Georgia Supreme Court to Rule on Key Issue of Life Insurance Insurable Interest | Locke Lord LLP


Appeal of the United States District Court for the Northern District of Georgia, DC Docket No. 1:17-‎cv-03857-WMR.‎

On February 4, 2022, the United States Court of Appeals for the Eleventh Circuit certified two questions to the Supreme Court of Georgia, which should be of interest to life insurance companies, life insurance agents and the industry secondary life insurance, asking if a life insurance policy is void ab-initio when an insured takes out a life insurance policy on his own life with the intention of selling that policy to a then unidentified person who has no insurable interest in the life of the insured.

“In relation to the legal standard of review, we seek guidance on whether a third party with no insurable interest must be involved in the purchase of the policy before it can be considered an unlawful betting contract.

1. Where an insured has purchased a life insurance policy with the intention of selling the policy to a third party without insurable interest, must the subsequent purchaser or an intermediary be complicit in the purchase of the policy? before [policy] can be considered an illegal betting contract and therefore void ab-initio?‎

2. If the answer to the above question is neither an absolute “yes” nor an absolute “no”, but rather an answer that a life insurance policy can sometimes be considered to constitute an illegal betting contract even without the complicity of the described third party, we respectively request additional indications on the circumstances which determine the nullity of the policy ab-initio and when it is not.

In 2021, a federal district court in Georgia granted declaratory judgment in an action filed on October 3, 2017 by Jackson National Life Insurance Company (“Jackson”) against Sterling ‎Crum (“Crum”), the assignee and secondary market ( investor) owner of a term life insurance policy issued in 1999 when the insured was 32 years old and well before the emergence of modern STOLI practices around 2005. This first species of STOLI policies involved a practice known as “blank sheet” at the beginning of viaticum settlements of the 1980s and 1990s, where an insured person diagnosed with HIV misrepresented his state of health, as the insured person did here. , Kelly ‎Couch (“Couch”), to purchase a life insurance policy in order to sell it to raise funds to pay medical or other living expenses. Jackson asked the Court to determine whether the insurance policy she issued (the “Jackson Policy”) insured the life of Couch, the original owner of the Jackson Policy, an assignment which Defendant Crum obtained eight months after taking out the policy. the show without ever having had prior contact with Couch, sucked ab-initio under Georgia law as an illegal bet on human life based on its issuance without a validly insurable interest in Couch’s life. Prior to the issuance of the policy, Couch had been in contact with a broker regarding the possible sale of the policy after issuance, but no buyer was identified prior to the issuance of the policy, and Crum was apparently not unaware of these pre-show. contacts. Couch paid the initial premiums for the policy from his own checking account. The district court held that a life insurance policy taken out by a person insuring his own life with the intention, at the time of issue, to sell or transfer the policy to any person who has no insurable interest in the life of the insured is a void wager contract under Georgia law. The court thus rejected the argument that mutual intent at the time of policy issuance by the claimant/insured and a subsequent assignee must be demonstrated to establish an illegal and unenforceable betting contract. The district court recognized the right of an insured to designate a beneficiary who has no insurable interest in the life of the insured, so long as the insured acted “in good faith and without fraud, collusion or intention to conclude a bet”. contract,” but then wrote, “[b]Utah, [Georgia] the law is less clear as to what constitutes [an ‎unlawful] pledge contract where a life insurance contract is legally subscribed on the own life of an insured, but subsequently assigned to a third party without insurable interest”. This unilateral intent standard passed by the District Court may be the first such ruling in the nation and represents a significant victory for life insurers in voiding STOLI policies if the ruling is ultimately upheld. The lower court’s decision contrasts with court decisions in some other states rejecting a one-sided intent test and requiring that a buyer identified in the secondary market be identified to the original policyholder and have engaged in pre-purchase discussions. issuing the policy on the resale of the policy. Accordingly, Georgia law would fall into a high-risk category of invalidating STOLI policies on the grounds that the policy applicant purchased the policy with the intention of selling it later in a life settlement transaction. . This could lead to a cooling of the life insurance settlements market for Georgian-sourced policies and a devaluation of Georgia-based policies in the portfolios held by hedge funds and other investor groups, particularly the many policies issued during the period from 2005. to 2008 using non-recourse premium financing lending structures rooted in Georgia which from the outset contemplated the possible resale of a policy following a loan of 2 years coinciding with the period of contestability of the policy. ‎


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