A case involving the immediate sale of a life policy and insurable interest will go to trial in New York after a federal judge denied a motion for judgment last month.

In a ruling dated January 22, Judge Denny Chin of the U.S. District Court for the Southern District of New York said the daughter of a man who had purchased a $10 million life insurance policy, who put it into a trust and then sold his interest in that trust to a third party, had made enough of claim to bring the matter to trial.

The case, Life Product Clearing LLC v. Linda Angel v. Leon Lobel Insurance Trust and Jonathan S. Berck, trustee (No. 07 Civ. 475 (DC), began with Leon Lobel, a retired 77-year-old butcher who established the Leon Lobel Insurance Trust and named himself beneficiary on Nov. 15, 2005.

At the same time, he applied for a $10 million life insurance policy designating the Trust as sole beneficiary. Six days later, Lobel sold his interest in the trust and any rights to the policy proceeds to LPC, receiving $300,000. On Jan. 6, 2006, he died. A year later, Lincoln Life & Annuity Company of New York paid $10,712,329 to the trust, including interest.

The dispute arose when LPC filed an action claiming the proceeds, and Lobel’s daughter, Linda Angel, filed a counterclaim. Angel also filed a complaint seeking a declaration that the trust is void and that Lobel’s estate should receive the money.

In his ruling, Judge Chin also noted that the issue at hand was whether the facts of the case provided a basis for Angel’s claims that LPC was a stranger to Lobel and that the transaction was essentially a wager on his death.

Noting precedents, Judge Chin said the law “has long shown a disdain” for such “wager” transactions. Although he also pointed out that New York State law allows an individual to assign the benefits of their life policy to someone else, at any time, he noted that the law also requires that the policy be purchased on the insured’s own initiative to be considered in line with insurable interest rules.

“Only one who obtains a life insurance policy on himself ‘on his own initiative’ and in good faith–that is, with a genuine intent to obtain insurance protection for a family member, loved one, or business partner, rather than an intent to disguise what would otherwise be a gambling transaction by a stranger on his life–may freely assign the policy to one who does not have an insurable interest in him,” Judge Chin said.

Several factors, Judge Chin ruled, support the assertion that Lobel’s application for the policy was not done on his own initiative, including the timing of the process and LPC’s involvement in the process.

Judge Chin noted that LPC argued that Lobel signed the policy himself, always had the option to retain it if he so chose, and that he was initially named as the sole beneficiary of the trust and the trust was the sole beneficiary of the policy. However, he added, “these facts, even if true, do not require a different result at this juncture, as they do not contradict Lobel’s alleged intent to sell the Policy to LPC before the Policy was procured.”

Further supporting his decision, Judge Chin said in the ruling that “cases that turn on the issue of intent are generally not appropriate” for a summary decision. “Because Lobel’s pre-assignment intent is central to LPC’s claim, and Angel’s claim–that Lobel never intended to obtain life insurance but always intended, for a $300,000 fee, to transfer his beneficial interest in the Policy to an investor–is more than plausible, LPC cannot prevail as a matter of law at this stage in the litigation,” he added.

David Howe, an attorney in the New York office of Holland and Knight LLP who represented Angel said, “The Lobel family is pleased with the judge’s ruling and looks forward to pleading their case at trial.” Now that Judge Chin has ruled on the motion for judgment, he said the case will move along the normal routine into the discovery phase before trial.

An attorney for LPC did not respond to a request for comment.