Like to Wager? Don't Use a Stranger's Life Insurance Policy!

• Pages: 14-15
• Date: 01 January 2023
• Author: Onika K. Williams
• Subject Matter: Civil Law

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Like to Wager?

Don’t Use a Stranger’s

Life Insurance Policy!

By Onika K. Williams,

Litigation News

Associate Editor

On the eligibility sheet for the

policy, the insured stated that the pre-

miums would be paid by check and not

nanced. In reality, the secondary mar-

ket program lent the insured the money

for the $300,000 annual insurance pre-

miums through a loan from a bank. The

insured made the initial payment for the

policy and was reimbursed because he

used the $5 million life insurance policy

to the bank as collateral for the loan.

The insurance company would not have

issued the policy if it had known about

this loan arrangement.

The loan had a 30-month term.

The secondary market program sent

notices to the insured explaining that

the loan was coming due in April

2009 and that the insured had two

options to satisfy the $569,572 debt:

(1) the insured could repay the amount

himself or (2) relinquish his interest

gram that would allow him to partici-

pate in the secondary market for life

insurance policies. The program would

provide the insured with free life insur-

ance for several years before the policy

would be assigned to the strangers who

would secretly fund the policy at no

expense to the insured. The 78-year-

old participated in the program and

applied for a $5 million life insurance

policy for himself on May 31, 2006.

The insured’s purchase was the visible

part of a complex web of transactions.

The insured’s application indicated

that his family trust would be the pri-

mary beneciary of the policy and that

he would be the owner. Because of his

age and health, the annual premium

for the policy was almost $300,000

and exceeded his adjusted gross

income almost every year the policy

was in effect.

A LIFE INSURANCE POLICY is

void as a “wager on a stranger’s life”

when sold on the secondary market

in order to hide from the insurer that

there is no insurable interest. A federal

court of appeals held that a sequence

of transactions amongst several compa-

nies to purchase a $5 million “stranger-

originated” life insurance policy

provided the companies with an inter-

est in the insured’s life ending, voiding

the policy. ABA Litigation Section lead-

ers suggest this case is a reminder to

practitioners that legal decisions should

be balanced with sound public policy.

Unlawfu l Scheme to Bet on

Stranger’s Life

The conict in Sun Life Assurance

Company of Canada v. Wells Fargo

Bank began when a 78-year-old man’s

insurance broker told him about a pro-

14 | ABA LITIGATION SECTIO N WINTER 2023 • VOL. 48 N O. 2

Published in Litigation News Volume 48, Number 2, Winter 2023. © 2023 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or

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