• 2004 Stuart Moldaw Trust v. XE L.I.F.E., LLC, 2009 U.S. Dist. LEXIS 64658 -- Stranger-Owned Life Insurance Policy Case
  • December 11, 2009
  • Law Firm: Proskauer Rose LLP - New York Office
  • A group of investors purchased $78 million of life insurance on the life of the decedent in exchange for paying him $4 million during his life.  The decedent’s widow, estate, and living trust sued the investors to recover the insurance payments.  The issue was whether or not the widow, estate and living trust had standing to sue for the recovery of the funds.  The decision turned on whether or not the law of California or New York was applicable.

    Both California and New York prohibit the purchase of a life insurance policy on the life of another person without having an “insurable interest” in that person’s life.  An “insurable interest” is an interest in having the life continue, as distinguished from an interest which would arise by or be enhanced by the death of the insured.  In New York, the executor of the insured’s estate has a right to recover the benefits of the policy.  In California, however, only the insurer has the right to sue.

    The court concluded that California law applies because the plaintiffs were domiciled in California, the decedent was domiciled in California at the time of his death, the initial negotiations occurred in California, and at least two of the policies contained a California choice of law provision.  Therefore, only the insurer had standing to sue to recover the payments.