The Nebraska Supreme Court has ruled that the state’s insurance guaranty fund does not cover investors in a viatical settlement firm that failed in 2002.

A group of Nebraska residents who had invested in Future First Financial Group Inc., Ponte Vedra Beach, Fla., had argued that the Nebraska Life and Health Insurance Guaranty Association was obliged to cover about $1 million in losses they incurred when the company went bankrupt.

State guaranty funds back life insurance and annuity policies sold in the state against the possibility of financial failure of insurers.

Viatical settlements are the sale of death benefits from life insurance policies of insureds believed to be terminally ill.

In Future First’s case, the policies failed to pay off as expected because medical advances prolonged the lives of many who had been covered by the policies, according to Florida insurance regulators. Florida’s insurance regulators put Future First into conservatorship in 2002, after viatical contracts it sold provided little or no returns.

Top executives with the firm also were charged with fraud at the time by Florida securities regulators.

According to Florida insurance regulators, thousands of investors held contracts with Future First. The contracts involved about $170 million invested in death benefits, with $270 million in expected returns.

In the Nebraska lawsuit, Harvey vs. Nebraska Life & Health Insurance Guaranty Association, Future First investors in Nebraska had argued that the state guaranty association was obliged to back the contracts.

Upholding a lower court, however, Nebraska’s Supreme Court ruled that Future First was never authorized by the state insurance department to do business in Nebraska and therefore was not legally an insurance carrier under state law.

Doug Head, executive director of the Life Insurance Settlement Association, Orlando, Fla., praised the court’s decision.

“We at LISA do not feel it is appropriate to compensate a few dissatisfied investors at the risk of damaging the only back stop to protect policy owners in the event of a carrier’s insolvency,” Head says..