Westerlind Featured on Risks in Life Settlement Investments

LMI: Why does there appear to be an active ‘market’ for estate litigation in the first place? 

JW: Estate litigation in the life settlement space has gained traction in large part because certain court decisions — particularly out of Delaware — have established a framework that permits estates to recover death benefits under state insurable interest statutes. That creates meaningful financial incentives for estates and their counsel to bring these claims. 

LMI: What are some of the commonalities among the policies in these cases and why are these recurring themes? 

JW: The first commonality is vintage: the policies at issue in these cases were generally issued between 2004 and 2009. The second is product type — these were typically universal life insurance products issued by a relatively small group of carriers that designed these products for this market. 

LMI: Are there any estate litigation-related definitions that seem to have been agreed generally in most states? If so, what are they? 

JW: STOLI stands for stranger-originated life insurance, and while some courts have attempted to define that phrase, there is no precise or uniform definition across jurisdictions. Most state insurable interest statutes provide that an insured has an insurable interest in his or her own life and may take out a policy naming anyone—including a stranger—as beneficiary. 

LMI: Are there any recent or current cases which might provide additional certainty at a general level to the life settlement market? 

JW: Two cases stand out. 

First, Estate of Norman Frank v. GWG DLP Master Trust Dated 03/01/06. In Estate of Frank, the Delaware Supreme Court held that an estate claim under Section 2704(b) of Delaware’s insurable interest statute is subject to a three-year statute of limitations. However, the court did not define when that limitations period begins to accrue — an issue that remains to be resolved. In addition, the decision reaffirmed that common-law defenses may be asserted in these cases, a point that some prior lower Delaware courts had declined to recognize. When that case concludes, the market will have considerably greater clarity regarding the window in which estate claims may be filed, and at what point a policy holder can consider itself insulated from this type of litigation. 

Second, the Georgia Supreme Court’s decision in Leone addressed certified questions from the federal district court concerning how courts should determine whether a stranger procured or caused to be procured a life policy within the meaning of Georgia’s insurable interest statute. Notably, the court observed in dicta that even if a stranger did procure or cause the policy to be procured, the policy would remain valid under Georgia law so long as the death benefit was payable to someone with an insurable interest in the insured’s life. Because most of the policies at issue in these disputes were applied for by, and issued to, trusts whose beneficiaries were family members of the insured, the implication is that many of these policies would be valid under Georgia law regardless of how they were originated.

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