STOLI on the Rocks – a Series of Case Commentaries from LISI

"Straw-into-gold ideas are, like vampires, not only hard to kill, they also inevitably dig themselves up from the grave century after century."  So wrote life insurance expert Steve Leimberg in course materials that he presented several years ago. Leimberg went on to state: " STOLI, with its many aliases and constantly mutating forms is just such an "undead" Dracula that, like the fabled vampire, reappears after rising up from the casket. It is a prime example of the never-ending quest to do indirectly what centuries of insurable interest statutes and cases will not allow directly: speculators purchasing life insurance on the lives of individuals who are by blood, by business relationship, and economically totally unrelated strangers."

Leimberg writes extensively about life settlement transactions. He and LISI commentator Howard Zaritsky are the authors of the following features, which analyze the life settlement case law generated throughout the various jurisdictions during 2010.  Their commentary was originally published in Steve Leimberg's Estate Planning Newsletter and on his LISI website.

To access the LISI articles and FREE DOWNLOADS of top life settlement cases click on the below links:

Principal Life Insurance Co. v. Rucker - Carrier Wins Substantial Victory in Beneficial Interest/STOLI Transaction

This case, which is a major victory for insurers and a major loss for the promoters and investors in STOLI arrangements, is important because: (1) it holds that the policies at issue were fully void from their inception; (2) expressly rejects the theory underlying the cases heralded as major STOLI victories; and (3) the court treated the sale of beneficial interests as the equivalent of the sale of the underlying policy.

Nationwide v. Steiner: Stranger Initiated Annuity Transactions (STATs) Again Upheld

Following its decision in the first reported stranger-initiated annuity transaction  or STAT cases, the the U.S. district court for Rhode Island once again sustains the validity of a commercial annuity contract issued to someone with no insurable interest in the life of the annuitant.

Lincoln National v. Snyder: Another STOLI Case, Another Carrier Victory

The court here found a sufficient basis in the insurer's contention that the policy was void for breach, negligent and fraudulent misrepresentations, and lack of insurable interest, to send the case to trial. 

Principal Life v. Mosberg - STOLI on the Rocks

Another example in which the court holds that insurable interest was lacking in the purchase of a life insurance policy and that it was therefore void from inception.

Western Reserve Life Ass. Co. of Ohio v. Conreal: First Stranger Initiated Annuity Transaction Decision

The industry's first reported Stranger Initiated Annuity  Transaction (or STAT) case, in which the court refuses to  apply the Rhode Island insurable interest rule to annuity contracts.

PHL Variable Insurance Company v. Morello - STOLI Policy Rescinded

In this case, the court permits both rescission of a STOLI policy and the insurer's retention of premiums.

Ashkenazi v. AXA Equitable Life - Policies Procured by Fraud

Greed and insurance fraud take center stage in a case that demonstrates how aggressively insurers are resisting STOLI schemes.

Kramer v. Phoenix Life Ins. Co. - New York Court of Appeals Holds STOLI Arrangements Satisfy NY Insurable Interest Requirements

The highest court in New York, in a case certified to it by the U.S. Court of Appeals for the Second Circuit, has held that the New York insurable interest rules do not prohibit an insured from buying a policy on his or her own life and thereafter immediately transferring the policy to a person who has no insurable interest, even if the insured never intended to provide insurance protection for himself or herself or for a person with an insurable interest. 

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