As many observers are aware, I am the successor trustee in the (in)famous Kramer litigation, in which the estate of Arthur Kramer, one of the name partners of the Kramer Levin law firm, is suing the investors who bought Mr. Kramer’s life insurance policies from his beneficiaries. The key issue has been that of “insurable interest,” namely whether the insured (here, Mr. Kramer and the trust he established) had to have a bona fide or “good faith” intention to benefit someone having a lawful and substantial interest in the continued life, health or bodily safety of the person insured, either due to a blood or legal relationship of love or affection, or an economic relationship (i.e., a “key man” policy). In the Kramer case, the argument went, the “insurable interest” requirement wasn’t met, because the policy was transferred by the beneficiaries — Mr. Kramer’s children — immediately to stranger investors. Although New York law expressly permitted immediate assignment of an insurance policy, a recent case, Life Product Clearing, LLC v. Angel, 530 F.Supp.2d 646 (S.D.N.Y. 2008), had read in such a “good faith” requirement.
On September 1, 2009, the U.S. District Court for the Southern District of New York, Judge Batts presiding, issued a partial summary judgment order dismissing several counts of the original complaint, but retaining the allegation of a violation of the insurable interest requirement relying on the Angel case’s “good faith” requirement. The decision authorized an immediate interlocutory appeal to the U.S. Court of Appeals for the Second Circuit, which was duly filed. The Second Circuit, in turn, certified the question of the “good faith” requirement to the New York Court of Appeals — New York’s highest court — which answered resoundingly on November 17, 2010, that no such requirement existed, and that in fact it was perfectly legal for the insured to intend to transfer his or her policy to a third party immediately upon issuance prior to taking out the policy — an outcome very favorable to the life settlement industry. Subsequently, the Second Circuit has vacated and remanded Judge Batts’ original decision for proceedings consistent with the New York Court of Appeals’ opinion, and Judge Batts has issued an order to the parties to show cause why the entire case should not be dismissed.
Judge Batt’s Partial Summary Judgment Order Sept 1, 2009
NY Court of Appeals Decision of Nov 17, 2010
Second Circuit Decision Vacating and Remanding Judge Batts’ Decision
