The recent growth in the life settlement industry has created new opportunities for all participants in life settlement transactions such as investors, life settlement providers, policy holders and brokers. But due to the complex nature of life settlement investments, these new opportunities have also brought with them a host of potential legal problems, giving rise to numerous lawsuits brought by or against life settlement providers, life insurance companies, life settlement brokers, institutional investors and private investors.
Life settlement investments are life insurance policies that are sold by the policy owner to a third party investor in exchange for a cash payment. These transactions provide an attractive alternative for policyholders faced with a choice between abandoning their policy or continuing to make costly premium payments. According to a 2009 study commissioned by the U.S. Senate, life settlement transactions yield an average of eight times more than the cash surrender value of a life insurance policy offered by insurance companies.
After purchasing a life insurance policy through a life settlement transaction, the investor continues to make the premium payments on the policy in order to keep it in force. After the insured individual dies, the investor receives the full death benefit on the policy.
The amount an investor may be willing to pay for a policy depends primarily on the face amount of the policy, the amount of the premiums and the life expectancy of the insured. The life expectancy of the insured is key to the value of a life settlement because the longer the insured lives, then the longer the investor will have to wait until receiving the death benefit and the longer the insured will have to pay premiums. The life expectancy of the insured is estimated by life expectancy providers based on medical and actuarial data. The longer the life expectancy estimate, the less valuable the policy is, and the shorter life expectancy estimate, the more valuable.
Life settlement transactions generate many different kinds of lawsuits. For example, in some cases, insurance companies may try to avoid paying the death benefit on an insurance policy by claiming that the investment was a “stranger-originated life insurance” policy or a “STOLI” policy—a life insurance policy taken out at the behest of a third party with no insurable interest in the policy. Because many states have laws that prohibit STOLI policies, if a life insurance company is able to successfully argue that a policy which is the subject of a life settlement is a STOLI policy, they may be able to have the policy declared void, costing investors their entire investment.
In addition to the risks posed by STOLI allegations, investors may also risk losses when life settlements are overvalued by the provider or broker from whom they are purchased. Because the value of a life settlement investment is based largely on the life expectancy of the insured, life settlement providers or brokers selling policies based on estimates that are too low can make the investments seem more valuable than they actually are, costing investors significant sums. In this scenario, investors may bring claims of fraud or breach of fiduciary duty against those involved in producing the bogus life expectancy estimates or those who sold policies based on the inaccurate estimates.
Yet another area of litigation involves claims by regulators or investors that the sale of a life settlement involved the illegal sale of a “security” that was not registered with the Securities and Exchange Commission. For example, a broker or life settlement provider may be sued by an investor for rescission of the sale of a life settlement claiming that the life settlement was a “security” and that the sale of the policy without registering it with the SEC was therefore illegal. Brokers or life settlement providers may also being sued by the SEC alleging similar claims.
As a result of these and other potential problems with life settlement investments, thousands of lawsuits have been filed in recent years involving these transactions. In addition to life settlement lawsuits filed by or against institutional and retail investors, life settlement providers, and other individuals or groups, several class action lawsuits have also been filed regarding life settlements investments.
The law firm of Heygood, Orr & Pearson has represented investors, life settlement providers, and brokers in life settlement related litigation. These lawsuits have included life settlement investments that were deliberately overvalued by a provider and cases involving STOLI allegations by an insurance company. We have also represented both life settlement providers and brokers in connection with SEC actions and investigations. Our firm has also filed several class action lawsuits on behalf of investors who were misled about their life settlements purchases.
The attorneys at Heygood, Orr & Pearson have years of experience handling life settlement litigation and will use the knowledge they have accumulated in these cases to ensure that your legal rights are protected. Our law firm has filed cases on behalf of clients ranging from single individuals to large multinational corporations and will work tirelessly to ensure you obtain the best possible result in your case.
For more answers to your questions about life settlements lawsuits and to learn whether you may be eligible to file a case, contact the attorneys at Heygood, Orr & Pearson for a free legal consultation. You can contact us by calling toll-free at 1-877-446-9001, or by filling out the free case evaluation form at the top of this page.