Hundreds of life settlement lawsuits and class action cases have been filed in the U.S. on behalf of or against investors, brokers, life settlement providers and/or life expectancy providers involved in life settlement transactions. Federal and state regulatory agencies have also taken action by filing securities lawsuits in order to protect investors.
Life settlements are a type of investment transaction in which the holder of a life insurance policy agrees to sell their interest in the policy in exchange for a cash payment. The purchaser of the policy must continue to make the premium payments on the life insurance plan in order to keep the policy in force. When the insured individual dies, the purchaser of the policy collects the death benefit payable under the policy (i.e., the face amount). Life settlement investments differ from viatical settlements in that life settlements involve the sale of policies on the lives of older individuals, whereas viaticals involve the sale of life insurance policies on the lives of individuals who are terminally ill.
The life settlement industry is a thriving business. According to Forbes, in just one year at least 15,000 life insurance policyholders—with combined death benefits worth $15 billion—completed life settlement transactions. However, due to the sometimes complex nature of these transactions, legal issues may arise before or after the purchase and sale of life settlements that could result in litigation.
Life insurance companies have attempted to void some valid life insurance policies by alleging that they were “stranger-originated life insurance” or “STOLI” policies. A STOLI policy is a policy purchased for the benefit of a third party who has no insurable interest in the life of the insured. Many states have laws that prohibit STOLI policies, meaning that a successful STOLI action by an insurance company could cause investors or life settlement providers to lose their entire investment. Due to the state’s high elderly population, many of these lawsuits have been filed by insurance companies in Florida.
In other cases, life settlement providers may knowingly buy STOLI policies and sell them to investors without advising them of the risk that the life insurance policy could be denied by the insurance company. Without the intervention of an experienced life settlements attorney, the life insurance company may declare that the investment is based on a STOLI policy and seek to have the entire policy canceled.
Life settlement transactions provide individuals who are having trouble making the premium payments on their policy with a third option besides surrendering the policy or continuing to make expensive monthly payments. However, some insurers have their own company rules which prohibit their insurance agents from presenting insured individuals with the option of selling their policy through a life settlement transaction.
When life insurance companies try to conceal information about life settlements from their clients, life insurance policy owners may be able to file a lawsuit. In 2014, a California couple filed a class action lawsuit against Lincoln National Insurance Company after they lost millions because the insurance company failed to advise them that they had the option of selling their interest in the policy through a life settlement transaction. The judge in the case ruled that Lincoln had a duty to advise the life insurance policyholders about their option to sell the policy in the form of life settlement agreement.
Hundreds of lawsuits and class action cases have been filed by investors who allege that they were misled by life settlement providers about the value of their investments.
The value of a life settlement policy is based largely on the life expectancy of the insured individual: the shorter the life expectancy, the less time an investor will have to make premium payments in order to keep the policy in force, and, thus, the more valuable the investment.
The value of these investments is determined by life settlement underwriters who examine the medical records of the inusred covered by a life insurance policy and make a determination about the life expectancy of the insured. However, when these life expectancy estimates are too low, life settlements may be valued at much more than they are actually worth, costing investors significant amounts.
Lawsuits filed against some life settlement providers have alleged that these companies hired inexperienced underwriters who provided life expectancy estimates for the policies that made the investments seem significantly more valuable than they actually were. Lawsuits in Texas, California, and other parts of the U.S. have been filed over life expectancy estimates for life settlement investments.
In 2010, a Securities and Exchange Commission task force issued a report that life settlement investments should be regulated as securities under federal law. Based on this ruling, the SEC and other financial regulatory agencies have filed lawsuits against life settlement providers over allegations of fraud connected with the sale of these investments.
Like the hundreds of life settlement lawsuits filed by individual investors, actions by the SEC and state securities agencies have alleged that life settlement companies fraudulently misled investors about the value of their life settlement policies. The SEC has also made allegations of fraud, insider trading, and other charges against some life settlements company executives.
The complex nature of life settlement litigation means that it is important for individuals or corporations who are in need of representation in connection with a life settlement related dispute to secure the services of a law firm with the knowledge and experience to handle these cases from start to finish.
The attorneys at Heygood, Orr & Pearson have been involved in life settlement lawsuits involving individual investors, the life insurance industry, brokers, and life settlement providers, at all stages of the litigation process. We are committed to using our years of experience with life settlement lawsuits to help individuals and companies ensure that their legal rights are protected.
For more information about the lawyers at Heygood, Orr & Pearson and our experience with life settlement litigation, contact our law office for a free legal consultation. You can reach us by calling toll-free at 1-877-446-9001, or by filling out the free case evaluation form located at the top of this page.