SOURCE: Life Insurance Settlement Association

Life Insurance Settlement Association

September 23, 2011 13:02 ET

LISA Applauds Delaware Supreme Court Decision on Insurable Interest

ORLANDO, FL--(Marketwire - Sep 23, 2011) - LISA executive director Darwin Bayston today hailed the Delaware Supreme Court's decision affirming the property rights associated with life insurance and the core rule of insurable interest. In the rulings, PHL Variable Ins. Co. v. Price Dawe 2006 Insurance Trust, et al., C.A. No. 10-964 (Del. 2011) and Lincoln National Life Insurance Co. v. Joseph Schlanger 2006 Insurance Trust, et al., C.A. 09-506 (Del. 2011), the High Court held that an insured has a common law property right to purchase a policy on his own life and sell it for market value, provided, of course, that procurement of the policy is not part of a straw purchase pursuant to a prior agreement to resell to an investor.

The Delaware Court's opinion was issued in response to certified questions it received from the Delaware federal court involving two cases where there were allegations that the policies were procured pursuant to an arrangement under which they "would be immediately transferred to an unrelated third party investor" and where the insured and his trust "were used as straw men to allow [that investor]... to conceal a wager on [the insured's] life."

The Supreme Court's ultimate conclusion is that when an investor has "a pre-negotiated arrangement with the insured to immediately transfer ownership, the policy fails at its inception for lack of an insurable interest." This is unacceptable, says the Court, because "if that third party uses the insured as an instrumentality to procure the policy, then the third party is actually causing the policy to be procured."

"LISA concurs," said Bayston, stating that "LISA has long promoted laws throughout the country to prohibit pre-arranged sales of life insurance policies."

Rejecting the pleadings of the American Council of Life Insurers, the Court held that an insured taking out a policy on his or her own life cannot violate insurable interest laws merely because he or she intends to someday sell his or her policy, stating that "the insured's subjective intent for procuring a life insurance policy is not the relevant inquiry. The relevant inquiry is who procured the policy and whether or not that person meets the insurable interest requirements."

Delaware is now the latest court to protect the property rights of life insurance consumers in procuring a policy and to reaffirm that intent is irrelevant in evaluating insurable interest.

Bayston also noted that the Supreme Court of Delaware recognized the value of the property right in life insurance for consumers: According to the Court, "[The] secondary market allows policy holders who no longer need life insurance to receive necessary cash during their lifetimes," emphasizing that the secondary market is "perfectly legal", "highly regulated" and "provides a favorable alternative to allowing a policy to lapse, or receiving only the cash surrender value."

Echoing the views of a law firm that has represented insurers in insurable interest litigation, LISA views this decision as a "sweeping victory" for the secondary market for life insurance.

PHL Variable Insurance Company vs Price Dawe 2006 Insurance Trust - Certification of Questions of Law (09/20/2011)

About LISA

Established in 1994, the Life Insurance Settlement Association is the oldest and largest trade organization in the industry. Its goal is to promote the development, integrity, and reputation of the life settlement industry, and to promote a competitive market for the people it serves. LISA represents over 110 members with a wide variety of interests in the industry. For more about the association, visit

Contact Information

  • Contact:

    Darwin Bayston
    Executive Director
    Email: Email Contact
    Ph: (407) 894-3797