The New York Court of Appeals held yesterday that “New York Law permits a person to procure an insurance policy on his or her own life and immediately transfer it to one without an insurable interest in that life, even where the policy was obtained for just such a purpose.” That holding, which responded to a certified question from the U.S. Court of Appeals for the Second Circuit in Kramer v. Phoenix Life Ins. Co. (please click here for the certification order), appears to approve stranger-owned life insurance (STOLI) schemes in New York that predate recent anti-STOLI legislation, at least where such schemes were “free from nefarious influence or coercion.” (Please click here for the opinion.)
According to the allegations of his widow Alice, Arthur Kramer, a prominent New York attorney, obtained various insurance policies on his own life, with the intent of immediately assigning the policies to investors. He did so, she alleged, after being approached by the principal of Lockwood Pension Services, Inc., about participating in a STOLI scheme. The policies, collectively providing some $56 million in coverage, were issued to two trusts established by Mr. Kramer, which named his children as beneficiaries. Shortly after the trusts were funded, the children assigned their beneficial interests to stranger investors. Following Mr. Kramer’s death in January 2008, Alice refused to turn over copies of his death certificate to the investors, instead deciding to file suit, alleging that the policies acquired by her husband violated New York’s insurable interest requirement and should be paid to her.
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