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The scales of justice, via DAMS

Life Health > Life Insurance

American National Seeks to Void a Life Insurance Policy Over Alleged Fraud

By Allison Bell

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What You Need to Know

  • American National says the defendant intentionally bought the policy without having an insurable interest in the life of the insured.
  • The insurer alleges that the purchase was part of a $535 million life application fraud effort.
  • In the past, attorneys for the defendant have argued that the insurer has paid out no death benefits and suffered no injury.

A life insurer is asking a federal court to void a life insurance policy based on the argument that the policy was purchased through an organized application fraud effort.

The insurer, American National Insurance Co., last week filed a complaint seeking a judgment declaring the policy, which was sold to Cathy T. Sherlock of South Carolina, to be unenforceable.

Insurers sometimes respond to allegations of insurance application misrepresentation or fraud by seeking to rescind policies, meaning that they take back the coverage and return the premiums to the purchasers.

In this case, American National argues that the policy was purchased with fraudulent intent, in violation of the federal Rackteer-Influenced and Corrupt Organization Act, or RICO; that the policy was void from the beginning; and that the court should let it keep the premiums, according to a complaint filed with the U.S. District Court of South Carolina, and available on Law.com Radar.

American National said it does not comment on litigation.

Sherlock could not immediately be reached for comment. No attorney has appeared in court on her behalf at this time. Jeffrey Peil, an Evans, Georgia, attorney who represented Sherlock in a 2022 case that was resolved confidentially through mediation, declined to comment on the new case.

The Complaint

American National alleged that Sherlock intentionally bought two policies insuring the lives of individuals in whom she lacked an insurable interest.

One of the policies has already been rescinded. Sherlock applied for the second policy in 2013, with the help of Wade Williamson, a former life insurance agent, on the life of a man in her community, Murphy Village, South Carolina.

Williamson was sentenced to 60 months in prison in 2018, in part because of an FBI agent’s allegations that he had helped clients submit 398 inaccurate life insurance applications as part of a fraud conspiracy, according to the American National complaint.

American National says that Sherlock put incorrect information about the insured and her relationship to the insured on the application.

“The defendant does not have and did not have an insurable interest in the life of the insured,” according to American National. “Defendant sought the policy for her own personal financial gain. The policy was procured at the request of the defendant, with the agreement that the policy would be controlled by, paid for, and ultimately transferred to defendant after it was procured, for the benefit and personal gain of the defendant, in an effort to evade the rule against wagering contracts. Based on the foregoing, the policy is a wagering contract.”

American National is a Galveston, Texas-based company that was acquired by Brookfield in May 2022.

Murphy Village

American National noted in its new complaint against Cathy Sherlock that it knows about concerns about Sherlock’s insurance policy because of an FBI investigation that led to convictions of 51 residents of Murphy Village — a community in North Augusta, South Carolina — who identify themselves as members of the Irish Traveler community.

The FBI “investigated racketeering and various forms of mail fraud, wire fraud, government benefits fraud, life insurance fraud, and other financial crimes among certain Irish Travelers living in Murphy Village, and persons affiliated with them,” according to the complaint.

One component of the conspiracy involved the purchase of “thousands of life insurance policies fraudulently procured from various insurance companies” that could pay $535 million in death benefits, American National said.

Irish Travelers are descended from a group of people with disputed origins that lived in Ireland. The European Union Agency for Fundamental Rights has found them to be a target of ethnic discrimination.

In connection with the 2022 case involving Sherlock and American National, Peil asked for the court to dismiss the case, based on arguments that any errors or misrepresentation had occurred years earlier, and that American National had suffered no injury because it had collected premiums for years and had paid out no death benefits.

Peil also asked the court, in pleadings related to a co-defendant, Mary Harrison, to strike portions of the complaint related to Murphy Village and Irish Travelers.

The references to Irish Travelers serve no legitimate purpose in pleading the insurer’s claims, according to a memorandum on behalf of Harrison.

Credit: zolnierek/Adobe Stock

Allison Bell

Think_Allison

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