Kramer v. Phoenix Life Insurance
15 N.Y.3d 539
NY2010Background
- This case involves policies on Arthur Kramer’s life obtained by his estate to benefit investors lacking insurable interest in his life, triggering an insurable-interest challenge under NY Insurance Law §3205.
- Two trusts were created (June and August 2005) with Kramer children named as beneficiaries, with trustees including Lockwood Pension Services and later Berck; beneficiaries assigned interests to stranger investors like Tall Tree and Life Products.
- Defendants Phoenix Life and Lincoln Life issued policies totaling about $56.2 million; investments were alleged to be part of a stranger-originated life insurance (SOLI) scheme that purportedly had no true insurable interest.
- After Arthur Kramer’s death in January 2008, his widow Alice Kramer, as personal representative, sought to have the death benefits paid to the estate rather than to investors; she alleged infringement of the insurable-interest rule.
- District Court dismissed some parties but allowed claims related to the insurable-interest issue to proceed; it noted substantial ground for difference of opinion on how Insurance Law applies to SOLI arrangements.
- The Second Circuit certified a question to the New York Court of Appeals asking whether NY Insurance Law §§ 3205(b)(1) and (b)(2) prohibit procuring a policy on one’s own life and immediately transferring it to a non-insurable-interest recipient if the insured did not intend to provide insurance protection for that recipient.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does 3205(b)(1) permit immediate transfer to a non-insurable recipient? | Kramer argues 3205(b)(1) allows independent naming and immediate assignment regardless of recipient insurable interest. | Insurers contend 3205(b)(1) authorizes procurement and transfer but not to a non-insurable recipient as to the underlying motive or permissibility under 3205(b)(2). | Yes; the Court held 3205(b)(1) permits immediate transfer to any recipient, regardless of insurable interest. |
| Does 3205(b)(2) impose an insurable-interest requirement when the insured procures the policy on his own life? | 3205(b)(2) should apply only when procuring insurance on another’s life, not when the insured procures on his own life. | Insurers argue 3205(b)(2) can restrict assignments even if the policy is procured on the insured’s own life, if the end recipient lacks insurable interest. | No; insurable interest is required only at the time of procurement under 3205(b)(2); when procured on one’s own life, 3205(b)(1) governs and allows assignment without an insurable-interest requirement for the assignee. |
| Did the common-law anti-wager exception survive the statutory changes to 3205? | Common-law limits against wagering arrangements should continue to constrain assignments. | The statutory text codifies free assignability and the anti-wagering exception is displaced or harmonized with the statute. | No; the majority held that the statute permits free assignability and does not adopt a needed anti-wagering limitation. |
Key Cases Cited
- Grigsby v. Russell, 222 U.S. 149 (1911) (established general rule of freely assignable life policies with anti-wagering exception)
- Warnock v. Davis, 104 U.S. 775 (1882) (anti-insurable-interest wagering concerns; caution against stranger-originated policies)
- Steinback v. Diepenbrock, 158 N.Y. 24 (1899) (insurable-interest rule; intention controls character of policy transaction)
- Olmsted v. Keyes, 85 N.Y. 593 (1881) (policy ownership and assignment dynamics under NY law)
- Ruse v. Mutual Benefit Life Ins. Co., 23 N.Y. 516 (1861) (early insurable-interest distinction; wagering vs. investment)
- Caruso, 73 N.Y.2d 77 (1989) (contextual discussion of insurable interest and policy utility)
- Steinback v. Diepenbrock, 158 N.Y. at 31 (1899) (policy cannot be used as a wagering cloak)