SOURCE: Life Insurance Settlement Association

Life Insurance Settlement Association

February 27, 2009 16:00 ET

LISA Applauds U.S. 4th Circuit Court of Appeals in an Important Insurable Interest Decision

ORLANDO, FL--(Marketwire - February 27, 2009) - "In a well reasoned opinion issued yesterday, the United States Fourth Circuit Court of Appeals protected consumer property rights and made a strong statement about the important and legitimate secondary market for life insurance," said Doug Head, executive director of the Life Insurance Settlement Association (LISA).

In First Penn v. Evans, No. 07-2020, the Court rejected a life insurer's attempt to void a policy for lack of insurable interest where the insured had taken out a policy on his own life with a general intent to later resell it but having no agreement with any other person to do so. "Clearly, an individual has an insurable interest in his own life," wrote the Court, which went on to say: "No third party participated in the procurement of Moore's policy and therefore no one was 'wagering' on Moore's life in violation of public policy." First Penn issued the original policy to Stanley R. Moore, a resident of Arizona.

"This is a clear and concise statement of established law and it carries great weight coming from the U.S. 4th Circuit Court of Appeals in a case involving the secondary market," said Mr. Head. "In the seminal case of Grigsby v. Russell, Justice Oliver Wendell Holmes, Jr. stated, '...cases in which a person having an interest lends himself to one without any, as a cloak to what is, in its inception, a wager, have no similarity to those where an honest contract is sold in good faith.' For many years insurers have promoted life insurance as a great investment, and this case reaffirms that consumers may do so as well. As long as there is no cloaked purchase on behalf of an investor without insurable interest, there is no violation of the law," explained Mr. Head.

Mr. Head emphasized that he was particularly pleased that the Court's opinion directly referenced LISA's amicus brief and oral argument, which was presented by former Illinois Director of Insurance Nat Shapo, a partner at Katten Muchin Rosenman LLP. The Court wrote: "Furthermore, as amicus curiae noted in its brief and at oral argument, evaluating insurable interest on the basis of the subjective intent of the insured at the time the policy issues, as First Penn would have us do, would be unworkable and would inject uncertainty into the secondary market for insurance."

"This passage recognizes the secondary market for the first time in a federal court decision," Mr. Head concluded. "The decision acknowledges the value of the growing life settlement market and the importance and value of protecting that market as it has emerged for the benefit of consumers."

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 now represents over 151 members with a wide variety of interests in the industry. For more about the Association, visit http://www.thevoiceoftheindustry.com/.

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