On October 12th, the parties in Kramer v.
Phoenix Life Ins. Co. presented oral arguments to the New York Court of Appeals regarding
New York's insurable interest law and its effect on stranger-owned life
insurance (SOLI or STOLI) arrangements.
v. Lockwood Pension Servs., 653 F. Supp. 2d 354 (S.D.N.Y. 2009) [enhanced
version available to lexis.com subscribers], Arthur Kramer created two life
insurance trusts, naming his children as beneficiaries. For consideration, Mr.
Kramer then directed his children to execute assignments of their beneficial trust
interests to "stranger investors." Allegedly, the investors, not the
children, paid all premiums on the policies.
After Mr. Kramer's death, plaintiff,
Alice Kramer, sought a declaratory judgment that the insurance proceeds should
be paid to her. Specifically, plaintiff alleged that the arrangement was an
arrangement to procure life insurance policies with the purpose of immediately
transferring the beneficial interests to stranger investors in contravention of
NY CLS Ins § 3205's insurable interest rule.
Defendants, including the stranger
investors, counterclaimed to recover the insurance proceeds, arguing that the
benefits were properly paid to those who currently held the beneficial
interest, which they had acquired from the children for cash consideration.
Conversely, the insurance companies, as third-party complainants, sought to have
the policies voided and not paid to anyone, arguing that defendants had
developed a formulaic method for circumventing New York's insurable interest
rule, using trusts and elderly persons as strawmen to acquire life insurance
policies for the benefit of strangers who had no insurable interest in the insureds'
Finding substantial ground for
difference of opinion on the application of New York Insurance Law (§ 3205) to SOLI
arrangements, the district court certified its order for an interlocutory
appeal to the Second Circuit. The Second Circuit then certified the following question
to the New York Court of Appeals.
Does New York
Insurance Law §§ 3205(b)(1) and (b)(2) prohibit an insured from procuring a
policy on his own life and immediately transferring the policy to a person
without an insurable interest in the insured's life, if the insured did not
ever intend to provide insurance protection for a person with an insurable interest
in the insured's life?
Lexis.com subscribers can view the pleadings from Kramer v. Lockwood Pension Servs., 653 F. Supp.
2d 354 (S.D.N.Y. 2009)
Lexis.com subscribers can view the motions from Kramer v. Lockwood Pension Servs., 653 F. Supp. 2d
354 (S.D.N.Y. 2009)
documents and postings:
STOLI on the Rocks - a Series of Case Commentaries from LISI
Download New Hampshire Life Settlements Act, Restricting STOLI
District Court Rules on Stranger-Initiated Annuity Transactions
The Law of Life and Health Insurance - § 2.07 Investor
Initiated Life Insurance ("IILI")
Lovendusky on Illicit Life Insurance Settlements
Understanding Life Insurance Settlements and Stranger
Originated Life Insurance
. . . .
the LEXIS.com Estates, Gifts & Trusts and Elder Law resources
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