According to Susman Godfrey, the law firm that represented the policyowner, Lincoln alleged that the insurance policy at issue lacked an insurable interest because it was procured by third-parties for investment purposes. But in granting summary judgment in favor of the policy owner, the court dismissed the life insurer's suit.
The policy owner defended the policy's legitimacy and argued that Lincoln's conduct after it sued -- which included accepting more than $100,000 in additional premium payments -- premiums that it wanted to keep -- barred the company's claims.
"Lincoln tried to rescind an insurance policy, but at the same time it demanded, accepted and tried to keep the policy owner's payments for continued coverage," said Steven Sklaver, one of the attorneys who represented the policy owner, in a statement. The court's ruling "is a clear rejection of this practice."
Susman Godfrey says it represents investors and trusts in life-settlement litigation across the United States.
Separately, the life insurance industry last month came out strongly against securitizing life settlements, with a newly expressed policy from the American Council of Life Insurers calling for the practice to be universally banned. Turning life settlements into tradeable securities encourages stranger-originated life insurance — a product opposed by the ACLI — the group said.
In a typical life settlement, a policy purchased in good faith but no longer wanted or needed is sold to a third party. But in STOLI transactions, financial speculators or their representatives induce senior citizens to purchase life insurance, policies the seniors otherwise would not obtain, with the intent of transferring the death benefits to the speculators at a later date. Senior citizens are often targeted for such transactions through fraud, and can be left vulnerable to unexpected taxes and fees.