Found this tidbits, and looking to receive the full article once it is released:
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.
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