

In the ruling, Judge Mickle stated: “the State’s justifiable intent is to protect its citizens from an industry that creates a significant power imbalance and ‘potential for harassment of the viator after the sale’ of their insurance policy.”

Although this federal case was filed by Coventry, the ruling is applicable to all viatical settlement providers licensed in Florida.

The Office previously had examined Coventry’s viatical settlement agreements for the period April 26, 2001 through Dec. 31, 2004.

Over the years 2004, 2005, 2006 and 2007, Coventry purchased 2,142 policies from viators in all states in which it does business totaling $710.9 million and having a face value of $4.4 billion. The preceding numbers are based on data reported by Coventry to the Office.

There are presently 14 licensed viatical settlement providers in Florida.