E&O coverage ruled inapplicable to agent's viatical-settlement claim
(Note: Agents and brokers are often advised to expand their business to include new services. This case serves as warning to check with your E&O carrier before going down a new path.)

From approximately July 1, 1998, through October 1999, a Texas insurance agency served as a "marketing licensee" for a viatical settlement broker. The case report noted that a viatical settlement is defined as an agreement under which a person pays anything of value that is: (a) less than the expected death benefit of a policy insuring the life of an individual who has a catastrophic or life-threatening illness or condition; and, (b) paid in return for the policy owner's or certificate holder's assignment, transfer, bequest, devise, or sale of the death benefit under or ownership of the policy."

The case report said that the viatical settlement process works in the following way: "An investor acquires an interest in a life insurance policy of a terminally ill person-typically an AIDS victim-at a discount of 20% to 40%, depending on the insured's life expectancy [Securities and Exchange Commission vs. Life Partners, Inc., 87 F.3d 536, 537 (D.C. Cir. 1996)]. When the insured dies, the investor receives the benefit of the insurance. The investor's profit is the difference between the discounted purchase price paid to the insured and the death benefits collected from the insurer, less transaction costs, premiums paid and other administrative expenses.