New York STOLI Litigation

When an investor convinces someone to purchase an insurance policy on their life and then purchases the policy from the insured, gambling on the length of the insured’s life, this is called a stranger originated life insurance policy (STOLI).

Justice Edmead of the Manhattan Supreme Court recently concluded that an insurance company’s failure to pay an on an alleged STOLI may violate the very statute created to prevent a STOLI in the first place, allowing discovery on the issue to proceed. Phoenix Life Insurance Company v. The Irwin Levinson Insurance Trust II, 600985-08.  Below is a summary of the facts in the case.

• Levinson was an elderly man who had battled cancer.
• The Phoenix Life Insurance Company issued a $5 million policy to his trust.
• After Levinson died, Phoenix filed suit against the trust to rescind the policy.
• Phoenix alleges the policy was a really STOLI hiding behind a trust to get around New York laws that aim to prevent STOLIs.
• The trust alleges that failure to pay the trust is a deceptive practice under the same consumer protection statute that was to prevent STOLIs.

See Noeleen G. Walder, STOLI Scheme Alleged in Bid to Drop Policy, NY L.J., Feb. 23, 2009.