Georgia Supreme Court Holds Life Insurance Policies Taken Out With Intent to Sell are Lawful
On October 25, 2022, the Supreme Court of Georgia answered a certified question from the Eleventh Circuit Court of Appeals concerning Georgia’s insurable interest statute, OCGA § 33-24-3 (1995).
In Crum v. Jackson National Life Insurance Company, No. S22Q0649 (Ga. 2022), the main question, as reframed by the Georgia high court, was “is a life-insurance policy an illegal wagering contract if the insured takes out the policy on his own life with the intent to sell the policy to a third party with no insurable interest, but without a third party’s involvement in causing the policy to be procured?” The federal district court, following a bench trial, had previously concluded that, under Georgia law, an insured could not take out a life insurance policy with the intent to transfer it to someone who lacked insurable interest in the insured’s life. On appeal, the Eleventh Circuit opined that Georgia case law did not definitively address the issue. The Georgia Supreme Court disagreed with the federal district court’s ruling.
In Crum, Kelly Couch, the insured, applied in 1999 for a $500,000 life insurance policy from Jackson National Life Insurance Company. When he applied for the policy, Couch told Jackson that he was healthy, but that was not true. Indeed, Couch knew that he was HIV-positive, which, when he applied for the policy, meant that he had a greatly diminished life expectancy. He bought the policy with the intent to sell it on the secondary viatical settlement market. Eight months after purchasing the policy, Couch did just that: a brokerage agency that specialized in viatical settlements connected Couch with Sterling Crum, who bought Couch’s policy knowing that Couch was HIV-positive and likely had only a few years left to live. Couch died in 2005; Crum later made a claim for the death benefit; and Jackson denied the claim and filed a declaratory judgment action in the U.S. District Court for the Northern District of Georgia, primarily seeking a declaration that the policy was void ab initio under Georgia law as an illegal human-life wagering contract. The federal district court found that Couch had bought the policy without Crum’s involvement, but with the intent to sell it in the near future to someone without an insurable interest. Jackson Nat’l Life Ins. Co. v. Crum, No. 1:17-cv-03587, 2020 WL 12968089, at *9 (N.D. Ga. Mar. 2, 2020). The federal district court acknowledged that Georgia’s statute addressing insurable interests in the context of life insurance did not appear to prohibit such a policy without the involvement of a third party at the time the policy was issued, but concluded that Georgia case law treated such policies as illegal wagering contracts, thus rendering the subject policy void.
The Georgia Supreme Court first concluded that the question of whether a life insurance policy is an illegal wagering contract must be answered by Georgia’s statutes that govern life insurance policies specifically, to wit: OCGA § 33-24-3 (1995). The Georgia statute that bars wagering contracts generally, OCGA § 13-8-2(a)(4), would not guide the analysis.
Next, in applying Georgia’s current insurable interest statute, there was no dispute that the language of the statute did not prohibit Couch from taking out the policy on his own life with the intent to sell it to an investor. Rather, Jackson relied on Georgia case law that pre-dated Georgia’s current insurable interest statute—referring to the cases as “longstanding common law”—which Jackson contended independently prohibited, as illegal wagering contracts, policies taken out by someone on his own life with the intent to sell them to a third party who has no insurable interest in the life of the insured. But the Georgia Supreme Court said that “Jackson is mistaken about the nature and import of this case law.” The case law that Jackson relied upon pre-dated 1960, when the Georgia legislature substantially and materially re-wrote the Georgia Insurance Code. Georgia’s prior insurance statutes, and the case law interpreting them, stated that a person may in good faith, and without fraud, collusion, or intent to enter into a wagering contract, lawfully take out a policy of insurance on his own life and make the same payable to whomever he pleases, including a person who lacked insurable interest in his life. But the emphasized language was not included in the new Georgia Insurance Code in 1960, or in any subsequent revisions of that Insurance Code, including the version that exists today, OCGA § 33-24-3 (1995). The Georgia Supreme Court thus concluded that the Georgia legislature decided not to include the prior statutory limitations in an insured’s ability to alienate his own life insurance policy. Hence, the prior case law that Jackson relied upon was not controlling.
In dicta, the Georgia Supreme Court also stated that it would generally be true that, under the plain language of OCGA § 33-24-3(e) (1995), if a third party has “caused” the insured to procure a policy on his own life and name as the beneficiary someone without an insurable interest, the policy would violate Georgia’s insurable interest statute. But the Court further stated: “It is not clear, however, whether a policy would be void if a third party ‘causes’ an insured to procure a policy on his own life that names the insured himself as beneficiary, and the insured then turns around and immediately sells it to the third party or someone else without an insurable interest.” The Court left this issue to be addressed another day.
Anna Mandel also contributed to this article.