# Appendix — Life Partners Partners, Inc. v. Morrison (No. 07-261)

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 2007

## Text

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APPENDIX A

LIFE PARTNERS, INCORPORATED,
Plaintiff-Appellant,

Vv.

Theodore V. MORRISON, Jr.; Mark C.
Christie, in their official capacities as
Commissioners of the State Corporation
Commission; Alfred W. Gross, in his offi-
cial capacity as the Commissioner of In-
surance; Judith Williams Jagdmann, in
her official capacity as Commissioner of
the State Corporation Commission, De-
fendants—Appellees,

Robert F. McDonnell, in his official capacity
as the Attorney General of the Common-
wealth of Virginia, Intervenor-Appellee,

and

Clinton Miller, in his official capacity
as Commissioner of the State Corpo-
ration Commission, Defendant.

National Association of Insurance Commis-
sioners; North American Securities Ad-
ministrators Association, Incorporated,
Amici Supporting Appellees,

and

Viatical Settlement Professionals,
Incorporated, Movant.

2a

Life Partners, Incorporated,
Plaintiff-Appellee,

Vv.

Theodore V. Morrison, Jr.; Mark C. Christie,
in their official capacities as Commis-
sioners of the State Corporation Commis-
sion; Alfred W. Gross, in his official ca-
pacity as the Commissioner of Insurance;
Judith Williams Jagdmann, in her official
capacity as Commissioner of the State
Corporation Commission, Defendants-
Appellants,

and

Clinton Miller, in his official capacity
as Commissioner of the State Corpo-
ration Commission, Defendant,

and

Robert F. McDonnell, in his official capacity
as the Attorney General of the Common-
wealth of Virginia, Intervenor-Defendant.

North American Securities Administrators
Association, Incorporated; National Asso-
ciation of Insurance Commissioners,
Amici Supporting Appellants,

and

Viatical Settlement Professionals,
Incorporated, Movant.

Nos. 06-1370, 06-1371.

United States Court of Appeals,
Fourth Circuit.

Argued Nov. 30, 2006.
Decided April 30, 2007.

3a

ARGUED: Douglas Michael Palais, Leclair
Ryan, P.C., Richmond, Virginia, for Appel-
lant/Cross—Appellee. Maureen Riley Matsen,
Office of the Attorney General of Virginia,
Richmond, Virginia; Robert A. Dybing, Thomp-
son & McMullan, Richmond, Virginia, for Ap-
pellees/Cross—Appellants. ON BRIEF:
Cameron S. Matheson, Leclair Ryan, P.C.,
Richmond, Virginia; Lee E. Goodman, Robert
P. Howard, Leclair Ryan, P.C., Washington, D.C.,
for Appellant/Cross—Appellee. Faisal S. Qureshi,
Thompson & McMullan, Richmond, Virginia;
Ronald N. Regnery, Office of the Attorney Gen-
eral of Virginia, Richmond, Virginia; Philip R.
de Haas, William H. Chambliss, Pamela B.
Beckner, Scott A. White, State Corporation
Commission of Virginia, Richmond, Virginia, for
Appellees/Cross—Appellants. Rex A. Staples,
Stephen W. Hall, Lesley M. Walker, North Ameri-
can Securities Administrators Association, Inc.,
Washington, D.C., for North American Securities
Administrators Association, Incorporated,
Amicus Supporting Appellees/Cross-—
Appeilants. Elizabeth Mason Horsley, Williams
Mullen, P.C., Richmond, Virginia, for National
Association of Insurance Commissioners,
Amicus Supporting Appellees/Cross—Ap-
pellants.

Before NIEMEYER, MICHAEL, and TRAX-
LER, Circuit Judges.

Affirmed by published opinion. Judge NIE-
MEYER wrote the opinion, in which Judge MI-
CHAEL and Judge TRAXLER joined.

OPINION
NIEMEYER, Circuit Judge.

4a

We decide, in this case of first impression,
whether the Virginia Viatical Settlements Act,
Va. Code Ann. § 38.2—6000, et seg., which regu-
lates viatical settlements with insureds who
are residents of Virginia, is saved from the
dormant Commerce Clause of the U.S. Consti-
tution by the McCarran-—Ferguson Act, 15
U.S.C. §§ 1011, 1012, as a state law that ‘re-
lates to” the regulation of the business of in-
surance or as a state law enacted “for the pur-
pose of regulating the business of insurance.”

“Jane Doe,” a terminally ill resident of Vir-
ginia with 6 to 18 months to live, sold her life
insurance policy to Life Partners, Inc., a Texas
corporation, at a deep discount to provide her
with cash needed for the remaining months of
her life. This transaction, known as a “viatical
settlement,” is purportedly regulated by Virgi-
nia to protect its residents who, in the vulner-
able circumstances of being terminally ill,
might find it necessary to sell their life insur-
ance policies.

Following the transaction, Jane Doe sought
to improve the sale price of her policy by invok-
ing the minimum pricing provisions of the Vir-
ginia Viatical Settlements Act. Life Partners,
contending that the Virginia Act violated the
dormant Commerce Clause, commenced this ac-
tion to declare the Act unconstitutional and to
enjoin its enforcement. Virginia defended the
Act as serving a legitimate and important local
interest in regulating viatical settlements with
its residents. Virginia also argued that, in any
event, it properly acted pursuant to the com-
merce power conferred on it by the McCarran-
Ferguson Act, which authorizes States to enact

5a

laws relating to or for the purpose of regulat-
irg the business of insurance.

On cross-motions for summary judgment,
the district court entered judgment for Vir-
ginia, holding that the Virginia Viatical Set-
tlements Act did not violate the dormant
Commerce Clause. Relying on the balancing
test of Pike v. Bruce Church, Inc., 397 U.S.
137, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970), the
district court concluded (1) that the Virginia
Viatical Settlements Act did not discriminate
against interstate commerce; (2) that the Act
served a legitimate and important local pur-
pose; and (3) that any burden on commerce was
only incidental.

On appeals by both parties, we conclude
that the sale of life insurance policies by ter-
minally ill patients directly and substantially
affects the business of insurance and that the
Virginia Viatical Settlements Act “relates to”
such business and was enacted “for the purpose
of regulating” such business. The McCarran-
Ferguson Act thus saves the Virginia Act from
preemption of the Commerce Clause and ren-
ders it constitutional. Based on this conclu-
sion, we affirm.

I

A “viaticum” in ancient Rome was a purse
containing money and provisions for a journey.
A viatical settlement, by which a dying person
is able to acquire provisions for the remainder
of his life’s journey by selling his life insurance
policy, is thus thought to provide a viaticum.
In the language of the industry, the insured is
the “viator,” who sells his policy at a discount

6a

to a “provider” of the viaticum. The viatical
settlement provider is often backed by inves-
tors under arrangements reached between the
provider and the investors. Once a viator sells
a policy to a provider, the provider assumes the
responsibility for paying the premiums and
designates itself as the beneficiary of the pol-
icy. Upon the viator’s death, the provider col-
lects the face value of the policy, and the pro-
vider’s profit is the difference between the face
value of the policy and the amount paid to the
viator, premiums paid to the insurance com-
pany, and the administrative expenses in-
curred. Because the sooner the viator dies the
greater the provider’s profit, a provider takes
special care in calculating a viator’s life expec-
tancy by hiring an independent doctor to exam-
ine the insured and his medical records and by
monitoring the viator’s health until death.

The viatical settlements industry was born
in the 1980s in response to the AIDS crisis. In
the early years, AIDS was a rapidly fatal dis-
ease, and its victims usually died within
months of diagnosis. Many AIDS sufferers
were in great need of cash to pay for their care
after they had become debilitated. Their life
insurance policies were not only expensive to
maintain but could, upon liquidation, provide
some of the desperately needed cash. More-
over, investors were willing to purchase the
life insurance policies of AIDS sufferers. In-
asmuch as AIDS sufferers had predictably
short life expectancies, their policies were reli-
able investments. See generally, Liza M. Ray,
Comment, The Viatical Settlement Industry:
Betting on People’s Lives is Certainly No “Ex-

7a

acta,” 17 J. Contemp. Health L. & Policy 321,
321-22 (2000); Joy D. Kosiewicz, Comment,
Death for Sale: A Call to Regulate the Viatical
Settlement Industry, 48 Case W. Res. L. Rev.
701, 704 (1998).

The viatical settlements market expanded
to include other terminal illnesses, especially
as AIDS became a more treatable disease. Peo-
ple suffering from cancer, heart disease, Alz-
heimer’s disease, and other progressive ill-
nesses, as well as elderly people in need of
funds for assisted living, found viatical settle-
ments a useful source of immediate cash. To-
day, the industry is growing exponentially as
investors seek out not only the terminally ill,
but the swelling ranks of generally healthy,
elderly Americans. It is estimated that $13
billion worth of life insurance policies were
sold by policyholders to providers in 2005—up
from $5 million in 1989 and $200 million in
1998—and it is projected that by 2030 the
number could reach $160 billion. See Holman
W. Jenkins, Jr., Life Insurers Face the Future,
Grudgingly, Wall St. J., Aug. 9, 2006, at All;
Liam Pleven & Rachel Emma Silverman, /nves-
tors Seek Profit in Strangers’ Deaths, Wall St.
J., May 2, 2006, at Cl; see generally Miriam R.
Albert, The Future of Death Futures: Why Viat-
ical Settlements Must Be Classified as Securi-
ties, 19 Pace L. Rev. 345, 353-55 (1999).

The need for regulating the business of vi-
atical settlements became apparent from the
beginning. The power imbalance between the
viator and the provider creates a substantial
potential for abuse. The viator is usually in a
weakened physical condition, often facing im-

8a

minent death, often in financial hardship due
to medical and healthcare costs, and often ig-
norant of industry practices. The provider, on
the other hand, has extensive resources, is
usually backed by investors, and is armed with
sophisticated industry knowledge. Moreover,
because of his illness and lack of time and en-
ergy to “comparison shop” for the best pay-
ment, a viator often agrees to sell at a drasti-
cally reduced price, particularly when he fails
to understand the nature and value of the
rights that he has in the insurance policy that
he is selling. The potential for harassment of
the viator after the sale is also real, as the
providers, acting under the terms of the viati-
cal settlement, closely monitor the viator’s
health, subjecting him to regular medical ex-
aminations. In addition, the life insurance in-
dustry began to face new risks, including the
increased risk of fraud, as potential insureds
sought to hide their illnesses in order to obtain
policies and thereafter to sell them to viatical
settlement providers. Finally, many have
questioned the ethics of an industry whose
profits depend on, and whose investors hope
for, the early death of its customers.

Because of the need to protect viators and
to create a transparent and fair viatical set-
tlements market, the National Association of
Insurance Commissioners developed the Viati-
cal Settlements Model Act in 1993 and Viatical
Settlements Regulations in 1994 to guide
States in their regulation of the viatical set-
tlements industry. To date, approximately 38
States, including Virginia, have adopted a ver-
sion of the Model Act or similar legislation.

9a

The Virginia Viatical Settlements Act
(sometimes hereafter the “Act”) was enacted in
1997 to address Virginia’s concern with the
“potential for exploitation of vulnerable and
seriously ill individuals.” Legislative Sum-
mary, House Bill 871 (Va. 1997). The Commis-
sioner of Insurance for the Bureau of Insurance
of the Virginia State Corporation Commission,
the state agency charged with implementing
and enforcing the Act, stated that some of the
Act’s specific objectives and purposes include
“ensuring that entities providing viatical set-
tlement services are licensed, operated by per-
sons of good character, and do not engage in
illegal, unfair or unethical conduct” and “en-
suring that fair compensation be paid to via-
tors.”

Thus, the core provisions of the Act ensure
that providers are reliable; require full disclo-
sures to viators; protect the privacy of viators;
establish minimum prices for policies; and pro-
hibit fraud.

More particularly, the Act requires that
brokers (defined as viators’ agents) and provid-
ers be licensed if they contract with a Virginia
resident in connection with a viatical settle-
ment. Va. Code Ann. §§ 38.2-6002, -6003.
The Act provides that before issuing a license
to a provider, the State Corporation Commis-
sion is required to investigate the applicant to
ensure it is “competent and trustworthy,” “in-
dicates its intention to act in good faith within
the confines of the license,” “has a good busi-
ness reputation,” and “has provided an anti-
fraud plan.” Jd. § 38.2-6002(D). The Act also
requires providers to “be bonded” or submit to

10a

“other mechanisms for financial accountability”
adopted by the Commission. Id. § 38.2-
6002(I).

The Act imposes extensive disclosure obli-
gations on providers. For instance, providers
must disclose to viators, among other things,
the “possible alternatives to viatical settlement
contracts including any accelerated death
benefits or policy loans offered under the via-
tor’s life insurance policy”; the tax conse-
quences of selling the policy; the right of a via-
tor to rescind a viatical settlement for 15 days
after receipt of the proceeds; the fact that en-
tering into a viatical settlement may cause a
viator to forfeit rights and benefits under the
policy; the fact that the provider may require
medical visits as frequently as once a month to
determine the viator’s health status; and the

possible loss of coverage for third parties if the
life insurance policy involves family riders or
includes coverage of a life other than the via-
tor’s. See Va. Code Ann. § 38.2—6007.

Section 38.2—6005 of the Act is devoted to
the protection of a viator’s privacy and the con-
fidentiality of information about the viator.
See also Va. Code Ann. § 38.2—6008(A)(1)(b),
(B), (F).

The Act requires providers to pay a viator a
minimum percentage of the face value of the
insurance policy sold, depending upon the via-
tor’s life expectancy. Thus, if the viator’s life
expectancy is less than 6 months, he must be
paid a minimum of 80% of the policy’s face
value; if his life expectancy is at least 6 but
less than 12 months, then he must be paid at

lla

least 70% of the policy’s face value; if his life
expectancy is at least 12 but less than 18
months, he must be paid at least 65% of the
policy’s face value; and if his life expectancy is
at least 18 but less than 25 months, he must be
paid at least 60% of the policy’s face value. See
14 Va. Admin. Code § 5—71-—60(A) (2006).

And the Act contains several provisions
prohibiting false or misleading advertising, Va.
Code Ann. § 38.2-6010; prohibiting fraud in
connection with viatical settlements, id.
§ 38.2-6011; and making violations of the Act
unfair trade practices, id. § 38.2-6013.

Other miscellaneous provisions designed to
protect Virginia viators are also included in
the Act, such as a requirement that providers
submit to the Commission all viatical settle-
ment contracts for review and approval before
closing. Va. Code Ann. § 38.2—6003(A). Funds
must be paid to the viator within three busi-
ness days after the viatical settlement provider
has received the insurer’s acknowledgment
that the beneficiary of the life insurance policy
has been changed. Id. § 38.2—6007(A)(6). Be-
fore entering into a viatical settlement con-
tract, a provider must obtain “a written state-
ment from a licensed attending physician that
the viator is of sound mind and under no con-
straint or undue influence to enter into a viati-
cal settlement contract.” Id. § 38.2-
6008(A)(1)(a).

Finally, we note that the Act does not regu-
late the relationship between viatical settle-
ment providers and their investors, a relation-

12a

ship that is most often regulated by securities
laws. See Va. Code Ann. § 38.2-6016.

II

“Jane Doe,” a resident of Martinsville, Vir-
ginia, who was terminally ill with AIDS, began
in March 2004 to explore ways to liquidate her
life insurance policy. Her policy had a face
value of $115,000 and contained no accelerated
death benefit of any value.

Researching on the Internet, Doe located
two brokers—Ideal Settlements, Inc., located
in New Jersey, and Individual Benefits, Inc.,
located in North Carolina—and signed broker-
age contracts with both. Ultimately, however,
she chose Ideal Settlements to negotiate on her
behalf. Ideal Settlements contacted Life Part-
ners, located in Waco, Texas, inviting a bid for
Doe’s life insurance policy.

Life Partners engages nationally in the
business of viatical settlements. It locates in-
vestors to provide the money, and it negotiates
with viators or their brokers for the purchase
of life insurance policies. Its profits and those
of the investors are determined by the differ-
ence between (1) the face amount of the policy
paid upon the viator’s death and (2) the cost of
the policy, the cost of paying premiums until
death, and administrative expenses. While
Life Partners is licensed as a viatical settle-
ment provider under Texas law, it is not so li-
censed in Virginia.

Life Partners hired an independent phy-
sician to assess Jane Doe’s medical condition,
and the physician determined that Doe had a
life expectancy of 6 to 18 months. Life Part-

13a

ners also located 12 investors from 7 States—
none from Virginia—who, acting as a group,
were interested in bidding on Doe’s policy. On
behalf of these purchasers, Life Partners sub-
mitted a bid to Ideal Settlements in the
amount of $26,000. When Doe rejected that of-
fer, Life Partners raised the bid to $27,000,
which Doe also rejected. Life Partners then
submitted a final bid of $29,900 which Doe ac-
cepted. The bid represented 26% of the face
value of Jane Doe’s policy.

Life Partners sent the necessary forms, dis-
closures, and other information required by
Texas law to Doe for her review and signature.
Doe completed the forms and executed the viat-
ical settlement, returning them to Life Part-
ners for final review and execution in Texas.
Life Partners closed the transaction in Texas
on May 13, 2004, and wired $29,900 to Doe in
Virginia.

Five months later, on October 11, 2004, Doe
contacted Life Partners demanding that it pay
her more money, based on the Virginia Viatical
Settlements Act. That Act would have re-
quired Life Partners to pay Doe at least
$69,000, and maybe more, depending on the
applicable range of life expectancy. Life Part-
ners refused her demand but offered to rescind
the transaction, even though the period for re-
scission had expired. Doe refused rescission
and instead filed a complaint with the Virginia
Bureau of Insurance, the relevant enforcement
arm of the State Corporation Commission.

The Bureau of Insurance conducted an in-
quiry and concluded that Life Partners had

l4a

acted as an unlicensed viatical settlement pro-
vider with a Virginia resident. At the request
of the Bureau of Insurance, the Virginia State
Corporation Commission issued a “rule to show
cause” against Life Partners, requiring it to
explain why it was conducting business with a
Virginia resident without proper licensing, in
violation of Virginia law. It also warned Life
Partners that unless it subjected itself to Vir-
ginia’s regulatory regime, Life Partners would
be barred from making any further purchases
from Virginia residents, under threat of prose-
cution for a “knowing and willful violation of
the law.”

On May 26, 2005, Life Partners commenced
this action under 42 U.S.C. § 1983, asserting
that the State Corporation Commission and the
Bureau of Insurance (herein jointly, “Virginia”
or the “Commission”) violated the dormant
Commerce Clause of the United States Consti-
tution by attempting to enforce the Virginia
Viatical Settlements Act against Life Partners.
Life Partners’ dormant Commerce Clause chal-
lenge was particularly grounded on the juris-
dictional provision of the Virginia Act which
gave the Commission oversight authority over
all viatical settlements involving Virginia via-
tors. Life Partners contended that this scope
of jurisdiction rendered Virginia’s regulatory
control so broad that it affected commerce oc-
curring wholly outside of Virginia. It also ar-
gued that Virginia’s regulatory regime, in par-
ticular the licensing requirement and price
controls, discriminated against and burdened
interstate commerce.

15a

Life Partners filed a motion for summary
judgment based on its dormant Commerce
Clause challenge, and the Commission filed a
cross-motion for summary judgment, contend-
ing that it had an important and legitimate in-
terest in regulating viatical settlements and
that its law had only incidental effects on
commerce. The Commission also argued that
Congress had explicitly authorized state regu-
lation of viatical settlements in the McCarran-
Ferguson Act, a statute that delegates to the
States Congress’ commerce power to regulate
the insurance industry.

The district court granted the Commission’s
motion for summary judgment and denied Life
Partners’ motion, agreeing with the Commis-
sion that the Act did not violate the dormant
Commerce Clause. The court conducted a full
Commerce Clause analysis, concluding that
Virginia’s regulation of viatical settlements
comfortably survived the scrutiny. The district
court declined to reach the Commission’s ar-
gument that Congress had authorized States to
regulate viatical settlements with the McCar-
ran—Ferguson Act.

These cross-appeals followed. Life Partners
challenges the district court’s holding that the
Virginia Act does not violate the dormant
Commerce Clause, and the Commission chal-
lenges the district court’s failure to address its
argument based on the McCarran-—Ferguson
Act. The Commission contends also that the
district court should have abstained in favor of
Commission proceedings, under Younger ov.
Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d
669 (1971).

16a

Ill

Because we conclude that in the McCarran-
Ferguson Act, Congress delegated its commerce
power to Virginia in sufficiently broad terms to
cover viatical settlements, thereby saving the
Virginia Viatical Settlements Act from any
dormant Commerce Clause challenge, we need
not decide whether, in the absence of such
delegation, the Act would violate the dormant
Commerce Clause.

Through the McCarran—Ferguson Act or
any other act, Congress holds the authority to
“redefine the distribution of power over inter-
state commerce” by “permit(ting] the states to
regulate the commerce in a manner which
would otherwise not be permissible.” Southern
Pacific Co. v. Arizona, 325 U.S. 761, 769, 65
S.Ct. 1515, 89 L.Ed. 1915 (1945); see also
Northeast Bancorp, Inc. v. Bd. of Governors,
472 U.S. 159, 174, 105 S.Ct. 2545, 86 L.Ed.2d
112 (1985) (“When Congress so chooses, state
actions which it plainly authorizes are invul-
nerable to constitutional attack under the
Commerce Clause”). Thus, if the McCarran-
Ferguson Act authorizes the States to regulate
viatical settlements, the issue of whether the
Virginia Viatical Settlements Act burdens in-
terstate commerce becomes irrelevant. We
therefore address whether the Virginia Act
falls within the scope of the McCarran-—
Ferguson Act.

The McCarran—Ferguson Act was passed in
1945 in reaction to the Supreme Court’s deci-
sion in United States v. South-Eastern Under-
writers Ass’n, 322 U.S. 533, 64 S.Ct. 1162, 88

17a

L.Ed. 1440 (1944). Prior to that decision, it
had been understood that “[i]Jssuing a policy of
insurance [was] not a transaction of com-
merce.” Paul v. Virginia, 75 U.S. (8 Wall.) 168,
183, 19 L.Ed. 357 (1868). Consequently, “the
States enjoyed a virtually exclusive domain
over the insurance industry.” St. Paul Fire &
Marine Ins. Co. v. Barry, 438 U.S. 531, 539, 98
S.Ct. 2923, 57 L.Ed.2d 932 (1978). Before
South-Eastern Underwriters, the States regu-
lated the insurance business free from any con-
cerns arising under the dormant Commerce
Clause, and federal statutes, such as the
Sherman Act, were thought to be inapplicable
to the insurance industry. See SEC v. Nat'l Se-
curities, Inc., 393 U.S. 453, 457-58, 89 S.Ct.
564, 21 L.Ed.2d 668 (1969). In South-Eastern
Underwriters, the Supreme Court altered this
understanding by holding that the business of
insurance was a part of interstate commerce
and therefore subject to the Commerce Clause
and federal enactments based on the Commerce
Clause, such as the Sherman Act. South-
Eastern Underwriters, 322 U.S. at 552-53, 64
S.Ct. 1162.

Congress reacted by enacting the McCar-
ran--Ferguson Act the very next year. Making
its mission unmistakably clear, Congress de-
clared “that the continued regulation and taxa-
tion by the several States of the business of in-
surance is in the public interest.” 15 U.S.C.
§ 1011. Shortly thereafter, the Supreme Court
stated, “obviously Congress’ purpose was
broadly to give support to the existing and fu-
ture state systems for regulating and taxing
the business of insurance.” Prudential Ins. Co.

18a

v. Benjamin, 328 U.S. 408, 429, 66 S.Ct. 1142,
90 L.Ed. 1342 (1946). The McCarran—Ferguson
Act achieved this purpose “by removing ob-
structions which might be thought to flow from
[Congress’] own power, whether dormant or ex-
ercised,” and “by declaring expressly and af-
firmatively that continued state regulation and
taxation of this business is in the public inter-
est and that the business and all who engage
in it ‘shall be subject to’ the laws of the several
states in these respects.” Id. at 430, 66 S.Ct.
1142.

To understand the McCarran—Ferguson Act
as it might apply in this case, we start with
“the language of the statute itself.” Group Life
& Health Ins. Co. v. Royal Drug Co., 440 U.S.
205, 210, 99 S.Ct. 1067, 59 L.Ed.2d 261 (1979).

The substantive portions of the McCarran-
Ferguson Act are found in its first two sec-
tions. The first provides:

The Congress hereby declares that the
continued regulation and taxation by the
several States of the business of in-
surance is in the public interest, and
that silence on the part of the Congress
shall not be construed to impose any
barrier to the regulation or taxation of
such business by the several States.

15 U.S.C. § 1011 (emphasis added). And the
second provides:

(a) State regulation. The business of
insurance, and every person engaged
therein, shall be subject to the laws of
the several States which relate to the
regulation or taxation of such business.

19a

(b) Federal regulation. No Act of Con-
gress shall be construed to invalidate,
impair, or supersede any law enacted by
any State for the purpose of regulating
the business of insurance, or which im-
poses a fee or tax upon such business,
unless such Act specifically relates to
the business of insurance: Provided,
That [the federal antitrust laws] shall
be applicable to the business of insur-
ance to the extent that such business is
not regulated by State law.

Id. § 1012 (emphasis added). Section 1011
thus declares that the “business of insurance”
continues to be subject to regulation by the
States, as had been the case before South-
Eastern Underwriters. Section 1012(a) then
confers the federal commerce power on the

States to enact laws which “relate” to the regu-
lation of the business of insurance, and
§ 1012(b) restricts federal authority so that no
federal law can be construed to “invalidate, im-
pair, or supersede” any state law enacted “for
the purpose of” regulating the business of in-
surance—unless the federal law does so explic-
itly. By so restricting federal authority,
§ 1012(b) also defines the scope of state author-
ity, implicitly authorizing States to enact laws
“for the purpose of” regulating the business of
insurance. See U.S. Dep’t of Treasury v. Fabe,
508 U.S. 491, 504, 113 S.Ct. 2202, 124 L.Ed.2d
449 (1993) (explaining that § 1012(b) “was in-
tended to further Congress’ primary objective
of granting the States broad regulatory author-
ity over the business of insurance”).

20a

In short, the McCarran—Ferguson Act “de-
clares” that regulation of the business of in-
surance belongs with the States, and to imple-
ment that declaration, the Act explicitly pro-
tects from a dormant Commerce Clause chal-
lenge (1) any state law that “relates to the
regulation of the business of insurance” or (2)
any state law “enacted for the purpose of regu-
lating the business of insurance.” The Act re-
serves from its operation only the federal anti-
trust laws. 15 U.S.C. § 1012(b).

Important to a proper application of these
provisions is an understanding of the terms (1)
“insurance,” (2) the “business of insurance,” (3)
the nature of laws that “relate to” or are en-
acted “for the purpose of” regulating the busi-
ness of insurance, and (4) the historical context
in which Congress enacted the McCarran-
Ferguson Act.

A contract of insurance is one by which an
insured transfers risks to an insurer for the
payment of a premium. See Union Labor Life
Ins. Co. v. Pireno, 458 U.S. 119, 130, 102 S.Ct.
3002, 73 L.Ed.2d 647 (1982). And so, under a
life insurance policy, the insured purchases a
hedge against his early death by the insurer’s
commitment to pay the face amount of the pol-
icy. Because the insurer must pay the in-
sured’s beneficiary even upon an early death,
the insurer takes the bet that the insured will
not die before the premiums and investment
income accumulate to exceed the face amount
of the policy. The cost of the insured’s risk,
represented by the amount of premiums, is cal-
culated so as to match the anticipated pre-

2la

mium amount with the anticipated payout plus
a profit.

Thus, both parties to an insurance contract
have a large array of factors to consider in de-
termining whether to enter into a contract of
insurance. The insurer considers, among other
things, the insured’s age and life expectancy,
health, work, healthcare and life habits, family
history, and similar data from its relevant pool
of insureds. The insurer also considers the
market for the investment of premiums, data
from the pool of insureds relating to the laps-
ing and early surrender of policies, and mar-
keting, selling, and administrative expenses.
The insured, on the other hand, considers,
among other things, the inmsurer’s financial
strength, its history of honoring policies, its
investment record, the risk represented by the
relevant pool of insureds, and the insurer’s
service. But in the end, both parties enter into
the contract of insurance with the hope that
the insured will not die early. That hope is re-
flected in the insurer’s acceptance of the bet
that the insured will not die before premiums
and investment income at least equal the face
amount of the policy, and that hope is inherent
in the insured’s will to live as part of human
nature.

The “business of insurance” refers to the
marketing, selling, entering into, managing,
servicing, and performing of insurance con-
tracts. See National Securities, 393 U.S. at
460, 89 S.Ct. 564 (explaining that in the
McCarran-—Ferguson Act, “Congress was con-
cerned with the type of state regulation that
centers around the contract of insurance,” in-

22a

cluding “the type of policy which could be is-
sued, its reliability, interpretation, and en-
forcement”). Thus, “(tlhe relationship between
insurer and insured,” which is the heart of the
insurance contract, is also at “the core of the
business of insurance.” See id. (“Whatever the
exact scope of the statutory term [‘business of
insurance’], it is clear where the focus was—it
was on the relationship between the insurance
company and the policyholder”). In applying
these principles, the Supreme Court has dis-
tinguished state statutes that regulate the
merger of insurance companies, which are
aimed at “the relationship between a stock-
holder and the company in which he owns
stock,” from statutes that directly affect con-
tracts of insurance, their risks, and their per-
formance. See National Securities, 393 U.S. at
460, 89 S.Ct. 564 (explaining that even though
the state merger statute only applied to insur-
ance companies, “(t]he crucial point is that
here the State has focused its attention on
stockholder protection; it is not attempting to
secure the interests of those purchasing insur-
ance policies”). Thus, at bottom, any under-
standing of the scope of what amounts to the
business of insurance must be based on the
“commonsense understanding” of whether the
business relates to or affects “the risk pooling
arrangement between the insurer and insured.”
Ky. Ass’n of Health Plans, Inc. v. Miller, 538
U.S. 329, 341-42, 123 S.Ct. 1471, 155 L.Ed.2d
468 (2003) (examining the scope of the busi-
ness of insurance in determining whether, un-
der ERISA, a state law regulates insurance);

23a

see also Pireno, 458 U.S. at 129, 102 S.Ct.
3002.

Finally, we understand that the McCarran-
Ferguson Act confers more commerce power to
the States than is necessary simply to regulate
the business of insurance directly. The grant
of power sweeps more broadly, giving States
the power to enact laws that “relate to” the
regulation of the business of insurance or are
enacted “for the purpose of” regulating the
business of insurance. See Fabe, 508 U.S. at
504, 113 S.Ct. 2202 (“The broad category of
laws enacted ‘for the purpose of regulating the
business of insurance’ consists of laws that ...
necessarily encompass{ ] more than just the
‘business of insurance”). This grant of power
to the States was deliberately broad “to allay
fears” about the “widely perceived ... threat to
state power” that followed the Supreme Court’s
decision in South-—Easiern Underwriters. See
Fabe, 508 U.S. at 499-500, 113 S.Ct. 2202; see
also Prudential Ins. v. Benjamin, 328 U.S. 408,
429-30, 66 S.Ct. 1142, 90 L.Ed. 1342 (1946).

IV

With this understanding of the McCarran-
Ferguson Act, we now turn to address whether
the Virginia Viatical Settlements Act is pro-
tected from a dormant Commerce Clause chal-
lenge as a state law that relates to or was en-
acted for the purpose of regulating the business
of insurance.

While obvious, it must first be stated that
the subject of every viatical settlement is an
insurance policy. Moreover, the viaticai set-
tlement is not collateral to the policy. Rather,

24a

it modifies it, changing the parties’ obligations
and benefits, while yet leaving the insurance—
i.e., the transfer of the specified risk—in place.
At its essence, a viatical settlement is a trans-
action that fractures the two-part insurance
contract between the insurer and the insured
and creates a new tripartite arrangement (al-
beit not a three-party agreement) among the
insurer, the insured, and the insured’s as-
signee—the viatical settlement provider. Be-
cause of this new tripartite arrangement, each
party has, with respect to the preexisting in-
surance contract, new or different obligations
and benefits.

The insurer is faced with the newly divided
obligations reflected in the interests of the in-
sured and the viatical settlement provider.
While the insured gives up her financial inter-
est in the insurance contract, her life and the
risk of her death remain the subject of the in-
surance contract. But now, the insurer, in-
stead of carrying its obligation to pay on the
insurance contract with an insured “who
guards against possible loss and disaster to
[her] as an individual,” see 1 Appleman on In-
surance § 1 (2d ed. 2006) (defining life insur-
ance), carries its obligation with a viatical set-
tlement provider, who hopes, for financial rea-
sons, for the early death of the insured. The
insurer must also now keep track adminis-
tratively of both the insured, whose life re-
mains essential to the arrangement, and the
viatical provider, who now must pay the in-
surer the premiums. Moreover, the fact that a
new contract—the viatical settlement—
introduces a new interested party to the ar-

25a

rangement raises the possibility that the in-
surer can become involved in legal disputes be-
tween the insured and the viatical provider.

The insurer is also faced with changed eco-
nomic risks that were not factored into its cal-
culation of premiums. Under the two-party ar-
rangement that preexisted the viatical settle-
ment, the insured was in a class of persons
that statistically surrendered a portion of its
policies or let a portion of them lapse. Insur-
ance companies rely on these surrender and
lapse rates to calculate premiums to charge for
life insurance policies. The viatical provider
distorts these rates, however, because it will
always hold onto the policy until the insured
dies in order to protect its investment. Thus,
as the initial actuarial risk is distorted with
each new viatical settlement, the _ risk-
spreading profile of the insurer becomes less
reflective of its initial calculations.

The insured too faces changed obligations
and risks. Fundamentally, instead of relating
to the insurer as an insured whose own life is
the subject of financial benefits that she con-
trols, she now relates as an insured whose
death is meaningful only to financial investors.
Also, while she likely subjected herself to a
health examination by the insurer when she
initially purchased the life insurance policy,
under the tripartite arrangement with a viati-
cal provider, she must subject herself to rou-
tine, periodic medical examinations—perhaps
even monthly. She also might have unwit-
tingly given up rights provided by her insur-
ance policy that could have generated cash
through loans or cash surrender value because

26a

she lacked adequate knowledge and informa-
tion about the value of those rights. Finally,
the insured is subjected to additional privacy
concerns relating to her medical records and
financial information. While generally these
are already regulated to some degree, certain
private financial and health matters none-
theless could legally become public as a result
of a viatical settlement.

Not only are the parties to insurance con-
tracts affected by viatical settlements, but the
State too has interests, especially in ensuring
(1) that its residents not be subjected to un-
scrupulous conduct by the viatical settlement
providers who might defraud, harass, or abuse
insureds in the State and (2) that its residents
not defraud insurance companies in an effort to

realize a quick financial return by entering
into insurance contracts while hiding the fact
that they will soon, within a determinable
time, die.

Virginia addressed these concerns in the
Virginia Viatical Settlements Act, recognizing
that each party to the new tripartite arrange-
ment has interests meriting attention and pro-
tection. The insured’s privacy rights are ad-
dressed in Virginia Code § 38.2—6005; the in-
sured’s potential lack of information and
knowledge about her policy and what she loses
in a viatical settlement are addressed by man-
dating disclosures, id. § 38.2-6007. A re-
quirement that the insured be of sound mind
when entering into a viatical settlement is im-
posed in § 38.2-6008(A)(1). Section 38.2-6008
also regulates the practices of viatical settle-
ment providers and § 38.2-6011 prohibits un-

27a

fair advertising with respect to viatical settle-
ments. The insurers are protected by being
provided in advance with applications of their
insureds for viatical settlements and the in-
sured’s medical records to allow the insurers to
conduct fraud investigations. See id. § 38.2-
6008(A)(3), (4). The Act requires viatical set-
tlement providers to submit to the Commission
for review and approval all viatical settlement
contracts before closing, see id. § 38.2—6003,
and they must pay viators (within three days
of the change of beneficiary) a minimum per-
centage of the face value of the life insurance
policy, see 14 Va. Admin. Code § 5-71-60. Fi-
nally, the Act requires that any viatical set-
tlement provider dealing with Virginia citizens
have a plan of operation, be competent and
trustworthy, indicate an intention to act in
good faith and in compliance with state licens-
ing requirements, have a good business reputa-
tion, and be present within the State for pur-
poses of regulation and enforcement. See Va.
Code Ann. § 38.2—6002.

All of these matters, and more, regulated
by the Virginia Viatical Settlements Act surely
“relate to” the business of insurance in that
they regulate the new ordering of the tripartite
insurance arrangement involving the insurer,
the insured, and the viatical settlement pro-
vider. See 15 U.S.C. § 1012(b). The term ‘re-
late to” as used in the McCarran—Ferguson Act
is parallel to the same language used in the
preemption provision of the Employee Re-
tirement Income Security Act of 1974 (“ER-
ISA”), as both words define the scope of pre-
emption. In ERISA, Congress preempted “any

28a

and all State laws” that “relate to any em-
ployee benefit plan” covered by ERISA. 29
U.S.C. § 1144(a) (emphasis added). And of
course, the McCarran-—Ferguson Act narrows
the preemption of the Commerce Clause by
conferring commerce power to the States to en-
act laws that “relate to” the regulation of the
business of insurance.

The Supreme Court has described ERISA’s
“relate to” language as “clearly expansive.”
See N.Y. State Conf. of Blue Cross & Blue
Shield Plans v. Travelers, 514 U.S. 645, 655,
115 S.Ct. 1671, 131 L.Ed.2d 695 (1995). Hop-
ing to focus judicial analysis, the Court com-
mented that a state “law ‘relates to’ an em-
ployee benefit plan, in the normal sense of the
phrase, if it has a connection with or reference
to such a plan.” Shaw v. Delta Air Lines, Inc.,
463 U.S. 85, 96-97, 103 S.Ct. 2890, 77 L.Ed.2d
490 (1983) (emphasis added). But even these
terms, if “taken to extend to the furthest
stretch of [their] indeterminacy,” would have
preemption “never run its course.” Travelers,
514 U.S. at 655, 115 S.Ct. 1671. Faced with
such expansive language capable of swallow-
ing, by its own terms, much more than Con-
gress intended, the Court surrendered: “We
simply must go beyond the unhelpful text and
the frustrating difficulty in defining its key
term [‘relate to’], and look instead to the objec-
tives of the ERISA statute as a guide to the
scope of the state law that Congress under-
stood would survive.” Jd. at 656, 115 S.Ct.
1671.

Interpreting the “relate to” language in
§ 1012(a) of the McCarran-Ferguson Act, we

29a

may similarly say that it is “clearly expansive”
and that a state law that has a “connection
with” or “reference to” the regulation of the
business of insurance is saved from the Com-
merce Clause’s preemption. But these terms
too prove to be somewhat indeterminate in the
context of the McCarran—Ferguson Act. There-
fore, we likewise look “to the objectives of the
[McCarran-Ferguson Act] as a guide to the
scope of the state law that Congress under-
stood would” be immune from dormant Com-
merce Clause attack. See Travelers, 514 U.S.
at 656, 115 S.Ct. 1671.

Congress made its objectives in passing the
McCarran-Ferguson Act clear by declaring
“that the continued regulation and taxation by
the several States of the business of insurance
is in the public interest.” 15 U.S.C. § 1011. By
passing the McCarran—Ferguson Act, Congress
“put the full weight of its power behind exist-
ing and future state legislation” that relates to
the business of insurance “to sustain it from
any attack under the commerce clause to what-
ever extent this may be done with the force of
that power behind it.” Prudential Ins., 328
U.S. at 431, 66 S.Ct. 1142. It was “Congress’
purpose ... to give support to the existing and
future state systems for regulating and taxing
the business of insurance.” Jd. at 429, 66 S.Ct.
1142.

Thus, focusing on the business of insurance
insofar as it involves the marketing, sale, exe-
cution, performance, and administration of in-
surance contracts, Congress gave States broad
authority to regulate, and we conclude that be-
cause the Virginia Viatical Settlements Act

30a

addresses these aspects of insurance contracts
with Virginia residents, the Act “relates to” the
regulation of the business of insurance.

The Virginia Viatical Settlements Act was
also enacted “for the purpose of regulating the
business of insurance.” 15 U.S.C. § 1012(b).
“The broad category of laws enacted ‘for the
purpose of regulating the business of insur-
ance’ consists of laws that possess the end, in-
tention, or aim of adjusting, managing, or con-
trolling the business of insurance.” Fabe, 508
U.S. at 505, 113 S.Ct. 2202 (citation omitted).
Just as the Virginia statute relates to the
business of insurance, it also clearly “manages”
and “controls” the relationship between the in-
surer and the insured and is “aimed at protect-
ing or regulating” that relationship, as it dic-
tates in what manner an insured may alter
fundamental aspects of her relationship with
the insurer.

Our holding that the Virginia Act was
passed “for the purpose” of regulating the in-
surance business is bolstered by a comparison
to the Supreme Court’s holding in National Se-
curities, where the Securities and Exchange
Commission sought to rescind the merger of
two Arizona insurance companies based on ma-
terial misstatements made in violation of fed-
eral law during the merger process. 393 U.S.
at 462-63, 89 S.Ct. 564. Arizona argued that
under the McCarran-—Ferguson Act, its merger
law should govern the transaction. In holding
that federal law governed, the Supreme Court
noted that the state law was focused on pro-
tecting the insurance company’s stockhoiders
rather than “attempting to secure the interests

3la

of those purchasing insurance policies,” distin-
guishing regulations involving stockholders
from regulations involving insurance poli-
cyholders. Id. at 460, 89 S.Ct. 564 (emphasis
added). National Securities thus would control
here if the Virginia Viatical Settlements Act
purported to regulate the relationship between
viatical settlemerit providers and their inves-
tors—the so-called “securities” side of the viat-
ical settlements business. But the Virginia Vi-
atical Settlements Act regulates only the “in-
surance” side of the transaction—involving the
providers’ purchase of life insurance policies
from viators—with the clear purpose of secur-
ing the interests of those originally purchasing
the policies by mandating that they receive a
fair price from licensed providers for the poli-
cies that become the subject of viatical settle-

ments. Indeed, the Virginia Act states that it
does not apply to the securities side of the viat-
ical settlements business. See Va. Code Ann.
§ 38.2-6016.

Consistently, in Fabe, the Supreme Court
upheld under the McCarran-—Ferguson Act a
state-created bankruptcy priority favoring in-
surance policyholders in bankruptcy proceed-
ings because the state law carried out “the en-
forcement of insurance contracts by ensuring
the payment of policyholders’ claims despite
the insurance company’s intervening bank-
ruptcy.” 508 U.S. at 504, 113 S.Ct. 2202.
Thus, if a statute assigning priority in an in-
surance company’s bankruptcy proceedings is
passed “for the purpose of regulating the busi-
ness of insurance,” as the Supreme Court held
in Fabe, then surely a statute regulating the

32a

transferability of life insurance policies is also
passed for the purpose of regulating the busi-
ness of insurance.

Indeed, in this case, we need not even rely
on the full breadth of the McCarran—Ferguson
Act, which protects any law that “relates to”
the regulation of the insurance business or was
enacted “for the purpose of” regulating such
business. We can rely on the McCarran-
Ferguson Act’s core protection of laws that ac-
tually regulate the “business of insurance.”
The subject matter of the Virginia Viatical Set-
tlements Act is life insurance policies issued to
Virginia residents—policies that are altered by
viatical settlements. As already noted above,
the insured, whose life remains the insurable
interest, is given new duties and has reduced
rights under the policy. By introducing a third
party to the transaction whose interests are
different from those of the original insured, the
effect of the insured’s policy on the insurer’s
risk pool changes.

Most importantly, however, the Virginia
Viatical Settlements Act regulates directly the
conduct and relationships of those traditionally
engaged in the insurance business—insurers
and insureds. The insurers on such contracts
must be given infermation about every viatical
settlement before the settlement is entered
into. See Va. Code § 38.2—6008(A)(3). More-
over, in connection with every such viatical
settlement, the insurer is required to respond
to a request for verification of coverage within
a specified time or to “indicate whether, based
on the medical evidence and documents pro-
vided, [it] intends to pursue an investigation

33a

regarding possible fraud or the validity of the
insurance contract.” Jd. § 38.2-—6008(A)(4). In
addition, insurers are, under the Act, prohib-
ited themselves from being viatical settlement
providers. Id. § 38.2-6002(F). Of course, the
insureds involved in viatical settlements are
the principal subjects of the Virginia Viatical
Settlements Act, for the Act is devoted mostly
to giving them rights when they sell their fi-
nancial rights in insurance contracts.

These direct regulations focused on selling
insurance policies and the altering of insur-
ance contracts surely satisfy the factors listed
in Pireno. See Pireno, 458 U.S. at 129, 102
S.Ct. 3002 (directing courts to consider “first,
whether the practice has the effect of transfer-
ring or spreading a policyholder’s risk; second,
whether the practice is an integral part of the
policy relationship between the insurer and the
insured; and third, whether the practice is lim-
ited to entities within the insurance industry”).
Even as the Court in Pireno noted that none of
the enumerated criteria was “necessarily de-
terminative,” see id,, the Court in Kentucky As-
sociation of Health Plans, considering the
business of insurance in the context of ERISA,
later chose to make a “clean break” from the
Pireno factors insofar as they might be restric-
tive, relying on a “common-sense understand-
ing” of whether the state law “substantially af-
fect{[ed] the risk-pooling arrangement between
the insurer and the insured.” Ky. Ass’n of
Health Plans, 538 U.S. at 341, 123 S.Ct. 1471.
Speaking in even broader terms, the Supreme
Court has held that “[s]tatutes aimed at pro-
tecting or regulating [the] relationship [be-

34a

tween insurer and insured], directly or in-
directly, are laws regulating the ‘business of
*nsurance.” National Securities, 393 U.S. at
460, 89 S.Ct. 564 (emphasis added).

In sum, we have little difficulty in con-
cluding that the Virginia Viatical Settlements
Act relates to the regulation of the business of
insurance; was enacted for the purpose of regu-
lating the business of insurance; and indeed
regulates directly and substantially the actual
business of insurance. Thus the McCarran-
Ferguson Act saves the Act from any dormant
Commerce Clause challenge.

Were there any residual doubt on this is-
sue, Congress’ treatment of viatical set-
tlements under the Internal Revenue Code lays
it to rest. In 1996, Congress amended the In-
ternal Revenue Code to exclude from taxable
income proceeds from tbe sale of a life insur-
ance policy by a person who is terminally or
chronically ill to a viatical settlement provider
so long as the viatical settlement provider is
“licensed ... in the State in which the insured
resides.” 26 U.S.C. § 101(g)(2)(B)(i)(I) (em-
phasis added). Moreover, if a State in which
the insured resides does not provide for the li-
censing of viatical settlement providers, the
insured still receives the tax benefit if the viat-
ical settlement provider meets both “the re-
quirements of sections 8 and 9 of the Viatical
Settlements Model Act,” and “the requirements
of the Model Regulations ... relating to stan-
dards for evaluation of reasonable payments.”
26 U.S.C. § 101(g)(2)(B)Gi)(I-II). Section 8 of
the Model Act requires the viatical settlement
provider to make extensive disclosures to the

35a

viator, and § 9 regulates the settlement process
and post-sale relationship between the pro-
vider and the viator. Viatical Settlements
Model Act §§ 8-9 (Nat’l Ass’n of Ins. Comm’rs
2006).

Thus, in amending the Tax Code in 1996,
Congress did far more than just extend signifi-
cant tax benefits to viators in § 101l(g)(2). It
made those tax benefits contingent upon the
viatical settlement provider’s compliance with
state licensing requirements, and when the in-
sured’s State did not require licensing, they
were contingent upon compliance with numer-
ous safeguards found in the Model Act and
regulations, including the minimum prices for
policies. This incorporation of state regulation
shows Congress’ concern with the pitfalls of an
unregulated viatical market. It also reveals
congressional trust in state regulatory meas-
ures to address these pitfalls. Most impor-
tantly, the contingency shows that Congress
was aware of existing state regulation in the
area and that it intended that the viatical set-
tlement industry be regulated at the state, not
federal, level.

In addition, § 101(g)(2) of the Tax Code re-
quires not only that the viatical settlement
provider be licensed, but also that it be li-
censed “in the State in which the insured re-
sides.” 26 U.S.C. § 101(g)(2)(B)(i)(1). This re-
quirement contemplates a multi-state licensure
regime. And it too encourages each State to
pass viatical settlement laws because, if a
State does not, its citizens may not receive the
tax benefit, as the State cannot guarantee that
providers will comply with the Model Act.

36a

In short, in order to ensure that their citi-
zens enjoy the tax benefit found in § 101(g)(2),
States must enact licensing requirements. And
the Virginia Viatical Settlements Act imple-
ments the very licensing regime Congress re-
lied upon to confer tax benefits to viators un-
der § 101(g)(2).

Life Partners relies heavily on SEC v. Life
Partners, Inc., 87 F.3d 536 (D.C. Cir. 1996), to
argue that viatical settlements are not part of
the business of insurance which is subject, by
virtue of the McCarran—Ferguson Act, to state
regulation. In Life Partners, the Securities
and Exchange Commission was attempting to
exercise regulatory jurisdiction over the se-
curities’ side of a viatical settlement transac-
tion, in which the provider sells interest in the
purchased policy or policies to investors. 87
F.3d at 540-42. The D.C. Circuit held that the
investment side of the viatical transaction is
not part of the business of insurance under the
McCarran-—Ferguson Act. Id. at 541-42. But
that holding has no application to this case,
which deals with Virginia’s efforts to regulate
the insurance side of the viatical transaction—
the transaction by which the policyholder sells
its policy to a settlement provider. Life Part-
ners’ argument fails to distinguish the two dif-
ferent aspects of the viatical settlement busi-
ness—the one involving the viatical settlement
provider’s transaction with an insured to pur-
chase a policy of life insurance and the other
involving the relationship between the viatical
provider and its investors to raise money for
purchasing the insurance policies. In failing to
make that distinction, Life Partners also ig-

37a

nores the Supreme Court’s holding in National
Securities, 393 U.S. at 460, 89 S.Ct. 564.

V

In its cross-appeal, the Commission argues
that the district court should have “abstained
from exercising jurisdiction over this case out
of respect for the important State interests im-
plicated in regulating viatical settlements by
Virginia citizens,” citing Younger v. Harris,
401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669
(1971).

Younger abstention is a doctrine requiring
federal courts to refrain from interfering with
ongoing state judicial proceedings that impli-
cate important state interests. See Middlesex
County Ethics Committee v. Garden State Bar
Ass’n, 457 U.S. 423, 432, 102 S.Ct. 2515, 73
L.Ed.2d 116 (1982). When the federal case,
however, involves “an overwhelming federal in-
terest—an interest that is ... a core attribute of
the national government ...—no state interest,
for abstention purposes, can be nearly as
strong at the same time.” Harper v. Public
Serv. Comm’n, 396 F.3d 348, 356 (4th Cir.
2005).

This case involves just such an interest, the
commerce power. Thus, the issue in this case
is not whether Virginia has an interest in regu-
lating viatical settlements—it most certainly
does—-but whether Congress authorized Vir-
ginia to do so, and if not, whether Virginia’s
regulations violate the dormant Commerce
Clause. In such cases, “the commerce power
itself justifies a narrower view of state inter-

38a

ests in the abstention context.” Harper, 396
F.3d at 357.

Under these principles, we conclude that
the district court did not abuse its discretion in
declining to abstain under Younger v. Harris.

For the reasons given herein, we affirm the
judgment of the district court.

AFFIRMED

APPENDIX B

LIFE PARTNERS, INC., Plaintiff,
v.
Clinton MILLER, et al., Defendants,
and

Robert McDonnell, in his official capacity
as Attorney General of the Commonwealth
of Virginia, Intervenor.

No. CIV.A. 305CV368-HEH.

United States District Court,
E.D. Virginia,
Richmond Division.
March 10, 2006.
MEMORANDUM OPINION
HUDSON, District Judge.

(Denying Plaintiff's Motion for Summary
Judgment and Granting the Motions for
Summary Judgment Filed by the Defen-
dants and the Intervenor)

In this suit for declaratory judgment,
Plaintiff challenges the constitutionality of the
Virginia Viatical Settlements Act as violative
of the dormant Commerce Clause of the United
States Constitution. The matter is before the
Court on individual motions for summary
judgment filed by each of the parties, along
with memoranda in support and in opposition

40a

of the respective motions. The Court heard
oral argument on February 27, 2006.

The Virginia Viatical Settlements Act (“the
Act”), codified as Section 38.2-6000, Code of
Virginia, 1950 as amended, regulates the sale
of life insurance policies by terminally-ill per-
sons to third parties for less than the full
amount of death benefits provided under the
policy. The Act defines terminally ill as “hav-
ing an illness or sickness that can reasonably
be expected to result in death in 24 months or
less.” The Act establishes elaborate regulatory
measures governing viatical settlement agree-
ments. The accompanying regulations set forth
a specific minimum pricing schedule for such
agreements. The focus of Plaintiff's challenge
is the jurisdictional provisions of the regula-
tory scheme, including oversight by the Vir-
ginia Bureau of Insurance triggered solely by
the legal residence of the viator. Plaintiff con-
tends that the scope of Virginia’s regulatory
control is sufficiently broad to effect commerce
occurring wholly outside the geographic
boundaries of the Commonwealth of Virginia.
Plaintiff further maintains that the price con-
trols and regulatory scheme are inspired by
economic protectionism and has the effect of
discriminating against and discouraging inter-
state commerce.

Because aspects of this Court’s dormant
Commerce Clause analysis turn on the intra-
state elements of the transaction giving rise to
this controversy, a thorough recital of the un-
derlying facts is critical. There appears to be
no material facts in dispute.

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The Court’s findings of fact are mined from
the statements of undisputed facts contained
in each party’s Memorandum in Support of Mo-
tion for Summary Judgment. A close examina-
tion of those statements reveal the following
factual premise. The opinions of defense ex-
perts are considered separately.

I. Background

The viator, Jane Doe (“Ms. Doe”),! was a
resident of Martinsville, Virginia, and a client
of Life Partners, Incorporated (“LPI”). There is
no dispute that Ms. Doe met the statutory
definition of a terminally-ill patient under the
Act. Ms. Doe had a life insurance policy with a
value of $115,000 at death. For undisclosed
reasons, Ms. Doe elected to sell her life insur-
ance policy, presumably to generate cash.

In order to market her policy, Ms. Doe con-
tacted Ideal Settlement, Inc. (“Ideal”), a New
Jersey corporation, through the internet. On
March 16, 2004, Ms. Doe entered into an
agreement (“the Agreement”) with Ideal to
market her policy. Under the terms of the
Agreement, Ideal was engaged to serve as a
broker and obtain bids for the purchase of Ms.
Doe’s policy. It appears to be undisputed that
Ms. Doe never left the Commonwealth of Vir-
ginia, so presumably, the Agreement was ar-
ranged and negotiated by telephone. In order

to locate an interested buyer, Ideal contacted
the plaintiff, LPI.

1 Jane Doe is a pseudonym used by the Court to protect
the identity of the viator.

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LPI is a Texas corporation with its sole of-
fice in Waco and is a licensed viatical settle-
ment provider under Texas law. LPI describes
itself as an agent that represents purchasers in
viatical transactions, but is not a broker. LPI
is neither licensed in Virginia nor does busi-
ness in the state. LPI markets their services
nationally. The evidence is unclear whether
LPI has purchased other insurance policies
from Virginia residents.

At the invitation of Ideal, LPI assembled a
consortium of twelve (12) interested persons
located in seven (7) states, who were interested
in purchasing Ms. Doe’s policy as a group.
None of the twelve (12) members of the in-
vestment group resided in the Commonwealth
of Virginia. In negotiating the viatical settle-
ment at issue in this case, LPI contacted Ms.
Doe in Virginia at least twice by telephone.
LPI submitted three (3) bids, or sales propos-
als, to Ms. Doe with progressively increasing
sales prices. The Agreement was sent by LPI
from Texas to Ms. Doe in Virginia by FedEx.
By its terms, Ms. Doe sold her $115,000 life in-
surance policy to the investment group for
$29,900. The Agreement specified that “this
agreement was entered into in the State of
Texas and its validity, construction, interpre-
tation and legal effects should be governed by
the laws and judicial decisions of that State

..” (See Agreement at Section 7.11.) The
Agreement further provided “that the transac-
tion is governed by and subject to the rules and
regulations governing viatical settlements un-
der the Texas Insurance Code”. (See Agree-
ment at Section 7.12.) Ms. Doe executed the

43a

Agreement in Virginia and returned it to LPI
in Texas, where it was countersigned by a cor-
porate officer of LPI.

Subsequent to executing the Agreement,
Ms. Doe contacted LPI and demanded payment
of the minimum price prescribed by Virginia
law for her insurance policy, which would have
been $69,000 under the Virginia regulations.
LPI declined, citing the provisions of the
Agreement designating Texas law as control-
ling. Ms. Doe then filed a complaint with the
Virginia Bureau of Insurance (“VBI”). After
conducting a inquiry, the VBI concluded that
LPI may need to obtain a Virginia license be-
fore transacting business in viatical settle-
ments with a resident of the Commonwealth of
Virginia. At the request of the VBI, the Vir-
ginia State Corporation Commission (“SCC”)
issued a rule to show cause against LPI requir-
ing it to explain why it was conducting busi-
ness without proper registration in violation of
Section 38.2-—6,000, et seg. This lawsuit fol-
lowed.

II. Standard of Review

Under Rule 56(c) of the Federal Rules of
Civil Procedure, the Court must grant sum-
mary judgment if the moving party demon-
strates that there is no genuine issue as to any
material fact, and that it is entitled to judg-
ment as a matter of law. See Fed.R.Civ.P.
56(c); Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 247, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202
(1986). After the movant has met this burden,
the nonmoving party must come forward with
specific facts showing that evidence exists to

44a

support its claims and that there is a genuine
issue for trial. Celotex Corp. v. Catrett, 477
U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d
265 (1986). The mere existence of some alleged
factual dispute between the parties will not de-
feat an otherwise properly supported motion
for summary judgment; the requirement is that
there be no genuine issue of material fact.
See Anderson, 477 U.S. at 248, 106 S.Ct. 2505.
“Rule 56(e) requires the non-moving party to go
beyond the pleadings and by [his] own affida-
vits, or by the ‘depositions, answers to inter-
rogatories, and admissions on file,’ designate
‘specific facts showing that there is a genuine
issue for trial.’ ” Celotex, 477 U.S. at 324, 106
S.Ct. 2548. Summary judgment is proper if af-
ter viewing all the evidence, including supple-
mental affidavits, in the light most favorable
to the non-moving party, the Court finds no
genuine issue exists. Anderson, 477 U.S. at
255, 106 S.Ct. 2505.

III. Standing

Before addressing the merits of the under-
lying action, the Court must first determine if
the plaintiff has standing to contest the Act.
Plaintiff has stated equivocally that its claim
is limited to an as applied rather than a facial
challenge.

Article III of the United States Constitu-
tion requires a plaintiff to demonstrate their
standing by showing that they have suffered a
judicially cognizable and redressible injury.
Lujan v. Defenders of Wildlife, 504 U.S. 555,
559-61, 112 S.Ct. 2130, 119 L.Ed.2d 351
(1992). In order to demonstrate a cognizable

45a

injury, the plaintiff must show that: (1) they
have personally suffered an actual or threat-
ened injury that is concrete and particularized,
not conjectural or hypothetical; (2) the injury
fairly can be traced to the challenged action;
(3) the injury is likely to be redressed by a fa-
vorable decision from the Court. Burke v. City
of Charleston, 139 F.3d 401, 405 (4th Cir.
1998) (citing Lujan, 504 U.S. at 560-61, 112
S.Ct. 2130).

Assuming Plaintiff satisfies these constitu-
tional requirements, they must also meet the
requirements of prudential standing. Id.
“Prudential considerations constitute a sup-
plemental aspect of basic standing analysis
and address concerns regarding the need for
judicial restraint.” Oxford Assocs. v. Waste
Sys. Auth., 271 F.3d 140, 145 (3rd Cir. 2001).
“Prudential standing entails an inquiry into a
plaintiff's role because ‘the aim of this form of
judicial self-governance is to determine
whether the plaintiff is a proper party to in-
voke judicial resolution of the dispute and the
exercise of the court’s remedial powers.’ ” Id.
To satisfy prudential requirements, plaintiffs
must assert their own legal rights and inter-
ests rather than those of a third party. Plain-
tiffs must also show that their interests fall
arguably within the zone of interests that the
statute, rule or constitutional provision in
question protects or regulates. Finally, the
court should refrain from adjudicating a
“ ‘generalized grievance shared in substantially
equal measure by all or a large class of citizens
.... ” Burke, 139 F.3d at 405 (quoting Warth

46a

v. Seldin, 422 U.S. 490, 499, 95 S.Ct. 2197, 45
L.Ed.2d 343 (1975)).

Assuming without deciding that the Act
discriminates against interstate commerce,
Plaintiff clearly has shown a concrete and re-
dressible injury. Plaintiff's injury stems from
the SCC’s issuance of the rule to show cause.
This puts Plaintiff in the dilemma of either
complying with an arguably unconstitutional
statute or facing administrative sanction. A
favorable ruling by this Court, invalidating the
underlying statute, would clearly redress
Plaintiffs injury and presumably terminate
the show cause proceedings. As a result, this
Court is convinced that the plaintiff has consti-
tutional standing to challenge the Act.

Plaintiff has also fulfilled the requirements
of prudential standing. Enforcement of the Act
would require the plaintiff to comply with all
of its provisions. Therefore, Plaintiffs claim is
not a generalized grievance, rather LPI has as-
serted its own individualized legal interest in
assuring that it is not required to comply with
an unconstitutional statutory provision. Fur-
thermore, the plaintiff has alleged that the Act
infringes on its right to engage in interstate
commerce, and as a result, the claim falls
squarely within the zone of interest the dor-
mant Commerce Clause was designed to pro-
tect. As the United States Supreme Court has
explained, Commerce Clause jurisprudence is
designed to protect the states and “to benefit
those who ... are engaged in interstate com-
merce.” Dennis v. Higgins, 498 U.S. 439, 450,
111 S.Ct. 865, 112 L.Ed.2d 969 (1991). Asa
viatical provider, Plaintiff is engaged in inter-

47a

state commerce and falls into the zone of inter-
est protected by the dormant Commerce
Clause. Accordingly, Plaintiff has demon-
strated both constitutional and prudential
standing to bring the present action.

IV. Analysis
A. The Commerce Clause

The Commerce Clause of the United States
Constitution provides “Congress shall have
Power ... [to] regulate Commerce ... among
the several states.” U.S. Const. Art. I, § 8, cl.
3. Congress’s authority to regulate commerce
pursuant to the Constitution inherently carries
with it a prohibition to the states to refrain
from enacting laws which impede the flow of
interstate commerce. See Cooley v. The Board
of Wardens, 53 U.S. 299, 318, 12 How. 299, 13
L.Ed. 996 (1851). This authority, known as the
dormant Commerce Clause, “has long been un-
derstood ... to provide ‘protection from state
legislation inimical to the national commerce
[even] where Congress has not acted.’ ” Bar-
clays Bank, PLC v. Franchise Tax Bd. of Cal.,
512 U.S. 298, 310, 114 S.Ct. 2268, 129 L.Ed.2d
244 (1994) (quoting Southern Pacific Co. v.
Arizona ex rel. Sullivan, 325 U.S. 761, 769, 65
S.Ct. 1515, 89 L.Ed. 1915 (1945)). The dor-
mant Commerce Clause “limits the power of
the States to erect barriers against interstate
trade.” Dennis, 498 U.S. at 446, 111 S.Ct. 865.
However, this limitation on state power “is by
no means absolute. In the absence of conflict-
ing federal Jegislation, the States retain au-
thority under their general police powers to
regulate matters of ‘legitimate local concern,’

48a

even though interstate commerce may be af-
fected.” Star Scientific, Inc. v. Beales, 278
F.3d 339, 355 (4th Cir. 2002) (quoting Lewis v.
BT Inv. Mgrs., Inc., 447 U.S. 27, 36, 100 S.Ct.
2009, 64 L.Ed.2d 702 (1980)).

Review of a dormant Commerce Clause
challenge to a state statute requires a two-tier
analysis. Brown-Forman Distillers, Corp. uv.
New York Liquor Auth., 476 U.S. 573, 578-79,
106 S.Ct. 2080, 90 L.Ed.2d 552 (1986). The
first tier of analysis, referred to as the dis-
crimination tier, is a “virtually per se rule of
invalidity” and applies “when a state statute
clearly discriminates against interstate com-
merce.” Wyoming v. Oklahoma, 502 U.S. 437,
454, 112 S.Ct. 789, 117 L.Ed.2d 1 (1992).
When a statute is clearly discriminatory, the
Court will apply strict scrutiny and the statute
will be struck down unless the state demon-
strates “that the discriminatory law is demon-
strably justified by a valid factor unrelated to
economic protectionism, and that there are no
nondiscriminatory alternatives adequate to
preserve the local interests at stake ....”
Envtl. Tech. Council v. Sierra Club, 98 F.3d
774, 785 (4th Cir. 1996) (internal citations
omitted.) If the state statute does not “clearly
discriminate” but instead “regulates evenhand-
edly to effectuate a legitimate local public in-
terest, and its effects on interstate commerce
are only incidental...” a less strict scrutiny
applies, known as the undue burden tier or the
Pike balancing tier. Yamaha Motor Corp. uv.
Jim’s Motorcycle Inc., 401 F.3d 560, 567 (4th
Cir. 2005) (quoting Pike v. Bruce Church, Inc.,
397 U.S. 137, 142, 90 S.Ct. 844, 25 L.Ed.2d 174

49a

(1970) (internal quotation marks omitted)).
Under a Pike analysis, a nondiscriminatory
statute with only an incidental effect on com-
merce “will be upheld unless the burden im-
posed on ... commerce is clearly excessive in
relation to the putative local benefits.” Id.
The Supreme Court has acknowledged that
“there is no clear line separating close cases on
which scrutiny [or which tier of analysis]
should apply.” Wyoming, 502 U.S. at 455 n.12,
112 S.Ct. 789.

B. Discrimination Tier

Under the discrimination tier, a statute
clearly discriminates when it “discriminates
facially, in its practical effect, or in its pur-
pose.” Envitl. Tech. Council, 98 F.3d at 785
(4th Cir. 1996). A statute discriminates in its
practical effect when it favors in-state eco-
nomic interests over out-of-state economic in-
terests, or when it has an extraterritorial
reach such that it regulates commerce wholly
outside the state’s borders. See Brown-
Forman, 476 U.S. at 579, 106 S.Ct. 2080, See
also Healy v. Beer Inst. 491 U.S. 324, 336, 109
S.Ct. 2491, 105 L.Ed.2d 275 (1989); Baldwin v.
G.A.F., Seelig, Inc., 294 U.S. 511, 521, 55 S.Ct.
497, 79 L.Ed. 1032 (1935).

Plaintiff mounts its constitvtional attack
on all fronts. LPI argues that the regulatory
scheme is per se unconstitutional because it di-
rectly affects interstate commerce. Specifi-
cally, LPI maintains that the Act regulates
transactions predominately interstate in na-
ture, transactions occurring outside the Com-
monwealth of Virginia, influences out-of-state

50a

pricing behavior, and subjects market partici-
pants to inconsistent regulations. Alterna-
tively, LPI asserts that the Act is unconstitu-
tional under a second or Pike tier analysis, in
that it imposes undue burdens on interstate
commerce, which are not outweighed by its pu-
tative local benefits.

Defendants counter that the Act does not
violate the dormant Commerce Clause because
it regulates evenhandedly with only incidental
effects which do not excessively burden inter-
state commerce. In the alternative, Defen-
dants offer two (2) independent grounds on
which this Court could find the Act to be a con-
stitutionally appropriate exercise of power,
without reaching the core issue, namely that:
(1) Congress has expressly approved state
regulation of the viatical settlement industry;
and (2) the Act is immunized from a dormant
Commerce Clause attack by the McCarran-
Ferguson Act (“McCarran-—Ferguson”). See 15
U.S.C. § 1011 et seg. The Court will address
these arguments before reaching its dormant
Commerce Clause analysis.

“Where state or local government action is
specifically authorized by Congress, it is not
subject to the Commerce Clause even if it in-
terferes with interstate commerce.” White v.
Massachusetts Council of Constr. Employers,
Inc., 460 U.S. 204, 213. 103 S.Ct. 1042, 75
L.Ed.2d 1 (1983). However, in order to exempt
a state statute from the implied implications of
the Commerce Clause, Congress’s intention to
do so must be “ ‘unmistakably clear’ or ‘ex-

pressly stated.’” Enuvtl. Tech. Council, 98 F.3d
at 782 (4th Cir. 1996) (quoting South-Central

5la

Timber Dev., Inc. v. Wunnicke, 467 U.S. 82, 91-
92, 104 S.Ct. 2237, 81 L.Ed.2d 71 (1984)).

Defendants argue that Congress specifically
authorized states to regulate viatical settle-
ments by enacting Title 26 #£U.S.C.
§ 101(g)(2)(B) of the United States Tax Code.
This statute provides tax exempt status to pro-
ceeds of the sale of an insurance contract sold
to a viatical settlement provider if the provider
is licensed in the state in which the insured re-
sides, or complies with certain provisions of
the Model Regulations or the Model Act. See
26 U.S.C. § 101(g)(2)(B).

On careful review, the Court is of the opin-
ion that the statute neither provides express
congressional authority to regulate interstate
viatical transactions, nor is “unmistakably

clear” as to Congress’s intent to authorize
states to do so. In fact, there is no evidence in
the legislative history that Congress ever in-
tended § 101(g) to grant such authority to the
states. Rather, the statute only evidences a
legislative desire to extend tax benefits to via-
tors. Accordingly, this Court declines to adopt
Defendants’ overly broad interpretation of the
effect of this statute. The Court, however, will
not entirely discount the _ significance of
§ 101(g). As will be explored in greater detail
below, this statute conveys undeniable benefits
to viators and plays a role in the Court’s dor-
mant Commerce Clause analysis.

With respect to Defendants’ argument con-
cerning the applicability of McCarran-
Ferguson, it is unnecessary for the Court to
reach the merits of this argument given its ul-

52a

timate finding that the Act does not violate the
dormant Commerce Clause.

Turning back to the merits of LPI’s Com-
merce Clause challenge, central to the ele-
ments of Plaintiff's direct regulation argument
is the contention that the viatical settlement
agreement in this case was a Texas transac-
tion, placing it beyond the reavh of Virginia
regulatory laws. Plaintiff's position flows from
the language of the Agreement, namely Sec-
tions 7.11 and 7.12, and the fact that signifi-
cant portions of the underlying course of deal-
ings occurred from Plaintiffs Texas headquar-
ters. As further evidence of tenuous Virginia
ties, Plaintiff notes that Ms. Doe initially
placed her policy with Ideal, a New Jersey
based company, through the internet.

The two provisions of the Agreement relied
upon by Plaintiff read in pertinent part:

Section 7.11: This Agreement was entered into in
the State of Texas and its validity, construc-
tion, interpretation and legal effect shall be
governed by the laws and judicial decisions of
that state .

Section 7.12: This Agreement is governed by and
subject to the rules and regulations relating to
viatical settlements as that term is defined
under the Texas Insurance Code and regula-
tions promulgated thereunder. The Parties
hereby agree that the Texas Department of In-
surance has regulatory jurisdiction over this

transaction irrespective of the residence of the
Seller....

Section 7.11 appears to be a _ standard
choice of law provision. If the terms of the

53a

Agreement were in dispute, or their legal effect
uncertain, a reviewing court would look to the
law of the State of Texas to resolve the contro-
versy. Furthermore, the parties agreed in Sec-
tion 7.12 that the Texas Department of Insur-
ance would have regulatory jurisdiction over
the transaction irrespective of the residence of
the seller. However, this stipulation did not
totally divest the Commonwealth of Virginia of
regulatory jurisdiction over transactions occur-
ring with its residents within its borders. If
the transaction between Ms. Doe and LPI had
occurred “wholly outside” the boundaries of the
Commonwealth of Virginia, the regulatory
scheme at issue may be unconstitutional. Ed-
gar v. MITE Corp., 457 U.S. 624, 642, 102 S.Ct.
2629, 73 L.Ed.2d 269 (1982). If on the other
hand the transaction occurred within the
boundaries of the Commonwealth of Virginia, it
would be constitutional so long as the regula-
tion furthered legitimate in-state interest. Id.
at 643-46, 102 S.Ct. 2629. In the immediate
case, the agreement formed between LPI and
Ms. Doe implicated the regulatory interest of
both Texas and Virginia. “Thus, when an offer
is made in one state and accepted in another,
we now recognize that elements of the transac-
tion have occurred in each state, and that both
states have an interest in regulating the terms
and performance of the contract.” A.S. Gold-
men & Co. v. New Jersey Bureau of SEC, 163
F.3d 780, 787 (3rd Cir. 1999).

Plaintiff relies on Dean Foods Co. uv.
Brancel, 187 F.3d 609 (7th Cir. 1999), for its
contention that the Agreement in this case was
the product of a transaction occurring wholly

54a

outside the Commonwealth of Virginia. Dean
Foods involved a constitutional challenge to
Wisconsin’s milk pricing regulations. Wiscon-
sin farmers conducted what the court described
as preliminary negotiations for the sale of milk
with Illinois dairy plants. This included tele-
phone contact and meetings with field repre-
sentatives. However, the transaction was not
complete until Wisconsin farmers transported
their product to Illinois plants. The contract
was not final until the product had been exam-
ined and accepted. The court in Dean Foods
held that the contract was formed in Illinois
and that Wisconsin could not regulate the price
of milk sold in Illinois.

The court in Dean Foods distinguished the
case from A.S. Goldmen & Co.:

There, an offer was made by a securities
dealer in New Jersey and accepted by
various individuals outside of New Jer-
sey.... That stands in marked con-
trast to the situation here, where we
have held that the contract was created
and performed wholly in Illinois. This
is not a case where ‘elements of the
transaction have occurred in each state.’

187 F.3d at 620.

LPI also draws the Court’s attention to
Shafer v. Farmers’ Grain Co. of Embden, 268
U.S. 189, 45 S.Ct. 481, 69 L.Ed. 909 (1925). At
issue in Shafer was the interstate effect of the
North Dakota Grain Grading Act. The act es-
tablished an elaborate system for grading and
regulating wheat earmarked for interstate
shipment. The purpose or intent of the act was

55a

to prevent unreasonable margins of profit. 268
U.S. at 200, 45 S.Ct. 481. The Supreme Court
struck down the act as violative of the dormant
Commerce Clause because it directly affected
the price of wheat sold in other states. Shafer
is distinguishable from the immediate case be-
cause here the sale of Ms. Doe’s life insurance
policy occurred, at least in part, in Virginia.
In addition, unlike Shafer, the Virginia Act,
and accompanying regulation, prescribes iden-
tical regulation and pricing for in-state and
out-of-state transactions.

A survey of dormant Commerce Clause ju-
risprudence reveals no widely accepted stan-
dard to assess the sufficiency of a state’s con-
tacts and interests to justify regulatory meas-
ures. Perhaps the most instructive case on
this point, decided by the United States Court
of Appeals for the Fourth Circuit, is Underhill
Assoc., Inc. v. Bradshaw, 674 F.2d 293 (4th
Cir. 1982). In Underhill, a group of discount
securities brokers challenged the power of the
Commonwealth of Virginia to regulate the ac-
tivities of non-resident securities brokers un-
der both the Commerce Clause and the Due
Process Clause of the Fourteenth Amendment.
In upholding the regulatory scheme, the
Fourth Circuit noted “[t]o determine Virginia’s
power to reguiate the activities of nonresi-
dents, we must look to the extent of these non-
residents’ contacts with Virginia and to the na-
ture and extent of the state’s interest in exer-
cising its authority.” Jd. at 295. The court
cited approximately a dozen decisions of the
U.S. Supreme Court or other circuits consis-
tent with this conclusion, including Travelers

56a

Health Ass’n v. Virginia, 339 U.S. 643, 648, 70
S.Ct. 927, 929, 94 L.Ed. 1154 (1950), and
Merrick v. N.W. Halsey & Co., 242 U.S. 568, 37
S.Ct. 227, 61 L.Ed. 498 (1917). The court went
on to conclude in Underhill that “[i]t is not
only desirable, but Virginia’s interest in pro-
tecting its citizens from possibly dishonest or
incompetent securities dealers is obvious.”
Underhill, 674 F.2d at 295.

Applying the contacts and interest ap-
proach announced in Underhill to the immedi-
ate case, it is this Court’s opinion that the vi-
atical settlement transaction at issue involved
sufficient contacts with the Commonwealth of
Virginia to warrant compliance with its regula-
tory scheme if the underlying statute is consti-
tutionally sound. Not only did Ms. Doe reside
in Virginia, but it is undisputed that she never
left the Commonwealth during the negotiations
leading up to this viatical settlement agree-
ment. She placed and received calls in Vir-
ginia. She received multiple settlement agree-
ments sent to Virginia for her review, two (2)
of which she rejected. Most importantly, she
signed the final Agreement in Virginia.

The choice of law provisions contained in
the Agreement do not change this result. If
this case were a dispute over the terms of the
Agreement, Section 7.11 would clearly dictate
that the law of Texas would control. Further-
more, if the Agreement had been consummated
outside of the Commonwealth of Virginia, Sec-
tion 7.12 would give the Texas Department of
Insurance exclusive regulatory jurisdiction.
However, since the transaction touched both
Virginia and Texas, it implicated the legisla-

57a

tive interests of both states. See A.S. Goldmen
& Co., 163 F.3d at 786-87.

The Court therefore concludes that the vi-
atical settlement agreement in this case was
not the product of a purely Texas based trans-
action as Plaintiff argues. The contacts with
Virginia are sufficient to give the Common-
wealth regulatory jurisdiction. If the factual
basis on which this case is premised involved a
viatical settlement agreement negotiated and
consummated totally beyond the borders of
Virginia, even by a Virginia resident, portions
of the Act may well offend the dormant Com-
merce Clause. That, however, must be left for
a later date.

The Court will turn next to the individual
parts of Plaintiffs first tier or per se invalidity
argument. This facet of Plaintiff's challenge
has four (4) components, namely that the Act:
1) regulates transactions predominately inter-
state in nature; 2) regulates transactions oc-
curring outside the Commonwealth of Virginia;
3) influences out-of-state pricing behavior; and
4) subjects market participants to inconsistent
regulation.

For the reasons discussed above, this Court
rejects the contention that under the facts of
this case, the Act regulates only interstate
commerce and is extraterritorially regulating
“a Texas contract.” Significant parts of this
transaction occurred in Virginia, which justi-
fied regulatory oversight. The fact that there
are no viatical settlement providers with of-
fices in Virginia is inconsequential. Twelve
(12) viatical settlement providers are licensed

58a

in Virginia. If a provider chooses to enter the
Virginia viatical settlement market and do
business with a terminally-ill viator physically
located in Virginia, it does not overly burden
interstate commerce to require compliance
with the Commonwealth’s regulatory scheme.
Moreover, the Act affects providers situated
both within and without the Commonwealth
equally.

Relying on the opinions of its experts, LPI
contends that Virginia’s pricing regulations for
viatical agreements unduly influence the mar-
keting of similar agreements in other states.
In its experts’ view, the higher prices required
by the regulations accompanying the Act, skew
prices elsewhere and directly affect the inter-
state market. The experts opine that Vir-
ginia’s price controls are a barrier to the mar-
ketability of policies offered for sale by Vir-
ginia residents. Their position is based in part
on the fact cited by LPI that over a designated
period, 170 policies were sold by Virginia via-
tors, and only three (3) were sold in conformity
with the price regulations at issue. LPI argues
that it is a reasonable inference that the price
controls were evaded, because otherwise, the
policies would have been unmarketable. Es-
sentially, Plaintiff contends that the Virginia
minimum price controls set a price that is so
artificially high that no reasonable viatical
settlement company would ever agree to enter
into a sale or purchase at those prices. Assum-
ing that LPI’s experts are correct, this inciden-
tal effect does not necessarily transgress the
dormant Commerce Clause.

59a

Contrary to Plaintiffs argument, the Vir-
ginia pricing schedule does not discriminate
against out-of-state transactions. The pricing
regulations affect all markets equally, irre-
spective of whether the policy is sold in Vir-
ginia, Texas or California. By electing to
transact business with a client physically lo-
cated in Virginia, Plaintiff chose to enter a
regulated market, fully cognizant of the price
restrictions. This is not the case of a product
being exported to another state for sale in that
jurisdiction. The incidental effect of the intra-
state pricing of viatical settlements on the in-
terstate market is no different than the price
of any other commodity sold in the Common-
wealth, regulated or unregulated.

The opinion advanced by LPI’s experts that
Virginia pricing regulations are a direct bar-
rier to interstate marketability adds little to
Plaintiffs argument. If the pricing schedule
chills the interstate market, it has an identical
effect on intrastate sales.

The last segment of Plaintiffs first tier
challenge involves the alleged effect of incon-
sistent regulations on interstate commerce.
According to Plaintiff, the Act creates irrecon-
cilable conflicts when dealing with providers
from other states. Plaintiff argues that the Act
violates the dormant Commerce Clause because
it subjects out-of-state businesses to inconsis-
tent regulatory regimes. “A state regulation
might impose a disproportionate burden on in-
terstate commerce if the regulation is in sub-
stantial conflict with a common regulatory
scheme in place in other states.” Nat'l Elec.
Mfrs. Ass’n v. Sorrell, 272 F.3d 104, 112 (2nd

60a

Cir. 2001) (citing Raymond Motor Transp. v.
Rice, 434 U.S. 429, 445, 98 S.Ct. 787, 54
L.Ed.2d 664 (1978)). However, “state laws
which merely creates additional, but not irrec-
oncilable, obligations are not considered to be
‘inconsistent’ for this purpose.” Instructional
Sys., Inc. v. Computer Curriculum Corp., 35
F.3d 813, 826 (3rd Cir. 1994).

Specifically, Plaintiff identifies two (2) con-
flicts between Virginia and Texas regulations.
First, Plaintiff argues that § 38.2-6012(C) of
the Act conflicts with Title 28 Texas Adminis-
trative Code § 3.1710(c)(8) (2006) because “the
Act regulates which state’s laws govern con-.
tractual disputes between competing viators,
irrespective of the contractual agreements exe-
cuted by the parties.” (Pl. Mot. Summ. J. at
17.) Plaintiff asserts that this provision is in
direct conflict with Texas law which states “no
viatical or life settlement provider ... shall
enter into any viatical or life settlement in
which any form used to effect the settlement
... makes any other state’s laws as the law
applicable to the form.” Jd. (quoting 28 Tex.
Admin. Code § 3.1710(c)(8) (2006)).

The Court is of the opinion that Plaintiff
misconstrues § 31710(c)(8) in an attempt to

2 This Court has reviewed Plaintiffs Exhibit 9 in support
of its conflicting regulation argument. However, Plaintiff
highlights no specific inconsistencies other than the two (2)
mentioned above, and the Court will not conduct a line by
line analysis on its own.

6la

create a conflict where one does not exist. Sec-
tion 31710(c)(8) states in full:

[nlo viatical or life settlement provider,
provider representative, or broker shall:

enter into any viatical or life settlement
in this state in which any form used to
effect the settlement, including escrow
or trust agreement, contains a provision
that either requires or limits a viator,
life settlor, or owner to resolve a legal
dispute with the viatical or life settle-
ment provider, provider representative,
or broker in any state other than Texas,
specifies a particular city or county, or
resolving dispute, or makes any other
state’s laws as the law applicable to the
form (emphasis added).

It is clear from the plain language of the
statute that § 31710(c)(8) prohibits a viatical
provider or broker from entering into a viatical
agreement which contains a choice of law pro-
vision, which gives another state regulatory
authority over the transaction if the agreement
is entered into in Texas. As mentioned
above, the Agreement in question was not “en-
tered into in Texas” and as a result, there is no
actual tension between the laws of Virginia
and Texas. As the Second Circuit has advised,
“(i]t is not enough to point to a risk of conflict-
ing regulatory regimes in multiple states;
there must be an actual conflict between the
challenged regulation and those in place in
other states.” Nat’l Elec. Mfrs. Ass’n, 272 F.3d
at 112. Accordingly, this Court declines to in-
validate a state law based on a hypothetical

62a

conflict or mere speculation that there may be
a potential conflict under a different factual
setting.

Plaintiff next contends that there is an ir-
reconcilable conflict between the law of the two
(2) states because the Virginia Act presumes
that a viatical settlement broker is the agent of
the viatical settlement provider, unless there
is a written agreement between the broker and
the viator specifying otherwise. 14 Va. Admin.
Code § 5-71-50 (2005). This, LPI claims, is in
direct conflict with Texas law which requires a
broker to act as a fiduciary to the viator and
forbids a broker from being the agent of the
provider. 28 Tex. Admin. Code § 3.1711 (2006).
Essentially, Plaintiff argues that it is impossi-
ble for a viatical settlement broker to comply
with both regulations because Texas law re-
quires the broker to be the fiduciary of the vi-
atical settlement provider, while Virginia law
requires a broker to be the fiduciary of the via-
tor. The Court is not convinced that this facial
inconsistency rises to the level of an irreconcil-
able conflict. Virginia law does not forbid a
broker from acting as an agent for the viator.
Rather, it merely requires that the broker first
obtain written authorization from the provider
before doing so. As a result, a broker can com-
ply with the laws of both states by simply exe-
cuting a written agreement authorizing it to
act as an agent of the viator. The fact that
Virginia law has additional requirements does
not make it irreconcilable with Texas law. It is
merely the cost of doing business, which the
Plaintiff assumed when they chose to conduct
business in a state other than Texas.

63a

In the final analysis, the Court finds the
Virginia Viatical Settlements Act neither dis-
criminates against interstate commerce fa-
cially nor in its practical effect. It treats those
in-state and out-of-state providers wishing to
do business in the Virginia market similarly.
Furthermore, there is no tenable basis for
Plaintiff's claim that the law was enacted for a
discriminatory purpose. It was clearly not in-
tended to protect the economic interests of Vir-
ginia-based settlement providers. There are
none. Its obvious purpose was to safeguard an
asset of some of its most vulnerable citizens,
the terminally ill.

The Commonwealth of Virginia has a le-
gitimate interest in protecting the welfare of
terminally-ill citizens seeking to liquidate
their life insurance policy within its borders.
Given the fact that thirty-seven (37) other
states have adopted similar versions of the
Model Viatical Settlements Act, on which the
Virginia statute is based, it appears to be an
appropriate exercise of its police powers.

C. Undue Burden Tier

Having determined that the Act does not
clearly discriminate facially or in its direct
practical effect, the Court must now determine
if it violates the second tier of the analysis.
This facet of the analysis is governed by bal-
ancing the factors articulated in Pike v. Bruce
Church, Inc., 397 U.S. 137, 90 S.Ct. 844, 25
L.Ed.2d 174 (1970). Pike applies when a state
law does not consciously discriminate against
interstate commerce, but instead regulates
evenhandedly and only indirectly affects inter-

64a

state commerce. Brown-Forman, 476 U.S. at
579, 106 S.Ct. 2080. “Where [a] statute regu-
lates evenhandedly to effectuate a legitimate
local public interest, and its effects on inter-
state commerce are only incidental, it will be
upheld unless the burden imposed on commerce
is clearly excessive in relation to the putative
local benefits.” Pike, 397 U.S. at 142, 90 S.Ct.
844. In applying the Pike balancing test, the
Court should balance “(1) the nature of the lo-
cal benefits advanced by the statute; (2) the
burden placed on interstate commerce; and (3)
whether the burden is ‘clearly excessive’ when
weighed against these local benefits.” Star
Scientific, 278 F.3d at 357.

The first task is to determine if the Act has
a legitimate local purpose. If the Court finds a
legitimate local purpose, “then the question be-
comes one of degree .. . [aJnd the extent of the
burden that will be tolerated will ... depend
on the nature of the local interest, and on
whether it could be promoted as well with a
lesser impact on interstate activity.” Id. at
356-57. “In determining whether a statute has
a ‘legitimate local purpose’ and ‘putative local
benefits,’ a court must proceed with deference
to the state legislature.” Yamaha Motor Corp.,
401 F.3d at 569.

The Court finds that the Act has a legiti-
mate and important local purpose, namely, the
protection of Virginia viators. It is obvious to
the Court that a terminally-ill person with a
life expectancy of twenty-four (24) months or
less is in a particularly vulnerable position and
could easily fall prey to sharp business prac-
tices and fraud. The Act’s various require-

65a

ments provides the SCC with a regulatory
framework which affo~ "= Virginia viators with
some assurance that *e viatical settlement
industry will transact business in an honest
and ethical fashion. These regulatory burdens
impose requirements similar to those govern-
ing such other industries as banking, insur-
ance and security dealers. The Act also pro-
vides viators with a recourse should the bro-
kers or providers fail to comply with these
standards. Finally, when read in tandem with
26 U.S.C. § 101(g)(2)(B) of the Tax code, the
Act bestows considerable tax benefits on via-
tors by exempting the proceeds from the sale of
their insurance policies from federal income
tax.

Plaintiff offers a host of perceived burdens
to be weighed against the local benefits of the
Act. Plaintiff disputes the defendants’ conten-
tion that the statute actually protects Virginia
viators. Aside from Ms. Doe’s complaint, there
is no evidence of any other reported cases of
alleged fraud or abuse in the Virginia viator
settlement industry. Therefore, Plaintiff ar-
gues that there is no demonstrated harm which
warrants the protection of the Act.

Plaintiffs argument, however, fails to ac-
knowledge the possibility that the Act has been
successful in its purported purpose and has de-
terred unethical or fraudulent activity within
the industry. Plaintiffs position also margin-
alizes the rationale underlying the Model Viat-
ical Settlements Act which has been adopted,
at least in part, by over thirty (30) states. Ob-
viously, the legislative bodies of those states
uniformly found a sufficient potential for abuse

66a

to warrant protective measures. Ostensibly,
the Virginia General Assembly made similar
findings. This Court is not “inclined to second
guess the impartial judgments of lawmakers
concerning the utility of legislation.” CTS
Corp. v. Dynamics Corp. of Am., 481 U.S. 69,
92, 107 S.Ct. 1637, 95 L.Ed.2d 67 (1987). At
bottom, this Court must limit its consideration
of “whether the legislature had a rational basis
for believing there was a legitimate purpose
that would be advanced by the statute ... [and]
likewise apply a deferential standard in identi-
fying a statute’s putative benefits.” Yamaha
Motor Corp., 401 F.3d at 569 (citing CT'S Corp.,
481 U.S. at 92-93, 107 S.Ct. 1637).

Relying largely on the opinions of its ex-
perts, Plaintiff next counters that the Act,
when carefully examined, provides minimal
benefits to Virginia viators. Plaintiff contends
that the pricing regulations actually disserve
Virginia viators by impeding the marketability
of their policies. Because the regulation-driven
price of Virginia policies exceeds the mean na-
tional market price, Virginia policies are not
competitive. This “argument [however] relates
to the wisdom of the statute, not its burden on
commerce.” Exxon Corp. v. Governor of Mary-
land, 437 U.S. 117, 128, 98 S.Ct. 2207, 57
L.Ed.2d 91 (1978). If Virginia viators find the
price controls to be a barrier to marketing
their policies, they should petition the Virginia

67a

General Assembly or the SCC for relief.3 Fi-
nally, it is important to keep in mind that the
Virginia pricing policy effects intrastate and
interstate sales equally.

Plaintiff further maintains that Ms. Doe
derived no significant protection from the Vir-
ginia regulatory scheme because the laws of
Texas afforded her similar coverage. This may
be true in the abstract, but the obvious flaw in
Plaintiffs position is the necessity for Ms. Doe,
a terminally-ill person, to travel to the State of
Texas to avail herself of a Texas forum. Plain-
tiff further suggests that Virginia’s anti-fraud
laws provide viators with ample protection
from unprincipled practices. The Virginia Vi-
atical Settlements Act is intended to encom-
pass many types of unethical and unfair trade
practices which may not amount to fraud.
Rather than require an injured viator to cobble
together a cause of action from an assortment
of legal theories, the Virginia General Assem-
bly chose to address it directly. The benefits of
this approach are self-evident.

The last category of burdens which alleg-
edly outweigh the local benefits is the elabo-
rate regulatory scheme required of viatical set-

3 The Court also questions the legitimacy of Plaintiffs
argument based on the fact that statistics, produced by the
Bureau of Insurance, indicate that the number of viatical
settlement transactions occurring in Virginia, by parties
licensed in accordance with the Act, has steadily increased
since 2001. These statistics indicate there is an increasing
viatical market in Virginia, despite any incidental effects of
the Act on the market.

68a

tlement brokers and providers in Virginia. Ac-
cording to Plaintiff's experts, Virginia’s redun-
dant licensing and regulatory requirements,
particularly when coupled with price controls,
affect both intrastate and interstate viatical
transactions, with the primary effect of a dis-
proportionate burden on smaller firms.

The Court first notes that any dispropor-
tionate effect the Act has on smaller firms as
opposed to larger firms, is irrelevant to dor-
mant Commerce Clause analysis. The Court
may not limit its focus to the affect of the Act
on one particular type of entity. Rather, the
Court must look to the affect of the Act on the
entire viatical market. As the Supreme Court
advised in Exxon Corp., “the Clause protects
the interstate market, not particular interstate
firms, from prohibitive or burdensome regula-
tions.” 437 U.S. at 128, 98 S.Ct. 2207.

As to the effect of the Act on the intrastate
market, Plaintiffs experts contend that the Act
affects the intrastate market because “volun-
tary transactions that would otherwise have
taken place are blocked, or must take place
outside the state [of Virginia].” There is little
doubt that the Act imposes some burden on
both intrastate and interstate commerce. How-
ever, as mentioned above, the Act burdens both
the in-state and out-of-state markets equally.
This fact substantially undermines Plaintiff's
argument. The Court finds that the incidental
burden imposed by the Act on both markets is
justified as a legitimate function of the state’s
police powers. It is clear that “in the absence
of conflicting legislation by Congress, there is a
residuum of power in the state to make laws

69a

governing matters of local concern which nev-
ertheless in some measure affect interstate
commerce or even, to some extent regulate it.”
Hunt v. Washington State Apple Advertising
Com’n, 432 U.S. 333, 350, 97 S.Ct. 2434, 53
L.Ed.2d 383 (1977) (internal citations omitted).
Furthermore, “(t]he State is entitled to exer-
cise its police power in the manner it sees fit,
so long as it is legislating constitutionally.”
Baltimore Gas & Elec. Co. v. Heintz, 760 F.2d
1408, 1425 (4th Cir. 1985). There can be little
doubt that protecting viators from fraud is a
local concern which falls within the residuum
of the state’s police powers. Assuming without
deciding that some viators will voluntarily
leave the state to do business in order to avoid
the regulatory effects of the Act, this is not the
type of burden that the dormant Commerce
Clause was designed to protect against.

The Court is also of the opinion that the
expert’s analysis of the effect of the Act on the
interstate market is of little value based on the
facts before the Court. The experts contend
that “if a state like Virginia is permitted to en-
force its minimum price control regulation
across the national market, the vast majority
of Virginia sellers would be shut out of the
market.” (Pl.’s Ex. 6 J 30.) However, contrary
to the experts’ conclusion, Ms. Doe’s transac-
tion is not a situation in which Virginia is en-
forcing the provisions of the Act “across the na-
tional market place.” As discussed above, this

is a transaction which occurred at least in part
in the Commonwealth of Virginia. If Virginia
was in fact enforcing the Act across the na-
tional market place, this alleged burden may

70a

be more significant to the Court’s analysis.
However, this is not the case and the Court
will not invalidate a state statute based on
facts which are not before it.

As a result, this Court finds that the Act ef-
fectuates a legitimate local public interest and
that its effects on interstate commerce are only
incidental. Therefore, the Act must “be upheld
unless the burden imposed on such commerce
is clearly excessive in relation to the putative
local benefits.” Pike, 397 U.S. at 142, 90 S.Ct.
844. The Court further finds that the burdens
imposed by the Act are not “clearly excessive”
when compared with the legitimate and impor-
tant purpose behind the Act. The Court is also
of the opinion that nothing short of Virginia’s
comprehensive regulatory scheme, which cou-
ples licensing and registration with price con-
trols, could provide a level playing field for its
physically infirm citizens financially con-
strained to liquidate their life insurance policy.
The Virginia Viatical Settlements Act is far
from a vagrant protectionist whim. It parallels
legislation enacted in over thirty (30) other
states with a common origin, the Model Viati-
cal Settlements Act. Thus, the Court concludes
that the legitimate purpose of the Act cannot
be achieved with a lesser impact on interstate
commerce.

V. Conclusion

The Court finds that the Virginia Viatical
Settlements Act does not violate the Commerce
Clause of the United States Constitution and,
therefore, Plaintiffs Motion for Summary
Judgment will be denied. Defendants’ and In-

T1la

tervenor’s Motions for Summary Judgment will
be granted.

An appropriate Order will accompany this
Memorandum Opinion.

ORDER

(Denying Plaintiffs Motion for Summary
Judgment and Granting the Motions for
Summary Judgment Filed by tie Defen-
dants and the Intervenor)

THIS MATTER is before the Court on cross-
Motions for Summary Judgment. For the rea-
sons stated in the accompanying Memorandum
Opinion, Plaintiffs Motion for Summary
Judgment is DENIED. Defendants’ and Inter-

venor’s Motions for Summary Judgment are
GRANTED.

The Clerk is directed to send a copy of this
Order to all counsel of record.

It is SO ORDERED.

APPENDIX C

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

FILED
May 29, 2007

No. 06-1370
3:05-cv-00368-HEH

LIFE PARTNERS, INCORPORATED
Plaintiff - Appellant

v.

THEODORE V. MORRISON, JR.; MARK C.
CHRISTIE, in their official capacities as
Commissioner of the State Corporation
Commission; ALFRED W. GROSS, in his of-
ficial capacity as the Commissioner of In-
surance; JUDITH WILLIAMS JAGDMANN,

in her official capacity as Commissioner of
the State Corporation Commission

Defendants — Appellees

ROBERT F. MCDONNELL, in his official
capacity as the Attorney General of the
Commonwealth of Virginia

Intervenor — Appellee
and

CLINTON MILLER, in official capacity as
Commissioner of the State Corporation
Commission

73a

Defendant

NATIONAL ASSOCIATION OF INSUR-
ANCE COMMISSIONERS; NORTH AMER-
ICA SECURITIES ADMINISTRATORS AS-
SOCIATION, INCORPORATED

Amici Supporting Appellees
and

VIATICAL SETTLEMENT PROFESSION-
ALS, INCORPORATED

Movant

No. 06-1371
3:05-cv-00368-HEH

LIFE PARTNERS, INCORPORATED
Plaintiff — Appellee

Vv

THEODORE V. MORRISON, JR.; MARK C.
CHRISTIE, in their official capacities as
Commissioner of the State Corporation
Commission; ALFRED W. GROSS, in his of-
ficial capacity as the Commissioner of In-
surance; JUDITH WILLIAMS JAGDMANN,
in her official capacity as Commissioner of
the State Corporation Commission

Defendants — Appellants
and

CLINTON MILLER, in official capacity as
Commissioner of the State Corporation
Commission

Defendant

and

74a

ROBERT F. MCDONNELL, in his official
capacity as the Attorney General of the
Commonwealth of Virginia

Intervenor — Defendant

NORTH AMERICA SECURITIES ADMIN-
ISTRATORS ASSOCIATION, INCORPO-
RATED; NATIONAL ASSOCIATION OF
INSURANCE COMMISSIONERS

Amici Supporting Appellants
and

VIATICAL SETTLEMENT PROFESSION-
ALS, INCORPORATED

Movant

ee ee

ee ee eee

The appellants’ petition for rehearing en
banc was submitted to this Court. As no mem-
ber of this Court requested a poll on the peti-
tion for rehearing en banc,

IT IS ORDERED that the petition for re-
hearing en banc is denied.

Entered for a panel composed of Judge
Niemeyer, Judge Michael, and Judge Traxler.

For the Court,
icia S nnor

CLERK

75a

APPENDIX D

CODE OF VIRGINIA
CHAPTER 60
VIATICAL SETTLEMENTS ACT.
§ 38.2-6000. Definitions.
As used in this chapter:

“Advertising” means any written, electronic, or
printed communication or any communication
by means of recorded telephone messages or
transmitted on radio, television, the Internet,
or similar communications media, including
film strips, motion pictures, and videos pub-
lished, disseminated, circulated or placed be-
fore the public, directly or indirectly, for the
purpose of creating an interest in or inducing a
person to sell a life insurance policy pursuant
to a viatical settlement contract.

“Business of viatical selilements” means an ac-
tivity involved in, but not limited to, the offer-
ing, solicitation, negotiation, procurement, ef-
fectuation, purchasing, investing, financing,
monitoring, tracking, underwriting, selling,
transferring, assigning, pledging, or hypothe-
cating in any other manner, of viatical settle-
ment contracts or purchase agreements.

“Chronically ill” means (i) being unable to per-
form at least two activities of daily living,
which shall include eating, toileting, transfer-
ring, bathing, dressing or continence, (ii) re-

76a

quiring substantial supervision by another
person to protect the individual from threats to
health and safety due to severe cognitive im-
pairment, or (iii) having a level of disability
similar to that described in clause (i) as deter-
mined by the federal Secretary of Health and
Human Resources.

“Financing entity” means an_ underwriter,
placement agent, lender, purchaser of securi-
ties, purchaser of a policy or certificate from a
viatical settlement provider, credit enhancer,
or any entity that has a direct ownership in a
policy or certificate that is the subject of a vi-
atical settlement contract, but whose principal
activity related to the transaction is providing
funds to effect the viatical settlement or pur-
chase of one or more viaticated policies and
who has an agreement in writing with one or
more licensed viatical settlement providers to
finance the acquisition of viatical settlement
contracts. Financing entity does not include a
non-accredited investor or viatical settlement
purchaser.

“Fraudulent viatical settlement act” includes:

1. Acts or omissions committed by any person
who, knowingly or with intent to defraud, for
the purpose of depriving another of property or
for pecuniary gain, commits or permits its em-
ployees or its agents to engage in acts includ-
ing:

a. Presenting, causing to be presented or pre-
paring with knowledge or belief that it will be
presented to or by a viatical settlement pro-
vider, viatical settlement broker, viatical set-
tlement purchaser, financing entity, insurer,

77a

insurance producer, or any other person, false
material information, or concealing material
information, as part of, in support of, or con-
cerning a fact material to one or more of the
following: (i) an application for the issuance of
a viatical settlement contract or insurance pol-
icy; (ii) the underwriting of a viatical settle-
ment contract or insurance policy; (iii) a claim
for payment or benefit pursuant to a viatical
settlement contract or insurance policy; (iv)
premiums paid on an insurance policy; (v) pay-
ments and changes in ownership or beneficiary
made in accordance with the terms of a viatical
settlement contract, or insurance policy; (vi)
the reinstatement or conversion of an insur-
ance policy; (vii) in the solicitation, offer, effec-
tuation or sale of a viatical settlement contract
or insurance policy; (viii) the issuance of writ-
ten evidence of a viatical settlement contract
or insurance policy; or (ix) a financing transac-
tion;

b. Employing any device, scheme, or artifice to
defraud related to viaticated policies;

2. In the furtherance of a fraud or to prevent
the detection of a fraud any person commits or
permits its employees or its agents to: (i) re-
move, conceal, alter, destroy, or sequester from
the Commission the assets or records of a li-
censee or other person engaged in the business
of viatical settlements; (ii) misrepresent or
conceal the financial condition of a licensee, fi-
nancing entity, insurer, or other person; (iii)
transact the business of viatical settlements in
violation of laws requiring a license, certificate
of authority, or other legal authority for the
transaction of the business of viatical settle-

78a

ments; or (iv) file with the Commission or the
chief insurance regulatory official of another
jurisdiction a document containing false infor-
mation or otherwise conceals information about
a material fact from the Commission;

3. Embezzlement, theft, misappropriation or
conversion of moneys, funds, premiums, cred-
its, or other property of a viatical settlement
provider, insurer, insured, viator, insurance
policyowner, or any other person engaged in
the business of viatical settlements or insur-
ance;

4. Recklessly entering into, brokering, or oth-
erwise dealing in a viatical settlement con-
tract, the subject of which is a life insurance
policy that was obtained by presenting false in-
formation concerning any fact material to the
policy or by concealing, for the purpose of mis-
leading another, information concerning any
fact material to the policy, where the viator or
the viator’s agent intended to defraud the pol-
icy’s issuer. “Recklessly” means engaging in
the conduct in conscious and clearly unjustifi-
able disregard of a substantial likelihood of the
existence of the relevant facts or risks, such
disregard involving a gross deviation from ac-
ceptable standards of conduct; or

5. Attempting to commit, assisting, aiding or
abetting in the commission of, or conspiracy to
commit the acts or omissions specified in this
subsection.

“Licensee under this chapter” means a person
licensed by the Commission as a viatical set-
tlement provider or viatical settlement broker.

79a

“NAIC” means National Association of Insur-
ance Commissioners.

“Policy” means an individual or group policy,
group certificate, contract or arrangement of
life insurance affecting the rights of a resident
of this Commonwealth or bearing a reasonable
relation to this Commonwealth, regardless of
whether delivered or issued for delivery in this
Commonwealth.

“Related provider trust” means a titling trust
or other trust established by a licensed viatical
settlement provider or a financing entity for
the sole purpose of holding the ownership or
beneficial interest in purchased policies in
connection with a financing transaction. The
trust shall have a written agreement with the
licensed viatical settlement provider under
which the licensed viatical settlement provider
is responsible for ensuring compliance with all
statutory and regulatory requirements and un-
der which the trust agrees to make all records
and files related to viatical settlement transac-
tions available to the Commission as if those
records and files were maintained directly by
the licensed viatical settlement provider.

“Special purpose entity” means a corporation,
partnership, trust, limited liability company,
or other similar entity formed solely to provide
either directly or indirectly access to institu-
tional capital markets for a financing entity or
licensed viatical settlement provider.

“Terminally ill” means having an illness or
sickness that can reasonably be expected to re-
sult in death in 24 months or less.

80a

“Viatical settlement broker” means a person
that on behalf of another and for a fee, com-
mission or other valuable consideration intro-
duces viators to viatical settlement providers,
or offers or attempts to negotiate viatical set-
tlement contracts between a viator and one or
more viatical settlement providers. A viatical
settlement broker may act as agent for a viati-
cal settlement provider or on behalf of the via-
tor, provided that a viatical settlement broker
shall not be deemed to act exclusively for the
viator unless, pursuant to written agreement
between the parties, the broker agrees (i) to
disclose fully all interests in the viatical set-
tlement contract and relationships with the vi-
atical settlement provider, including its affili-
ates and appointed or contracted agents, and
(ii) that compensation for services as a viatical
settlement broker shall be paid directly and
only by the viator. The term does not include
an attorney, certified public accountant, or a
financial planner accredited by a nationally
recognized accreditation agency, who is re-
tained to represent the viator and whose com-
pensation is not paid directly or indirectly by
the viatical settlement provider or viatical set-
tlement purchaser.

“Viatical settlement contract” means a written
agreement establishing the terms under which
compensation or anything of value will be paid,
which compensation or value is less than the
expected death benefit of the insurance policy
or certificate, in return for the viator’s assign-
ment, transfer, sale, devise or bequest of the
death benefit or ownership of any portion of
the insurance policy or certificate of insurance.

8la

A viatical settlement contract also includes a
contract for a loan or other financing transac-
tion with a viator secured primarily by an in-
dividual or group life insurance policy, other
than a loan by a life insurance company pursu-
ant to the terms of the life insurance contract,
or a loan secured by the cash value of a policy.
A viatical settlement contract includes an
agreement with a viator to transfer ownership
or change the beneficiary designation at a later
date regardless of the date that compensation
is paid to the viator. “Viatical settlement con-
tracts” do not include accelerated benefits pro-
visions contained in life insurance policies,
whether issued with the original policy or as a
rider, according to the regulations promulgated
by the Commission.

“Viatical settlement provider” means a person,
other than a viator, that enters into or effectu-
ates a viatical settlement contract. Viatical
settlement provider does not include: (i

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386009_1380%3A2. Public record. Not legal advice.