Stranger-Owned Life Insurance Investors Sue Insurers

Since the bust of the secondary market in life insurance policies, insurers have portrayed themselves as the victims, filing lawsuits to cancel policies that were meant to enrich investors speculating on elderly lives. Investors are starting to strike back, requesting that the insurers honor the contracts or at least refund all of the paid premiums. Some are also seeking punitive damages.

Investors claim that insurers knew that these policies were likely to be resold when they embarked on an effort to increase sales of life insurance products. Insurers relaxed their underwriting guidelines, disregarded red flags in the underwriting process, and did not seek additional information from their customers.

These claims are being filed in state and federal courts nationwide. “With much of the litigation in early stages, legal experts say it is unclear how effective investors’ new counterattacks will be. Investors could face big losses if policies in their portfolios are canceled, leaving them with nothing to show for their expenditures.”

Leslie Scism, Insurers Sued Over Death Bets, W.S.J., Jan. 2, 2011.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this to my attention.