31A-21-104 - Insurable interest and consent -- Scope.
31A-21-104. Insurable interest and consent -- Scope.
(1) As used in this chapter:
(a) For purposes of this section, "exchange" means an exchange made pursuant toSection 1035, Internal Revenue Code, as may be amended.
(b) "Insurable interest" in a person means the following, including a circumstancedescribed in Subsection (3):
(i) for a person closely related by blood or by law, a substantial interest engendered bylove and affection; or
(ii) in the case of a person not described in Subsection (1)(b)(i), a lawful and substantialinterest in having the life, health, and bodily safety of the person insured continue.
(c) "Insurable interest" in property or liability means any lawful and substantial economicinterest in the nonoccurrence of the event insured against.
(d) "Life settlement" is as defined in Section 31A-36-102.
(2) (a) An insurer may not knowingly provide insurance to a person who does not have orexpect to have an insurable interest in the subject of the insurance.
(b) A person may not knowingly procure, directly, by assignment, or otherwise, aninterest in the proceeds of an insurance policy unless that person has or expects to have aninsurable interest in the subject of the insurance.
(c) In the case of life insurance, the insurable interest requirements of Subsections (2)(a)and (b):
(i) are satisfied if the requirements are met:
(A) at the effective date of the insurance policy; and
(B) at the time of a later procurement, if any, of an interest in the proceeds of aninsurance policy; and
(ii) do not need to be met at the time that proceeds of an insurance policy are payable ifthe requirements are met at the times specified in Subsection (2)(c)(i).
(d) Except as provided in Subsections (7) and (8), insurance provided in violation of thisSubsection (2) is subject to Subsection (6).
(e) A policy holder in a group insurance policy does not need an insurable interest if acertificate holder or a person other than the group policyholder who is specified by the certificateholder is the recipient of the proceeds of the group insurance policy.
(3) The following is a nonexhaustive list of insurable interests:
(a) A person has an unlimited insurable interest in that person's own life and health.
(b) A shareholder, member, or partner has an insurable interest in the life of anothershareholder, member, or partner for purposes of an insurance contract that is an integral part of alegitimate buy-sell agreement respecting shares, membership interests, or partnership interests inthe business.
(c) (i) A trust has an insurable interest in the subject of the insurance to the extent that allbeneficiaries of the trust have an insurable interest.
(ii) A trust violates this section if the trust:
(A) is created to give the appearance of an insurable interest, but an insurable interestdoes not exist; and
(B) is used to initiate a policy for an investor or other person who has no insurableinterest in the insured.
(d) (i) Subject to Subsection (3)(d)(v), an employer or an employer sponsored trust:
(A) has an insurable interest in the lives of the employer's:
(I) directors;
(II) officers;
(III) managers;
(IV) nonmanagement employees; and
(V) retired employees; and
(B) may insure a life listed in Subsection (3)(d)(i)(A):
(I) on an individual or group basis; and
(II) with the written consent of the insured.
(ii) (A) A trustee of a trust established by an employer for the sole benefit of theemployer has the same insurable interest in the life and health of any person as does theemployer.
(B) Without limiting the general principle in Subsection (3)(d)(ii)(A), a trustee of a trustestablished by an employer that provides life, health, disability, retirement, or similar benefits toan individual identified in Subsection (3)(d)(i)(A) has an insurable interest in the life of theindividual described in Subsection (3)(d)(i)(A) for whom the benefits are provided.
(iii) (A) For the purpose of exchanging life insurance, an individual described inSubsection (3)(d)(i)(A) includes an individual who was formerly included under Subsection(3)(d)(i)(A) if the life insurance to be exchanged:
(I) is purchased or acquired while the individual is a current director, officer, manager, oremployee; and
(II) is exchanged for life insurance in an amount that does not exceed the amount of theinsurance being exchanged.
(B) Written consent of an individual described in this Subsection (3)(d)(iii) is notrequired at the time of the exchange of the life insurance.
(C) This Subsection (3)(d)(iii) shall be interpreted in a manner consistent withSubsection (2)(c).
(iv) (A) If an employer or trustee establishes an insurable interest as provided in thisSubsection (3)(d) and all of the employer's business is acquired, purchased, merged into, orotherwise transferred to a subsequent employer, the insurable interest of the original employer ortrustee in an individual described in Subsection (3)(d)(i)(A) is automatically transferred to:
(I) the subsequent employer; or
(II) the trustee of a trust established by the subsequent employer for the subsequentemployer's sole benefit.
(B) A subsequent employer or a trustee of a trust described in Subsection(3)(d)(iv)(A)(II) may exchange life insurance that is purchased or acquired in an individualdescribed in Subsection (3)(d)(i)(A) by the original employer or trustee without establishing anew insurable interest at the time of the exchange of the insurance.
(v) The extent of an employer's or employer sponsored trust's insurable interest for anonmanagement or retired employee under Subsection (3)(d)(i) is limited to an amountcommensurate with the employer's unfunded liabilities at the time insurance on thenonmanagement or retired employee is procured.
(4) (a) Except as provided in Subsection (5), an insurer may not knowingly issue anindividual life or accident and health insurance policy to a person other than the one whose life orhealth is at risk unless that person:
(i) is 18 years of age or older;
(ii) is not under guardianship under Title 75, Chapter 5, Protection of Persons UnderDisability and Their Property; and
(iii) gives written consent to the issuance of the policy.
(b) A person shall express consent:
(i) by signing an application for the insurance with knowledge of the nature of thedocument; or
(ii) in any other reasonable way.
(c) Insurance provided in violation of this Subsection (4) is subject to Subsection (6).
(5) (a) A life or accident and health insurance policy may be taken out without consent ina circumstance described in this Subsection (5)(a).
(i) A person may obtain insurance on a dependent who does not have legal capacity.
(ii) A creditor may, at the creditor's expense, obtain insurance on the debtor in an amountreasonably related to the amount of the debt.
(iii) A person may obtain life and accident and health insurance on an immediate familymember who is living with or dependent on the person.
(iv) A person may obtain an accident and health insurance policy on others that wouldmerely indemnify the policyholder against expenses the person would be legally or morallyobligated to pay.
(v) The commissioner may adopt rules permitting issuance of insurance for a limitedterm on the life or health of a person serving outside the continental United States who is in thepublic service of the United States, if the policyholder is related within the second degree byblood or by marriage to the person whose life or health is insured.
(b) Consent may be given by another in a circumstance described in this Subsection(5)(b).
(i) A parent, a person having legal custody of a minor, or a guardian of a person underTitle 75, Chapter 5, Protection of Persons Under Disability and Their Property, may consent tothe issuance of a policy on a dependent child or on a person under guardianship under Title 75,Chapter 5, Protection of Persons Under Disability and Their Property.
(ii) A grandparent may consent to the issuance of life or accident and health insurance ona grandchild.
(iii) A court of general jurisdiction may give consent to the issuance of a life or accidentand health insurance policy on an ex parte application showing facts the court considerssufficient to justify the issuance of that insurance.
(6) (a) An insurance policy is not invalid because:
(i) the insurance policy is issued or procured in violation of Subsection (2); or
(ii) consent has not been given.
(b) Notwithstanding Subsection (6)(a), a court with appropriate jurisdiction may:
(i) order the proceeds to be paid to some person who is equitably entitled to the proceeds,other than the one to whom the policy is designated to be payable; or
(ii) create a constructive trust in the proceeds or a part of the proceeds on behalf of aperson who is equitably entitled to the proceeds, subject to all the valid terms and conditions ofthe policy other than those relating to insurable interest or consent.
(7) This section does not prevent an organization described under Section 501(c)(3), (e),or (f), Internal Revenue Code, as amended, and the regulations made under this section, and
which is regulated under Title 13, Chapter 22, Charitable Solicitations Act, from soliciting andprocuring, by assignment or designation as beneficiary, a gift or assignment of an interest in lifeinsurance on the life of the donor or assignor or from enforcing payment of proceeds from thatinterest.
(8) (a) Subsection (8)(b) applies if:
(i) an insurance policy is transferred pursuant to a life settlement in accordance withChapter 36, Life Settlements Act; and
(ii) before the transfer described in Subsection (8)(a)(i) the insurable interestrequirements of Subsection (2)(c)(i) are met for the insurance policy.
(b) An insurance policy described in Subsection (8)(a) is not subject to Subsection (6)(b)and nothing in this section prevents:
(i) an owner of life insurance, whether or not the owner is also the subject of theinsurance, from entering into a life settlement;
(ii) a life settlement producer from soliciting a person to enter into a life settlement;
(iii) a person from enforcing payment of proceeds from the interest obtained under a lifesettlement; or
(iv) the execution:
(A) of any of the following with respect to the death benefit or ownership of any portionof a settled policy as provided for in Section 31A-36-109:
(I) an assignment;
(II) a sale;
(III) a transfer;
(IV) a devise; or
(V) a bequest; and
(B) by any of the following:
(I) a life settlement provider;
(II) a life settlement purchaser;
(III) a financing entity;
(IV) a related provider trust;
(V) a special purpose entity;
(VI) a qualified institutional buyer as defined in Rule 144A, 17 C.F.R. Sec. 230.144A; or
(VII) an accredited investor as defined in Regulation D, Rule 501, 17 C.F.R. Sec.230.501.
(9) (a) The insurable interests described in this section:
(i) are not exclusive;
(ii) are cumulative of an insurable interest that is not expressly included in this sectionbut exists in common law; and
(iii) are not in lieu of an insurable interest that is not expressly included in this sectionbut exists in common law.
(b) The inclusion of an insurable interest in this section may not be considered to beexcluding another insurable interest that is similar to the insurable interest included in thissection.
(c) (i) The recognition of an insurable interest in this section by Chapter 89, Laws ofUtah 2007, does not imply or create a presumption that the insurable interest did not exist beforeApril 30, 2007.
(ii) An insurable interest shall be presumed with respect to a life insurance policy issuedbefore April 30, 2007 to a person whose insurable interest is recognized in this section byChapter 89, Laws of Utah 2007.
Amended by Chapter 355, 2009 General Session