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Turning Tables on Life Insurance Company (part 2)

Wed Oct 13th, 2010 on     Insurance Claims,    

In our last post, we started to examine the intricacies and mystery surrounding a life insurance dispute. The insured, a woman of considerable wealth, died under unusual circumstances. While the death was ruled accidental, her daughter and the rest of the family were unconvinced. When a $15 million life insurance policy turned up, essentially naming the deceased’s companion and purported business partner as sole beneficiary, both the family and the insurance company became suspicious. Now, the companion, the insurance company and the family are all involved in a legal action to determine who is entitled to the $15 million.

The Insurance Company’s Claim. The insurance company claimed that the policy was obtained fraudulently. Their argument turned on two concepts: insurable interest and stranger-originated policies.

For a life insurance policy to be enforceable, the person (or business) taking out the policy must have a close relationship with the subject of the policy, close enough that the insured is more valuable to the purchaser alive than dead. Usually, the relationship is a family connection, like husband/wife. A business, too, can have an insurable interest in an executive who is key to the operation of that business — especially in its early years, Microsoft relied heavily on the leadership and ingenuity of Bill Gates, and without him the company would have faltered.

In the case of the companion and his business, the insurer claimed that there was no insurable interest. And then it went a step farther by claiming that the policy was obtained as a “stranger-originated” policy intended for sale to investors.

In our next post, we will discuss stranger-originated policies as well as the family’s claim.

Resources: “‘Convoluted’ $15M Life Insurance Dispute Involving AIG May Go to Trial” 10/6/10

Wall Street Journal “Life, Death and Insurance: Indiana’s $15M Mystery” 4/12/10

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