A Potential Problem With Insurable Interest Statutes

Mary Mahala Gardner has published her note entitled Trust, We Have a Problem: Chawla ex. rel. Giesinger v. Transamerica Occidental Life Insurance Company, Its Revelation of a Problem in Insurable Interest Statutes and the Subsequent Effect on Irrevocable Life Insurance Trusts, 62 Okla. L. Rev. 125 (2009).

An excerpt from the introduction of the note is below:

The United States District Court for the Eastern District of Virginia, in Chawla ex rel. Giesinger v. Transamerica Occidental Life Insurance Co., helped expose an issue common to many state insurable interest statutes. In analyzing Maryland’s insurable interest provisions, the court noted how Maryland’s statute, by restricting the scope of an insurable interest to (a) those related by blood or law, (b) those holding an interest in the continuation of the life of the individual, and (c) those involved in a contract or option for specified business purchases and sales, effectively eliminated the potential for any trustee to be a holder of a valid insurable interest in the insured of a life insurance policy. . . . .

This note analyzes the court’s decision in Chawla, explores the repercussions of the problem exposed by the decision, and proposes a legislative solution involving a statutory amendment for those states that either lack statutes addressing the issue or whose current statutes contain the flaw. Part II of this note examines the circumstances involved in the formation of the Chawla dispute. Part III discusses the holding of the district court and how the court exposed the flaw in Maryland’s insurable interest statute. Part IV analyzes the implications of the Chawla decision and discusses the status of insurable interest statutes across the United States. Part IV examines why the restriction on the scope of insurable interest is a problem, discusses the issues raised by it, and surveys possible solutions. This note concludes in Part V.