The U.S. Supreme Court on Dec. 3 declined to hear a case that would have challenged the extent to which states can regulate life settlements. The move effectively allowed an appellate court decision in favor of the states to stand.
The Fourth Circuit Court of Appeals in Richmond had ruled on the case earlier this year, finding that states have the power to regulate life settlements and viaticals under language in the McCarran-Ferguson Act that gives the states authority over businesses that “relate to” insurance.
In the case, Life Partners Inc. v. Morrison, 07-261, a resident of Virginia had filed a complaint with the State Corporation Commission that Texas-based Life Partners Inc. had not paid her enough for her policy under state law.
According to a decision written by Judge Paul Niemeyer, the policyholder, referred to as Jane Doe, contracted with New Jersey-based broker Ideal Settlements, Inc. to bring a policy into the secondary market and ultimately to sell it to Life Partners. After rejecting two offers, Doe accepted a bid from Life Partners for $29,900, which represented 26% of the face value of the $115,000 policy.
However, Virginia law requires that viators receive a certain percentage of the policy’s face value based on their life expectancy, and under that law Doe was to receive far more, as much as 60% to 70%. Five months after the transaction was completed, according to the Judge Niemeyer’s ruling, Doe contacted Life Partners to demand more money. Life Partners offered to rescind the transaction, but Doe refused that and instead filed a complaint with the state.
As a result of the complaint, the Virginia State Corporation Commission issued a “show cause” order to Life Partners asking why it was conducting business in the state without having obtained a license and warning that if it did not comply with Virginia regulations, the company would be barred from transaction with state residents.
Life Partners challenged the order, claiming that it violated the Commerce clause of the constitution by asserting jurisdiction over all transactions involving Virginia viators. The state countered that its law was appropriate under the McCarran-Ferguson Act. A district court ruled against Life Partners while declining to rule on the McCarran-Ferguson question raised by the state. The decision was appealed by both parties, and the appellate court upheld the earlier decision on the Commerce clause while agreeing with the state’s arguments on the issue of McCarran-Ferguson.