In Zalma’s article, he states: “it is the essence of insurance that for insurance to exist the person insured must have an insurable interest in the property or life insured … Gambling on life has been illegal for more than 300 years because the life insured by the gambler would be at risk of murder to collect the funds.”
Zalma discusses the United States District Court decision in PHL Variable Insurance Company v. Price Dawe 2006 Insurance Trust, By and Through Its Trustee, No. 174, 2011 (Del. 09/20/2011) concerning claims on a life insurance policy that was alleged to have been purchased as a wager on a life rather than a true insurance policy sought direction from the Delaware Supreme Court.
The following topics are discussed
I. Factual and Procedural Background
II. Stranger Originated Life Insurance (“STOLI”) Scheme Improper
III. The Questions Asked
- Does 18 Del. C. § 2704(a) and (c)(5) prohibit an insured from procuring or effecting a policy on his or her own life and immediately transferring the policy, or a beneficial interest in a trust that owns and is the beneficiary of 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 his or her life?
- Does 18 Del. C. § 2704(a) and (c)(5) confer upon the trustee of a Delaware trust established by an individual insured an insurable interest in the life of that individual when, at the time of the application for life insurance, the insured intends that the beneficial interest in the Delaware trust would be transferred to a third-party investor with no insurable interest in that individual’s life following the issuance of the life insurance policy?
- Does Delaware law permit an insurer to challenge the validity of a life insurance policy based on a lack of insurable interest after the expiration of the two-year contestability period required by 18 Del. C. § 2908?
Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant. He recently published the e-books, “Heads I Win, Tails You Lose – 2011,” “Zalma on Rescission in California,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” “Murder and Insurance Fraud Don’t Mix” and others that are available at Zalma Books.
For the full article see Wager On Life Is Void –Insurance Requires Insurable Interst by Barry Zalma
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