Today’s New York Law Journal brings news of yesterday’s Court of Appeals decision in Alice Kramer v. Phoenix Life Insurance Co (decision No. 176) . The court has decided that New York law does not 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 insureds life. This was a question certified to the Court by the U.S. Second Circuit Court of Appeals.
The case involves decedent Arthur Kramer, an attorney who had purchased several policies on his own life (with a face value of over fifty six million dollars) and who assigned them to others who had no insurable interest in his life. After his death, his widow Alice refused to turn the policies over to investors who had purchased interests in them and sued for the proceeds.
Following the events subject of this action, the legislature amended the insurance law , effective May 2010. These new provisions prohibit any "stranger-oriented life insurance" for the benefit of anyone without an insurable interest in the life of the insured. The law prohibits (with exceptions) anyone from entering into a valid life settlement contract for two years following the issuance of the policy.
Your lawblogger has always been concerned with the issuance of stranger insurance. While the practice of selling these "viaticals" has some benefits to the insured, the potential for mischief, mayhem (and even murder) is one of great concern. The practice involves selling "bets" to investors with no connection to the insured that the insured will die. The hope is that they will die soon in order to maximize the investment and provide a quick turnaround at a huge profit. We are not talking about stocks or commodity futures here but human lives. It is ghoulish and one can only imagine the evil it may spawn.