Top Court in NY Permits Life Insurance Bets in Case Involving Kramer Levin Partner
New York’s highest court has ruled that state law doesn’t bar a person from taking out a life insurance policy with the intent of selling it to a hedge fund that expects to make more money on the death than the premiums it will pay.
The 5-2 decision said such deals are permissible, but didn’t resolve the ongoing federal litigation, the Wall Street Journal (sub. req.) reports. “The ruling is a blow to insurers and a victory for hedge funds that have bought billions of dollars of such policies in recent years,” the story says.
The case involved a $56 million policy taken out by Arthur Kramer, the co-founder of Kramer Levin Naftalis & Frankel. His deal transferred the right to collect on the policies to hedge funds in exchange for immediate cash for family members.
Kramer died in January 2008 at the age of 81 after a ski trip to Sun Valley, Idaho. His widow sued, claiming that the sale was void under a state “insurable interest” law that bars insurance policies from being taken out for beneficiaries who aren’t close to the insured.
Insurance companies had claimed they shouldn’t have to pay the death benefit, while Alice Kramer and the investors were both claiming a right to the proceeds. Insurance companies object to such deals because the premiums are often less than the expected payout. The premiums are set based on expectations that the policies will lapse before the insured’s death.
