2012 -- H 7775 SUBSTITUTE A

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LC01698/SUB A

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2012

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A N A C T

RELATING TO INSURANCE - LIFE INSURANCE AND ANNUITIES

     Introduced By: Representative Raymond H. Johnston

     Date Introduced: February 16, 2012

     Referred To: House Corporations

It is enacted by the General Assembly as follows:

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     SECTION 1. Chapter 27-4 of the General Laws entitled "Life Insurance Policies and

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Reserves" is hereby amended by adding thereto the following section:

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     27-4-29. Life insurance database. -- (a) The department of business regulation shall

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maintain a central database of electronic contact information for each life insurer having policies

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in force in this state.

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     (b) On and after January 1, 2013, any member of the immediate family of a decedent

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searching for life insurance policies covering the decedent may file a request with the department

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for a search pursuant to this section, provided the decedent was a resident or former resident of

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this state. Any such request shall include a copy of the subject decedent’s death certificate. The

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right to file a request for a search pursuant to this section may not be assigned.

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     (c) The department shall transmit any such request to all life insurers having policies in

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force in this state, along with information necessary for responding directly to the person filing

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the request. Each such insurer shall examine its books and records to make a determination as to

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the existence of coverage of the subject decedent, and upon a finding that such coverage does

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exist, shall directly notify the person filing the request.

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     (d) The department may adopt such rules and regulations as may be necessary to

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implement the provisions of this section.

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     (e) Insurers of credit life insurance are exempt from inclusion in the central database and

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shall not be subject to the requirements of section 27-4-28.

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     SECTION 2. Chapter 27-29 of the General Laws entitled "Unfair Competition and

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Practices" is hereby amended by adding thereto the following section:

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     27-29-4.7. Additional unfair methods of competition. – (a) In addition to those listed in

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section 27-29-4 the following are also defined as unfair methods of competition and unfair and

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deceptive acts or practices in the business of insurance:

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     (1) Twisting. Knowingly making any misleading representations or incomplete or

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fraudulent comparisons or fraudulent material omissions of or with respect to any insurance

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policies or insurers for the purpose of inducing, or tending to induce, any person to lapse, forfeit,

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surrender, terminate, retain, pledge, assign, borrow on, or convert any insurance policy or to take

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out a policy of insurance in another insurer.

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     (2) Churning. The practice whereby policy values in an existing life insurance policy or

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annuity contract, including, but not limited to, cash, loan values, or dividend values, and in any

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riders to that policy or contract, are directly or indirectly used to purchase another insurance

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policy or annuity contract with that same insurer for the purpose of earning additional premiums,

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fees, commissions, or other compensation:

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     (i) Without an objectively reasonable basis for believing that the replacement or

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extraction will result in an actual and demonstrable benefit to the policyholder; or

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     (ii) In a fashion that is fraudulent, deceptive, or otherwise misleading or that involves a

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deceptive omission; or

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     (iii) When the applicant is not informed that the policy values, including cash values,

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dividends, and other assets of the existing policy or contract will be reduced, forfeited, or used in

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the purchase of the replacing or additional policy or contract, if this is the case; or

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     (iv) Without informing the applicant that the replacing or additional policy or contract

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will not be a paid-up policy or that additional premiums will be due or that a new contestable

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period will apply and explaining the impact of these differences, if this is the case.

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     (b) Each insurer shall comply with paragraphs (iii) and (iv) herein by disclosing to the

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applicant at the time of the offer if, how, and the extent to which the policy or contract values

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(including cash value, dividends, and other assets) of a previously issued policy or contract will

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be used to purchase a replacing or additional policy or contract with the same insurer. The

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disclosure must include the premium, the death benefit of the proposed replacing or additional

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policy, and the date on which the policy values of the existing policy or contract will be

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insufficient to pay the premiums of the replacing or additional policy or contract.

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     (c) Each insurer shall adopt written procedures sufficient to reasonably avoid twisting and

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churning of policies or contracts that it has issued, and failure to adopt written procedures

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sufficient to reasonably avoid twisting and churning shall be an unfair method of competition and

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an unfair or deceptive act or practice.

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     SECTION 3. Sections 27-34.3-2, 27-34.3-6, 27-34.3-7 and 27-34.3-11 of the General

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Laws in Chapter 27-34.3 entitled "Rhode Island Life and Health Insurance Guaranty Association

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Act" are hereby amended to read as follows:

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     27-34.3-2. Purpose. -- (a) The purpose of this chapter is to protect, subject to certain

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limitations, the persons specified in section 27-34.3-3(a) against failure in the performance of

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contractual obligations, under life and health insurance policies and annuity contracts specified in

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section 27-34.3-3(b), because of the impairment or insolvency of the member insurer that issued

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the policies or contracts.

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      (b) To provide this protection, an association of insurers is created to pay benefits and to

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continue coverages as limited in this chapter, and members of the association are subject to

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assessment to provide funds to carry out the purpose of this chapter.

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     (c) In accordance with this purpose, in determining the coverage limits to be applied in

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section 27-34.3-3 in cases in which there were different statutory limits at the time the insurer

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was declared impaired and the time the insurer was declared insolvent, the statute with the higher

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limits shall be applied to the claim.

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     27-34.3-6. Creation of the association. -- (a) There is created a nonprofit legal entity to

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be known as the Rhode Island life and health insurance guaranty association. All member insurers

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shall be and remain members of the association as a condition of their authority to transact

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insurance in this state. The association shall perform its functions under the plan of operation

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established and approved under section 27-34.3-10, or as previously established and approved

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under section 27-34.1-11 [Repealed] and shall exercise its powers through a board of directors

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established under section 27-34.3-7 or as previously established under section 27-34.1-8

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[Repealed] For purposes of administration and assessment, the association shall maintain two (2)

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accounts:

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      (1) The life insurance and annuity account which includes the following subaccounts:

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      (i) Life insurance account;

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      (ii) Annuity account; which shall include annuity contracts owned by a governmental

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retirement plan (or its trustee) established under section 401, 403(b) or 457 of the United States

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Internal Revenue Code, 26 U.S.C. section 401, 403(b) or 457, but shall otherwise exclude

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unallocated annuities; and

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      (iii) Unallocated annuity account which shall exclude contracts owned by a

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governmental retirement benefit plan (or its trustee) established under section 401, 403(b) or 457

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of the United States Internal Revenue Code, 26 U.S.C. section 401, 403(b) or 457.

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      (2) The health insurance account.

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      (b) The association shall come under the immediate supervision of the commissioner and

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shall be subject to the applicable provisions of the insurance laws of this state. Meetings or

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records of the association may be open to the public upon majority vote of the board of directors.

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The commissioner or his or her designee shall have full and complete access to all documents

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received by, created by or otherwise obtained by the association and shall be invited to be present

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at all association meetings. The disclosure of confidential or privileged association information,

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documents, or records to the commissioner shall not change the confidential or privileged status

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of the information, documents or records.

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     27-34.3-7. Board of directors. -- (a) The board of directors of the association shall

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consist of:

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     (1) Not not less than five (5) nor more than nine (9) member insurers serving terms as

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established in the plan of operation; and

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     (2) The commissioner or the commissioner’s designee. Only member insurers shall be

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eligible to vote. The insurer members of the board shall be selected by member insurers subject to

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the approval of the commissioner. The board of directors, previously established under section

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27-34.1-8 [Repealed] shall continue to operate in accordance with the provision of this section.

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Vacancies on the board shall be filled for the remaining period of the term by a majority vote of

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the remaining board members, subject to the approval of the commissioner.

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      (b) In approving selections to the board, the commissioner shall consider, among other

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things, whether all member insurers are fairly represented.

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      (c) Members of the board may be reimbursed from the assets of the association for

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expenses incurred by them as members of the board of directors but members of the board shall

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not be compensated by the association for their services.

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     27-34.3-11. Duties and powers of the commissioner. -- In addition to the duties and

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powers enumerated in this chapter,

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      (a) The commissioner shall:

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      (1) Upon request of the board of directors, provide the association with a statement of

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the premiums in this and any other appropriate states for each member insurer;

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      (2) When an impairment is declared and the amount of the impairment is determined,

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serve a demand upon the impaired insurer to make good the impairment within a reasonable time;

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notice to the impaired insurer shall constitute notice to its shareholders, if any; the failure of the

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insurer to promptly comply with a demand shall not excuse the association from the performance

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of its powers and duties under this chapter.

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      (3) Deleted by P.L.[2009, ch. 158, section 1 and by P.L. 2009, ch. 169, section 1].

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     (4) Maintain the confidentiality and privileged status of confidential association

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information provided to the commissioner or department of business regulation.

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      (b) The commissioner may suspend or revoke, after notice and hearing, the certificate of

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authority to transact insurance in this state of any member insurer which fails to pay an

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assessment when due or fails to comply with the plan of operation. As an alternative the

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commissioner may levy a forfeiture on any member insurer which fails to pay an assessment

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when due. The forfeiture shall not exceed five percent (5%) of the unpaid assessment per month,

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but no forfeiture shall be less than one hundred dollars ($100) per month.

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      (c) A final action of the board of directors or the association may be appealed to the

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commissioner by any member insurer if the appeal is taken within sixty (60) days of its receipt of

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notice of the final action being appealed. A final action or order of the commissioner shall be

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subject to judicial review.

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      (d) The liquidator, rehabilitator, or conservator of any impaired or insolvent insurer may

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notify all interested persons of the effect of this chapter.

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     (e) The commissioner shall not participate in the association’s adjudication of a protest

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by an insurer pursuant to paragraph 27-34.3-9(i).

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     SECTION 4. Sections 1 and 2 of this act shall take effect on January 1, 2013. Section 3

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shall take effect upon passage.

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LC01698/SUB A

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO INSURANCE - LIFE INSURANCE AND ANNUITIES

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     This act would add the requirement of suitability to the sale of annuities and ban twisting

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and churning in the sale of life insurance and annuities and set up a procedure wherein potential

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beneficiaries can contact the department of business regulation and have all licensed insurers

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conduct a search for life insurance policies covering a decedent. This act would also clarify

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sections of the Rhode Island life and health insurance guaranty association act.

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     Sections 1 and 2 of this act would take effect on January 1, 2013. Section 3 would take

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effect on passage.

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LC01698/SUB A

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