Georgia Supreme Court rules life insurance policies purchased with intent to sell are legal

Georgia Supreme Court rules life insurance policies purchased with intent to sell are legal

On October 25, 2022, the Supreme Court of Georgia answered a certified question from the Court of Appeals for the Eleventh Circuit regarding the Georgia Insurable Interest Act, OCGA § 33-24-3 (1995).

In Crum v. Jackson National Life Insurance Company, No. S22Q0649 (Ga. 2022), the main issue, as restated by the Georgia High Court, was “is a life insurance policy an illegal betting contract if the insured buys the policy on his own life with the intention of selling the policy to a third party without insurable interest, but without the involvement of a third party in underwriting the policy? The Federal District Court, following a lawsuit, had previously found that under Georgia law an insured could not purchase a life insurance policy with the intention of transferring it to a person who had no insurable interest in the life of the insured. On appeal, the Eleventh Circuit found that Georgian case law did not definitively address the issue. The Georgia Supreme Court disagreed with the federal district court’s decision.

In Mie, Kelly Couch, the insured, applied in 1999 for a $500,000 life insurance policy with the Jackson National Life Insurance Company. When he asked for the police, Couch told Jackson he was fine, but that wasn’t true. Indeed, Couch knew he was HIV-positive, which when he asked the police meant he had a significantly reduced life expectancy. He purchased the policy with the intention of reselling it in the secondary viaticum market. Eight months after purchasing the policy, Couch did just that: A brokerage firm specializing in viatical settlements put Couch in touch with Sterling Crum, who purchased the Couch policy knowing that Couch was HIV-positive and that he probably only had a few years left to live. Couch died in 2005; Crum then applied for the death benefit; and Jackson denied the claim and filed an action for declaratory judgment in the U.S. District Court for the Northern District of Georgia, primarily seeking a declaration that the policy was void. From the beginning under Georgian law as an illegal betting contract on human life. The federal district court found that Couch purchased the policy without Crum’s involvement, but with the intention of selling it in the near future to someone with no insurable interest. Jackson Nat’l Life Ins. Co. vs. Crum, no. 1:17-cv-03587, 2020 WL 12968089, at *9 (ND Ga. March 2, 2020). The Federal District Court acknowledged that Georgia law dealing with insurable interest in the context of life insurance did not appear to prohibit such a policy without the involvement of a third party at the time of policy issuance, but concluded that Georgian case law treated these policies as illegal betting contracts, thereby rendering the policy in question void.

The Supreme Court of Georgia first found that the question of whether a life insurance policy is an illegal betting contract must be determined by Georgian laws that specifically govern life insurance policies, namely: OCGA § 33-24-3 (1995). Georgia law that prohibits betting contracts generally, OCGA § 13-8-2(a)(4), would not guide the analysis.

Then, applying Georgia’s current insurable interest law, it was undisputed that the wording of the law did not prohibit Couch from underwriting the policy on his own life with the intent of selling it to a investor. Instead, Jackson relied on Georgia case law that predated Georgia’s current insurable interest law — calling the cases “long-standing common law” — which Jackson independently supported, as illegal betting contracts, policies taken out by someone on their own life with the intention of selling them to a third party who has no insurable interest in the life of the insured. But the Georgia Supreme Court said “Jackson errs on the nature and scope of this case law.” The case law Jackson relied on predated 1960, when the Georgia Legislature substantially and materially rewrote the Georgia Insurance Code. Georgia’s prior insurance laws and the case law interpreting them state that a person may in good faith and without fraud, collusion or intention to enter into a betting contract, legally take out an insurance policy on his own life and make it payable to whomever he chooses, including a person who has no insurable interest in his life. But the underlined language was not included in the new Georgia Insurance Code in 1960, or in any subsequent revision of that Insurance Code, including the version that exists today, OCGA § 33-24-3 ( 1995). The Supreme Court of Georgia thus concluded that the Georgian legislature had decided not to include the previous legal limitations in the ability of an insured to alienate his own life insurance policy. Therefore, the prior case law on which Jackson relied was not determinative.

In dicta, the Georgia Supreme Court also stated that it would generally be true that, under the plain language of OCGA § 33-24-3(e) (1995), if a third party “brought” the insured to take out a policy on his own life and name as someone beneficiary without an insurable interest, the policy would violate Georgia’s insurable interest status. But the Court further stated: “However, it is not clear whether a policy would be void if a third party ‘induced’ an insured to take out a policy on his own life which names the insured himself as beneficiary, and the insured then turns around and immediately sells it to the third party or someone else without insurable interest. The Court left this issue for another day.

Anna Mandel also contributed to this article.

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