Jackson National Life Insurance Company v Sterling Crum | Locke Lord LLP



A Georgia Federal District Court recently issued declaratory judgment in an action filed on October 3, 2017 by Jackson National Life Insurance Company (“Jackson”) against Sterling Crum (“Crum”), the assignee and owner of the aftermarket (investor ) a term life insurance policy. Jackson asked the Court to determine that an insurance policy she had issued (the “Jackson Policy”) insuring the life of Kelly Couch (“Couch”), the original owner of the Jackson Policy, an assignment which the defendant Crum later got was zero. ab initio under Georgian law as illegal gamble on human life based on its issuance with no valid and insurable interest in Couch’s life.

Holding: A life insurance policy underwritten by a person insuring his own life with the intention, at the time of issue, to sell or subsequently assign the policy to any person who has no insurable interest in the life. of the insured is a void betting contract. under Georgian law.

This unilateral intention standard adopted by the Court, which focused only on the insured’s intention to sell their policy at some point in the future, in determining whether a life insurance policy fails due to negligence. Insurance interest in its issue may be the first such decision of its kind in the country. The standard would apply in the absence of a prior arrangement for sale or assignment with an identified assignee at the time of issuance of the policy.

The intention of the insured is a question of fact. “[T]The object of this Court’s inquiry is [the insured’s] the intention at the time of its acquisition of [Jackson] Politics. ”The Court conducted a trial and determined, as an investigator, the intention of the deceased insured from a very“ bad ”set of facts described below.

At the time of his Jackson policy application, the unmarried 32-year-old insured, Couch, was HIV-positive and had twice filed for bankruptcy protection, but distorted these facts in his August 1998 claim to Jackson for an amount of $ 500,000. , ten year term life insurance policy. Couch had no dependents who depended on him to support himself and he named his estate as beneficiary of the Jackson policy. Insurance agent in writing Kevin Palombo said as part of the claim that he saw Couch when the claim was taken and that to the best of his knowledge and belief nothing was negatively affecting Couch’s insurability other than what is stated on the Application. Couch may also have provided a fake blood sample in connection with Jackson’s subscription. Couch also purchased another $ 500,000 term life insurance policy from First-Penn Pacific Life Insurance Company in August / September 1998 (the “FP Policy”).

Jackson issued the Jackson policy to Couch in January 1999. Nine months later Sterling Crum, an investor unfamiliar with Couch, acquired ownership of the Jackson policy through Crum’s broker, John Frick doing business under the name of Iowanes Holdings, LLC. Frick had put Crum in touch with several entities engaged in the purchase and sale of life insurance policies on the lives of HIV-positive policyholders, including Keith Thomas operating as Associates Trust, Inc. The Broker Both Frick and investor Crum had experience investing in life insurance policies owned by HIV positive men. Crum, however, was an outsider to Couch and was not involved in any way in the making, application, or issuance of the Jackson Policy and learned that the Jackson Policy might be available for investment several months after its issue. Crum also acquired the FP policy.

Couch died in 2005, six years after the publication of the Jackson Policy. The Jackson policy reportedly expired in 2010 (when Crum owned the Jackson policy) for non-payment of premiums, but Crum filed a death benefit claim with Jackson in 2017.1 Subsequently, Crum did not respond to a question on Jackson’s death benefit claim form that asked if the beneficiary claimant was a person or entity who had invested in the Jackson policy as a viatic or life settlement. .

Court cited Georgia’s general ban on betting on contracts2, Georgia’s Insurable Interest Act3 then traced the relevant cases from Georgia to 1898. The Court relied mainly on Clement c. Terrell, 167 Ga. 237, 145 SE 78 (1928). This case concerned the designation by the insured (and holder of a life insurance policy) of an initial beneficiary without insurable interest and not the subsequent sale of a policy to a person without insurable interest in the life of the insured. ‘assured.

The Court recognized the right of an insured to appoint a Beneficiary who has no insurable interest in the life of the insured, as long as the insured has acted ‘in good faith and without fraud, collusion or intention to enter into a betting contract‘, but then wrote: “But, [Georgia] the law is less clear as to what constitutes [an unlawful] betting contract when a life insurance policy is legally taken out on an insured’s own life, but later attributed to a third party without insurable interest.

The life insurance company has the burden of proof on the factual investigation to demonstrate that the insured intended at the time of the purchase of the policy to enter into a betting contract, that is to say, assign the policy at a later date to a person who has no insurable interest in the life of the insured. However, the intention of the ultimate policy assignee is only marginally relevant to the issue.

Due diligence issues relevant to providers and investors in the life insurance industry may include inquiries regarding misrepresentation on the life insurance claim, the life insurance agent who assisted the insured in purchasing the policy, the life expectancy of the insured at the start of the policy, when [how quickly] after the policy was issued, the policy was first transferred to an investor, which brokers or others could have assisted the investor in acquiring the policy, if the original beneficiary of a policy had an interest insurable in the life of the insured, the source of funds for the payment of premiums (whether premium financing or other third-party sources were used), and any role the assignee may have played in connection with the purchase or issuance of the policy.

One issue not addressed in the decision is whether the assignee can recover the premiums paid to the life insurance company. Under the Georgia Insurance Code, a life insurance policy written or caused to be written on the life of another person is void, unless the person who purchased the policy or caused it to be purchased has an interest insurable in the life of the insured. This law also states that in the case of a void life insurance policy, the issuing life insurance company is obligated to reimburse all premiums paid on that void life insurance policy. The obligation of a life insurer to reimburse the premiums it has received for a life insurance policy terminated or canceled for lack of insurable interest has been the subject of significant litigation in many cases. life insurance of foreign origin across the country, but Georgia is one of the few, if not the only state that has codified this requirement. The Ordinance expressly states that “[T]his [statutory] subsection… does not appear at first glance to deal with situations where a person takes out a life insurance policy on his own life and assigns this policy to a third party without insurable interest. (emphasis in the Order).

The court did not discuss the expiration of the two-year challenge period under OCGA §33-25-3 (a) (2) or the Georgia Life Settlements Act, OCGA §33- 59-1, et seq., Which did not exist in 1999.

We are investigating whether Crum intends to appeal the decision or request a new hearing. Often, when the applicable state law is unresolved, a federal district court or appellate court may seek an advisory opinion from that state’s highest court (see, eg Sun Life Assurance Company of Canada v. Wells Fargo Bank, NA, United States Court of Appeals for the Third Circuit, Case No A-49-17 (080669), June 4, 2019).

1 Because Couch died while the Jackson policy was in effect and all premiums were paid and up to date, an alleged lapse of the Jackson policy after the date of his death did not terminate the beneficiary’s right to receive the death benefit payable under the Jackson policy. And because Jackson was apparently unaware of his potential obligation to pay the death benefit and had continued to receive premium payments long after Couch had died, Jackson might have assumed that Couch was alive in 2010. There is no discussion in the decision on the possible application of Georgian Escheat Law in this unusual situation, and this topic is beyond the scope of this brief note.
2 OCGA § 13-8-2 (a) (4).
3 OCGA § 33-24-3 (b).
4 OCGA § 33-24-3 (i).



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