Eleventh Circuit: Sale of Life Insurance Policy By Terminally Ill Man Not Void

Modeling proper judicial modesty, the Eleventh Circuit, faced with a novel question of Georgia law, certified the question to the  Supreme Court of Georgia.  Having received the thorough and considered opinion of that body, the Eleventh Circuit thanked Georgia for its assistance and followed its guidance in what then became the easy case of Jackson National Life Insurance Co. v. Crum.

The question certified to the Supreme Court of Georgia was whether Georgia public policy forbids a person from taking out a life insurance policy and then selling that party to a third party with no insurable interest in the policyholder's life.  Jackson National Life Insurance Co. (Jackson) argued that the transaction entailed an illegal wagering contract, but the Supreme Court of Georgia found no support for that position in this case, where the buyer had played no role in procuring the original policy.  

In 1999, Kelly Couch (Couch) procured a $500,000 life insurance policy from Jackson.  At the time, Couch knew that he was HIV+ and had a shortened life expectancy.  He did not disclose those facts to Jackson.  His plan was to sell the policy through a brokerage agency.  Crum bought the policy, knowing that Jackson was HIV+ and that Jackson's life expectancy was shortened as a result.  After Crum learned that Couch had died in 2005, he sought to collect on the claim.  National declined the claim, citing the illegality of wagering on a human life.  National's policy with Couch apparently provided that it could not invalidate the policy based on Crouch's misrepresentations if they were not discovered within two years.

It seems clear that if Crum had induced Couch to conceal his illness from Jackson, procure the insurance, and sell it to Crum, that would violate Georgia law.  If Couch innocently procured the policy and then later became ill and sold the policy to Crum, that would not violate Georgia law.  This case fell somewhere in between, and so the Eleventh Circuit properly certified the question rather than engaging in Erie guessing.

The issue, according to the Supreme Court of Georgia, was to be determined through a narrow look at the statutory regulation of wagering contracts in the context of life insurance policies.  It turns out that the English, as far back as the 18th century, enjoyed making sport of human life, wagering on the expected demises of celebrities and people convicted of capital offenses.  The was really just gambling, not insurance.  Nonetheless, Parliament disapproved of the practice and created the "insurable interest" rule to prevent insurance policies from becoming vehicles for such speculation as sport.  That is, the owner of an insurance policy must expect some material benefit from the continued life of the insured.  

The Supreme Court of Georgia found that nothing in the Georgia statutory scheme prohibited the transaction between Couch and Crum.  Couch had an indisputable insurable interest in his own life when he took out the policy.  Georgia law does not require that the beneficiary of a policy have an insurable interest in the insured life, and so it is hard to see why the sale of the policy to a disinterested third party would run afoul of a Georgia public policy.

Jackson argued that prior case law in support of its position was part of the common law of Georgia unaffected by the current statutory scheme.  Not so, said the Georgia Supremes.  The case law in question interpreted the prior statutory scheme, but when Georgia reformed its insurance statutes, that case law remained relevant only to the extent that the new statutory regime incorporated it.  The new statutory regime does not incorporate the case law on which Jackson relied, and to the Supreme Court could discern no intention to adopt the rule that Jackson urged upon it.

Armed with this opinion, the Eleventh Circuit vacated the District Court's award of judgment in favor of Jackson and remanded for further proceedings.  The result troubles me a bit, but I suppose the real problem is that Jackson's policy excuses fraudulent concealment after two years.  I'm not sure why that language is in there, but it being there, Jackson would have had to pay out the policy to somebody independent of the challenged transaction.  The Georgia legislature could address transactions like that between Couch and Crum as a means to disincentivize people from raising money through insurance policies to fund their last remaining years, but it has not done so, and there would always be work-arounds it seems.

Some may find the Georgia opinion, appended to the Eleventh Circuit's, a useful teaching case on public policy analysis and on the strategy for reconciling common law opinions with an evolving statutory scheme.