In a memorandum opinion issued in Principal Life Insurance Company v. Lawrence Rucker 2007 Insurance Trust on June 26, 2012, a federal district court applied the Delaware Supreme Court’s holding in PHL Variable Life Insurance Co. v. Price Dawe 2006 Insurance Trust (“Price Dawe”) to reverse an earlier order voiding a policy for lack of insurable interest. The Rucker opinion, which concerned a beneficial interest transfer transaction, recognizes that under Price Dawe, a policy is not void either because the insured intended to sell it on the secondary market or because the insured obtained the policy through premium financing. Ultimately, in undoing the prior order granting summary judgment in favor of the insurer, the court found that there was conflicting evidence surrounding the procurement of the policy that would have to be resolved by a jury.
The implications of Rucker are, for the most part, positive for investors. Most importantly, the case interprets Price Dawe as permitting insureds to use premium financing to procure policies without violating insurable Delaware’s interest laws. This is significant because the Price Dawe opinion contains broad and ambiguous language possibly putting the validity of premium financed policies in question. Specifically, the Delaware Supreme Court noted that “if a third party funds the premium payments by providing the insured with the financial means to purchase the policy then the insured does not procure or affect the policy.” While that language might have been construed to cover premium finance transactions, the Rucker court held that under Price Dawe, “an insured’s ability to procure a policy is not limited to paying the premiums with his own funds; borrowing money with an obligation to repay would also qualify as an insured procuring a policy.” Rucker is, of course, a trial court opinion with limited precedential value; but its express limitation of Price Dawe’s sweeping language is nevertheless important. On a less positive note, the Rucker court’s decision highlights the fact-intensive nature of the inquiry needed to ascertain the existence of an insurable interest. This may prevent investors from quickly (and cheaply) prosecuting or defending suits to enforce their contract rights.
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