Legal Briefing: Is It Legal to Invest in a Stranger's Life Insurance Policy?

legal briefing
legal briefing

A daily look at legal news and the business of law...

"Insurable Interest" in a Stranger?

Life insurance isn't necessarily a way to protect loved ones in case of one's untimely death. Some people have taken out very large life insurance policies on themselves and then immediately sold them to investors, turning the policies into a way to get cash quick.

That fundraising tactic may not be legal, however, because policy beneficiaries are supposed to have an "insurable interest" in the policy holder, and strangers don't. Nonetheless, if the policy were originally taken out in a sincere effort to benefit appropriate people, nothing is wrong with later selling it to investors.

A case that should sort out what's permissible is now before New York's highest court. However the court rules, it will affect hundreds of similar situations in New York or related to New York. Nationally, tens of thousands of people have made similar deals. The pending case, as reported by the Wall Street Journal, pits the widow of Arthur Kramer, co-founder of the law firm Kramer, Levin, Naftalis & Frankel, against the investors and three insurers, in a fight over $20 million out of $56 million in policies.

Bigger Payout to Ground Zero Plaintiffs

A few months ago, Judge Alvin K. Hellerstein controversially rejected a settlement between New York, its insurers, and workers injured or potentially injured at Ground Zero. Hellerstein rejected the original settlement because the lawyers got too much and the plaintiffs too little, and the terms of the settlement were too confusing for plaintiffs to make informed choices about participating. The two sides went back to the negotiating table, and everyone, including Judge Hellerstein, is happy with the result.

The plaintiffs' attorneys have agreed to reduce their cut from one-third to one-quarter of the settlement, and the settlement total has risen at least $50 million to a range of $625 million to $712.5 million. Because of the reduced attorneys' fees, as much as $125 million more will go to the plaintiffs. The settlement is structured so that people already suffering injuries linked to the site get the most money -- as much as a couple of million each -- and everyone else who hasn't yet shown ill effects but might some day gets a few thousand dollars each.

This case marks the second time this year that a federal judge nixed a high-profile settlement, forcing both sides back to the bargaining table and producing substantially better results for the plaintiffs. The first was Judge Jed Rakoff's rejection of the Securities and Exchange Commission's Settlement with Bank of America (BAC). Hooray for the activism of these judges! (Or rather, their refusal to be rubber stamps.)

Justice Files More Indictments in Big Price-Fixing Case

Makers of the screens on computers, TVs, mobile phones and other devices conspired to inflate prices for five years, according to the Justice Department's indictment of AU Optronics Corporation, its American subsidiary and six of its executives. With this indictment, a total of 17 executives from multiple companies are facing charges. Six companies have already settled with Justice, agreeing to pay some $860 million in fines.

And in the Business of Law...

Associates at Fisher & Phillips just got a conditional raise -- half guaranteed, paid out in the year's paychecks, and half structured as a bonus at year's end for meeting performance targets. The performance target isn't merely hours billed -- yes, there's a minimum amount -- but also a requirement that the associate invoice clients three times their base salary. I guess the two aren't one and the same because not all "billed" time is actually charged to clients. Billing partners will write time off if they think an associate was too inefficient (or that the client will balk at paying it, claiming the associate was.)