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Florida OIR, proposal to Pasco County and insurable interest

Sat Jul 5th, 2014 on     Insurance Law,    

We are still talking about a recent Florida Office of Insurance decision. The OIR was looking over a proposal from an investor group, represented by Pollock Financial Group LLC, to purchase life insurance policies for all employees of the Pasco County School District. Pollock had pitched the program — the Benefit Stabilization Funding Program — to school districts around the state. Pasco was either the first or the only district to consider the program and to send it to the OIR for review.

The OIR had some misgivings. We discussed some in our last post. Most importantly, to us, was the OIR’s sense that the program would violate Florida’s insurable interest statutes.

Every state has laws regarding insurable interest, but the concept goes way back to the early days of the insurance industry, when insurance companies and the courts were trying to draw a bright line between insurance and gambling. At its core, insurance is meant protect your interests, not to profit from things that happen to someone else. Insurance companies calculate and take the risk, so they can be paid for their trouble. But for a stranger to lay a bet that you will die at sea or in a car accident? That, as the courts put it, violates public policy.

Take the idea to its extreme, and you have a Barbara Stanwyck movie. Bill has a couple hundred dollars a month that he uses to buy life insurance policies on the residents of a hospice down the street. He has no personal connection to any of them. He just has a list of names and Social Security numbers, so he buys as many policies as he can afford and, of course, names himself as beneficiary. These people will surely die before he has invested as much as he will be paid. No harm, no foul, right? It’s not as if he were actually pulling the plug on the insureds. He’s just gambling that they’ll pass away while he can still profit from it.

Tort law uses a term that comes in handy in a lot of situations: the “ick” factor. This scenario has a strong ick factor that moves society to find a way to make it less attractive to schemers. Enter “insurable interest.”

We’ll finish this up in our next post.

Source: Wall Street Journal, “Regulators Slam Investor Proposal to Pay for Teachers’ Life Insurance,” Leslie Scism, June 13, 2014

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