Life Partners, Inc. v. Morrison

• Decision Date: 30 April 2007
• Docket Number: No. 06-1371.,No. 06-1370.,06-1370.,06-1371.
• Parties: LIFE PARTNERS, INCORPORATED, Plaintiff-Appellant, v. Theodore V. MORRISON, Jr.; Mark C. Christie, in their official capacities as Commissioners of the State Corporation Commission; Alfred W. Gross, in his official capacity as the Commissioner of Insurance; 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 his official capacity as Commissioner of the State Corporation Commission, Defendant. National Association of Insurance Commissioners; North American Securities Administrators Association, Incorporated, Amici Supporting Appellees, and Viatical Settlement Professionals, Incorporated, Movant. Life Partners, Incorporated, Plaintiff-Appellee, v. Theodore V. Morrison, Jr.; Mark C. Christie, in their official capacities as Commissioners of the State Corporation Commission; Alfred W. Gross, in his official capacity 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 Corporation Commission, Defendant, and Robert F. McDonnell, in his official capacity as the Attorney General of the Commonwealth of Virginia, Intervenor-Defendant. North American Securities Administrators Association, Incorporated; National Association of Insurance Commissioners, Amici Supporting Appellants, and Viatical Settlement Professionals, Incorporated, Movant.
• Court: U.S. Court of Appeals — Fourth Circuit

484 F.3d 284

LIFE PARTNERS, INCORPORATED, Plaintiff-Appellant, v. Theodore V. MORRISON, Jr.; Mark C. Christie, in their official capacities as Commissioners of the State Corporation Commission; Alfred W. Gross, in his official capacity as the Commissioner of Insurance; 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 his official capacity as Commissioner of the State Corporation Commission, Defendant.

National Association of Insurance Commissioners; North American Securities Administrators Association, Incorporated, Amici Supporting Appellees, and

Viatical Settlement Professionals, Incorporated, Movant.

Life Partners, Incorporated, Plaintiff-Appellee, v. Theodore V. Morrison, Jr.; Mark C. Christie, in their official capacities as Commissioners of the State Corporation Commission; Alfred W. Gross, in his official capacity 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 Corporation Commission, Defendant, and Robert F. McDonnell, in his official capacity as the Attorney General of the Commonwealth of Virginia, Intervenor-Defendant.

North American Securities Administrators Association, Incorporated; National Association of Insurance Commissioners, Amici Supporting Appellants, and

Viatical Settlement Professionals, Incorporated, Movant.

No. 06-1370.

No. 06-1371.

United States Court of Appeals, Fourth Circuit.

Argued November 30, 2006.

Decided April 30, 2007.

ARGUED:

Douglas Michael Palais, Leclair Ryan, P.C., Richmond, Virginia, for Appellant/Cross-Appellee. Maureen Riley Matsen, Office of the Attorney General of Virginia, Richmond, Virginia; Robert A. Dybing, Thompson & McMullan, Richmond, Virginia, for Appellees/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 General 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 American Securities Administrators Association, Inc., Washington, D.C., for North American Securities Administrators Association, Incorporated, Amicus Supporting Appellees/Cross-Appellants. Elizabeth Mason Horsley, Williams Mullen, P.C., Richmond, Virginia, for National Association of Insurance Commissioners, Amicus Supporting Appellees/Cross-Appellants.

Before NIEMEYER, MICHAEL, and TRAXLER, Circuit Judges.

Affirmed by published opinion. Judge NIEMEYER wrote the opinion, in which Judge MICHAEL and Judge TRAXLER joined.

OPINION

NIEMEYER, Circuit Judge.

We decide, in this case of first impression, whether the Virginia Viatical Settlements Act, Va.Code Ann. § 38.2-6000, et seq., which regulates viatical settlements with insureds who are residents of Virginia, is saved from the dormant Commerce Clause of the U.S. Constitution by the McCarran-Ferguson Act, 15 U.S.C. §§ 1011, 1012, as a state law that "relates to" the regulation of the business of insurance or as a state law enacted "for the purpose of regulating the business of insurance."

"Jane Doe," a terminally ill resident of Virginia 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 Virginia to protect its residents who, in the vulnerable circumstances of being terminally ill, might find it necessary to sell their life insurance policies.

Following the transaction, Jane Doe sought to improve the sale price of her policy by invoking the minimum pricing provisions of the Virginia Viatical Settlements Act. Life Partners, contending that the Virginia Act violated the dormant Commerce Clause, commenced this action 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 commerce power conferred on it by the McCarran-Ferguson Act, which authorizes States to enact laws relating to or for the purpose of regulating the business of insurance.

On cross-motions for summary judgment, the district court entered judgment for Virginia, holding that the Virginia Viatical Settlements 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 purpose; 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 terminally 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 renders it constitutional. Based on this conclusion, 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 to a "provider" of the viaticum. The viatical settlement provider is often backed by investors 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 policy. Upon the viator's death, the provider collects the face value of the policy, and the provider's profit is the difference between the face value of the policy and the amount paid to the viator, premiums paid to the insurance company, and the administrative expenses incurred. Because the sooner the viator dies the greater the provider's profit, a provider takes special care in calculating a viator's life expectancy by hiring an independent doctor to examine 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 disease, 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. Moreover, investors were willing to purchase the life insurance policies of AIDS sufferers. Inasmuch as AIDS sufferers had predictably short life expectancies, their policies were reliable investments. See generally, Liza M. Ray, Comment, The Viatical Settlement Industry: Betting on People's Lives is Certainly No "Exacta," 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. People suffering from cancer, heart disease, Alzheimer's disease, and other progressive illnesses, as well as elderly people in need of funds for assisted living, found viatical settlements a useful source of immediate cash. Today, 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 A11; Liam Pleven & Rachel Emma Silverman, Investors Seek Profit in Strangers' Deaths, Wall St. J., May 2, 2006, at C1; see generally Miriam R. Albert, The Future of Death Futures: Why Viatical Settlements Must Be Classified as Securities, 19 Pace L. Rev. 345, 353-55 (1999).

The need for regulating the business of viatical 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 imminent death, often in financial hardship due to medical and healthcare costs, and often ignorant 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 energy to "comparison shop" for the best payment, a viator often agrees to sell at a drastically reduced price, particularly when he fails to understand the nature and...