We have previously written about this case (here and here) as it has been winding its way through the courts.
The facts of the case are relatively simple. In 1999 the insured, Kelly Couch, purchased a $500,000 life insurance policy from Jackson National Life Insurance Company. He lied in the application about his health condition – AIDS. The facts established that he intended to sell the policy as quickly as possible, and he did to Crum approximately eight months after the policy was issued. The purchaser of the policy, however, was unknown to Couch at the time of policy issuance, did not finance any premiums and was not involved in any respect with the issuance of the policy. Stated differently, it was the insured’s subjective, unilateral intent to sell the policy quickly, he just had not identified any potential purchaser before or at the time of policy issuance, and the eventual purchaser was not involved in any way with the issuance of the policy to Couch.
The federal district court, 2020 WL 12968089, N.D. Ga. Mar. 2, 2020, held that a policy owner that purchases a life insurance policy with the unilateral intent to sell that policy in the near future does so in bad faith and in violation of Georgia’s insurable interest statute, OCGA 33-24-3; the court concluded that the policy is therefore an illegal wagering contract in violation of Georgia public policy and is unenforceable and void from inception.
Crum appealed the adverse decision to the 11th Circuit Court of Appeals, and that Court referred the case to the GA Supreme Court for an advisory opinion.
On October 25, 2022, the Georgia Supreme Court held, after a thorough analysis of legislative history, Georgia case law and Georgia’s insurable interest statute, that an insured is free to acquire a policy on his own life with the unilateral intent to sell that policy without violating the Georgia insurable interest statute so long as the purchaser of the policy from the insured is not involved with the insured at the time of policy issuance. The Georgia Supreme Court said that “under Georgia law, a life insurance policy taken out by the insured on his own life with the intent to sell the policy to a third party with no insurable interest, but without a third party’s involvement when the policy was procured, is not void as an illegal wagering contract.” The court declined to graft a ‘good faith’ requirement into the GA insurable interest statute.
It is likely that many aspects of Crum’s policy application were fraudulent (his HIV status, for example). However, the contestability period had expired, and that defense was unavailable to Jackson National.
There are a number of situations where an insured might purchase a policy to provide a contingency back-up for planned or emergency financial situations that might arise (collateral for a loan, mortgage payment, college education, key-man insurance, change in estate tax laws, etc.) knowing, at the time of policy issuance, that once the motivating reason for taking out the policy is no longer in present, he/she will sell the policy.
With the Crum decision, Georgia law falls in line with virtually all other jurisdictions in the country (except possibly policies controlled by Delaware law that are premium financed at the outset): an insured may procure a life insurance policy on his own life with the unilateral intent at time of issuance to sell that policy, so long as the eventual purchaser of the policy from the insured is uninvolved, directly or indirectly, with the insured at the time the policy is issued.
