A policy holder’s insurable interest in a life insurance policy is valid even if he intended to sell it when he bought it, a Federal court says.
The U.S. 4th Circuit Court of Appeals in Richmond, Va., made that ruling in upholding a lower court decision in a case brought by First Penn-Pacific Life Insurance Co., Schaumburg, Ill. That court ruled that First Penn could not cancel a policy it had issued to Stanley Moore, an Arizona resident, even though Moore had made false statements when applying for the policy.
The court acknowledged that Moore had attempted to defraud 7 life insurance companies in 1997 when he purchased life insurance policies with a total value of $8.5 million. Shortly afterwards, he met with a viatical settlement broker to sell the policies, fraudulently claiming he was terminally ill, according to the 4th Circuit.
Then, on Jan. 5, 1998, Moore bought a $2 million, 10-year policy from First Penn, which he later converted to a 20-year policy. By failing to disclose his other policies to First Penn, he made “material misrepresentations” to the company, the court acknowledged.
Upholding the 2007 decision by the U.S. District Court in Maryland, the appeals court ruled First Penn could not cancel the policy it had issued to Moore, holding that the insurer had failed to contest the policy within Arizona’s required 2-year period.