Formal definitions of insurable interest seem to matter more than intent when courts are considering stranger-originated life insurance (STOLI) cases, a lawyer says.

Thomas Weinberger, a partner at Stroock & Stroock & Lavan L.L.P., has come to that conclusion in analysis of a recent California Court of Appeal decision on The Lincoln Life and Annuity Company of New York vs. Jonathan S. Berck, a case involving two policies that insured the life of Jack Teren.

Weinberger prepared the analysis for the Institutional Life Markets Association, Washington, a group for institutional investors with an interest in the life settlements market.

Teren bought the policy before the California Legislature passed a bill creating a law that seeks block STOLI arrangements.

The appeals court sided with the trustee who now owns the policies, even though the court agreed that Teren had intentionally bought the policies to sell them, had misrepresented his age and financial condition on the applications, and had given incorrect information about whether someone else was helping him pay for the policies.

The definition of insurable interest that was in effect at the time Teren bought the policies was the definition that governed those policies, the court held.

Weinberger says courts in other states, such as Minnesota and New York, also have held that the intent of the policy does not matter.

The Delaware Supreme Court will soon be addressing the question of whether an insured may acquire a policy and immediately transfer it to a third party, Weinberger says.

- Allison Bell

Other life settlement coverage from National Underwriter Life & Health: