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March 09, 2006 at 03:40 AM
A federal appeals court this week rejected an effort by the trustee of an estate to collect on a $1 million insurance policy in which she argued that she held an “insurable interest.”
The ruling in the so-called Chawla case by a panel of the 4th U.S. Circuit Court of Appeals, based in Richmond, Va., voided the policy based on misrepresentations about the health of the insured–and not on the critical “insurable interest” issue raised by the lower court.
“Furthermore, it is not at all clear how this Appeals Court opinion will affect current efforts in the Maryland legislature to settle this issue,” the Association for Advanced Life Underwriting bulletin said.
An AALU official said bills clarifying that a normal life insurance trust has an insurable interest in the life of the insured–the position the life insurance industry is taking on the issue–appear to be moving toward enactment in the Maryland legislature.
Indeed, the appeals court panel’s ruling vacated the part of the lower court decision that said the trust lacked an insurable interest because it was unnecessary to consider that issue.
