Lawsuits filed by U.S. life insurers over so-called stranger-originated life insurance transactions are expected to increase, but they could face obstacles in trying to prove intent, say attorneys specializing in this emerging area of litigation.

Drew Kitchen, an attorney with Maynard, Cooper & Gale, Birmingham, Ala., said the cases he’’s filed on behalf of life insurers over the past few months are housed in federal court in southern Florida, where many senior citizens and retirees live.

STOLI transactions have been around for five to 10 years but they”ve only generated real attention over the past few years, he said. “People started to take note and…see what’’s going on in south Florida and what’’s the effect of these transactions on an insurance company’’s books,” said Kitchen, who was attending the American Council of Life Insurers” annual conference in Boston.

According to the ACLI, STOLI is a misuse of life insurance in which hedge funds and other investors induce seniors to buy life insurance solely to transfer the death benefits to the investors, who hope to profit when the seniors die. The transaction has no purpose but instead is “a get-rich-quick scheme” for hedge funds, the group says.

A typical STOLI policy is more than $1 million; the policies at issue in his cases range anywhere from $3 million to $15 million, he said. The producer will tell them that if they are approved for life insurance, they will be paid anywhere from $50,000 to $350,000 up front, he said. Soon after the policy is issued, the ownership of that policy is transferred, he said.

The life insurers contend the policy is void because no insurable interest ever existed at the time of policy issuance, Kitchen said. Defendants are not only the producer and the owner of the policy but also, the insured, he said. Carriers are seeking to rescind the policy and recover commissions from the producers, Kitchen said. Typically, life insurers have two years after policy issuance, or the “contestable period,” to rescind a policy, he said.

The suits could be difficult, though, because insurers generally must prove intent, Kitchen said. “We have to prove that the insured intended to transfer ownership of the policy at the time that they applied, and the question is, how do you prove intent?” he said.

Recently, California Gov. Arnold Schwarzenegger vetoed a bill to define and ban STOLI transactions (BestWire, Oct. 2, 2008). S.B. 1543 would have made California the 13th state to approve legislation restricting STOLI (BestWire, Sept. 4, 2008). Read more: California Life Settlement Regulation Update

The full interview with Kitchen and Holt should be released soon.

Here is information about the Life Settlement Bill, and form of legislation can usually help curb and regulate fraud in the industry:

Senate Bill 1543, based on model legislation developed by the National Conference of Insurance Legislators, would have provided a strong regulatory framework for the growing life insurance settlement industry in California starting in January 2009. The bill was recently passed by the California Legislature with the near unanimous consent of each chamber and was supported by nearly every life insurance and life settlement company and their respective trade associations, as well as several consumer groups, including the AARP.

Ritchie has been a slow motion tank farm fire (formerly train-wreck) for about three years now, in a process featuring an endless stream of excuses for not returning investors’ funds, punctuated by restructuring plans of dubious efficacy, some abandoned along the way, a bankruptcy filing by two funds that lost an alleged $700 million in life settlement assets after partner Coventry First LLC was sued by New York State, a $40 million settlement for its involvement in the mutual fund market timing morass…well you get the general idea.

To find more info about the Ritchie and Coventry issues, read:
Coventry motion to dismiss granted
Richie Unit and Coventry Reach Deal
Life Settlement Hedge Fund Auction

Source: SeekingAlpha.com

Article Below:

AXA Equitable Life Insurance Co. filed suit earlier this month in federal court in Florida alleging that several brokers, insureds and their trustees obtained $73 million in fraudulent, stranger-originated life insurance (STOLI) policies.

The suit was filed June 6 in U.S. District Court for the Southern District of Florida. Defendants named include Infinity Financial Group of Boynton Beach, Fla., and Steven Brasner, principal of the group; the Kevin Bechtel Broker General Agency; the Gary Richardson Broker General  Agency; and trustees and insureds.

The defendants, who have 20 days to respond from receipt of the complaint, have not yet filed a response. No one from the broker general agencies returned calls from The Life Settlements Wire.

Tim Bodner, president of Infinity Financial Group, said Brasner was terminated from the company in May 2006, and that Infinity sued Brasner when he used the company’s name and logo for his own business. Bodner said the case has since been settled.

The lawsuit seeks declaratory relief and rescission of five life insurance policies it says were “procured by improper and fraudulent means and procured for improper and undisclosed purposes.”

AXA says the policies were issued between July 2006 and February 2007 for $73 million. One of the policies – for $5 million – has since lapsed, the suit says.

The New York insurance company says that almost immediately after the policies were issued, the ownership and beneficiary designations were changed and the policies were put into trusts.

AXA is seeking to retain the premiums to offset damages the company expects to incur. It also is asking for return of more than $2.8 million it paid in commissions.

Related Links:
Life Settlement News - Life Settlement news, releases, and articles.
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