Under Minnesota common law, a life insurance policy “issued to one who has no interest in the continuation of the life of the person insured, is both a gambling contract, and a contract which creates a motive for desiring the termination of such life, and is therefore against public policy and void.”
But “once a life insurance policy has been validly procured, it may be assigned to a third party that does not have an insurable interest.”
But “an exception to the rule permitting the assignment of life insurance policies exists when an assignment is not made in good faith, but is instead ‘a mere cover for taking out insurance in the beginning in favor of one without an insurable interest . . . .'”
So, a stranger cannot buy a stranger’s life insurance policy (gambling and hoping the insured will die soon), except when he can, except when he cannot?
So U.S. District Court Judge Ann D. Montgomery (D. Minn.) ruled in late 2013.
But this month, the 8th Circuit U.S. Court of Appeals reversed Judge Montgomery’s decision.
The question is whether Minnesota public policy requires that we permit an insurer who collected over $500,000 in premiums — a windfall it will keep if we affirm — to renege on its contractual obligation because a third party “schemed” with the insured before the policy issued to help him achieve his intent to purchase the policy for resale, an intent which, if unilateral, was consistent with the public policy recognizing that life insurance policies are legitimate investments, as well as insurance. …Recalling that the Supreme Court of Minnesota has never even considered an insurer’s claim that its policy should be invalidated on this common law ground, we conclude that the [Minnesota Supreme] Court would not declare the [insurance] policy [at issue] void ab initio, permitting [the insurer] to walk away from its bargain…[No] Minnesota common law decision…even suggest[s] that an existing life insurance policy will be declared void ab initio for lack of an insurable interest at the behest of an insurer that wishes to avoid paying the death benefit.”
Congratulations to the lawyers for Bank of Utah, Orrick, Herrington & Sutcliffe LLP, New York, NY; and Stinson Leonard Street lawyers in Minneapolis.