LISA Affirms Property Rights
LISA Affirms Property Rights: Files Amicus Brief Defending Insurable Interest
ORLANDO, FL (Marketwire - April 8, 2008) - “The Life Insurance Settlement Association (LISA) reaffirmed its commitment to property rights for life insurance policy-owners in a recent court filing,” said LISA Executive Director Doug Head.
LISA filed an amicus brief in the United States Fourth Circuit Court of Appeals in First Penn-Pacific v. Evans, urging the Court to affirm the decision of U.S. District Judge Andre M. Davis, in which he followed the fundamental rule that “Once a policy has been issued, it is an asset of the insured and he or she is free to sell it.”
Judge Davis ruled that, even though he believed that the insured had made material misrepresentations in his policy applications, First Penn had filed its action challenging this alleged fraud after the two year contestability period (which functions as a statute of limitations) had run out. Of concern to LISA: in its appeal, First Penn argued that the policy should be rescinded not just for fraud but also because it allegedly lacked insurable interest.
Echoing Judge Davis’s regret over First Penn’s missed deadline, LISA’s amicus brief states: “LISA’s members likewise unequivocally condemn the fraud apparently perpetrated by the insured in this matter. But the bad facts in this case should not precipitate First Penn’s suggested bad law.”
That bad law, according to Mr. Head, is First Penn’s suggestion that over 150 years of insurable interest law creating property rights in life insurance policies should be curtailed by a rule which would invalidate a policy for lack of insurable interest, according to First Penn’s brief, when “the insured contemplated an assignment to an individual or entity without an insurable interest at the inception of the policy.”
“This is simply wrong. It’s contrary to established law, and it’s bad public policy,” said Mr. Head, noting that the U.S. Supreme Court has instructed that, because “life insurance has become… one of the best recognized forms of investment… it is desirable to give to life policies the ordinary characteristics of property.” Mr. Head explained: “One of the most fundamental ‘characteristics of property’ for a ‘recognized form of investment’ is buying an asset with a knowledge of its resale value — and the resulting property right to take advantage of that investment via resale for market value. First Penn would have the Fourth Circuit diverge from bedrock law and prevent an insured from taking out a policy on his own life with knowledge of its market value and a general interest in capturing it.”
“The case law is very clear,” Mr. Head continued, “an assignment to one without insurable interest is not improper, unless, as the Nebraska Supreme Court explained, ‘their agreement had existed prior to the issuance of the policy, or contemporaneous therewith.’ But First Penn has asked the Fourth Circuit to declare an assignment void for lack of insurable interest, even though, at the time the insured took out the policy, it cannot be shown that the assignee ‘even knew of his intention to take out the policy,’ in the words of an analogous Georgia Supreme Court case.”
“First Penn argues that it can bring an insurable interest challenge at any time, and that it can establish a violation without an agreement to sell at policy inception. That’s a toxic brew,” warned Mr. Head. Continuing, Mr. Head explained: “If adopted by an appellate court, it would embolden life insurers to institute claims adjustment just like in property-casualty. With such a cloud over title, investment in the secondary market would dry up — and consumers would suffer, because, as the U.S. Supreme Court has held, restrictions on the right of assignment ‘diminish appreciably the value of the contract in the owner’s hands.’”
Mr. Head noted that parties without an interest in the outcome of who wins or loses a particular case file amicus briefs to alert the court when the legal rules it applies will reverberate beyond the litigants. “We wish that First Penn had effectively utilized the two year contestability period in this matter. But two wrongs don’t make a right: it’s not appropriate to change the law and devalue life insurance for all consumers in order to reach a pleasing result which could have been initially reached if the insurer had simply filed a timely fraud action.”
Source: Marketwire
