Background
A New York attorney, Arthur Kramer, obtained policies on his own life with about $56.2 million in total death benefits. They were held in trusts naming his children, who allegedly assigned their interests to investors right away. After his death in 2008, his widow sued as representative of his estate, claiming that the policies violated New York’s insurable interest rule and that the proceeds belonged to the estate. The federal appeals court in the case asked the New York Court of Appeals whether the statute bars an insured from buying a policy and immediately transferring it to a person without an insurable interest, when the insured never meant to protect anyone with such an interest.
What the court held
No. Section 3205(b)(1) lets a person of lawful age, acting on his own initiative, insure his own life “for the benefit of any person” and expressly allows “immediate transfer or assignment.” The insurable interest requirement in section 3205(b)(2) applies when someone buys insurance on another person’s life, and only at the time the contract is made. The statute contains no intent requirement. “On his own initiative” means the decision must be knowing, voluntary and free of coercion. Advice from a broker or a noncoercive arrangement with an investor does not defeat it. Two judges dissented, arguing that the old common-law rule against using one’s own policy as a “cloak” for a stranger’s wager survived.
Why it matters
Kramer is the leading counterpoint to PHL Variable v. Price Dawe (Delaware), which takes a stricter view of policies procured as a cloak for strangers. In a footnote, the Kramer court noted that New York’s 2009 life settlement law, Insurance Law article 78, now prohibits stranger-originated life insurance. That law did not take effect until May 18, 2010, so it did not govern Kramer’s policies. Where the policy was issued, and when, can decide who collects. See also Grigsby v. Russell.
Read the opinion
Kramer v. Phoenix Life Ins. Co., 15 N.Y.3d 539 (2010) (OpenJurist).
Not legal advice. This page summarizes general rules and the specific statutes cited. Your policy's wording, the state whose law applies, and whether the coverage came through an employer can all change the result. See the disclaimer and editorial policy.