Widow of Kramer Levin Co-Founder Claims His Life Insurance Deal Violated Law
New York lawyer Arthur Kramer, the co-founder of Kramer Levin Naftalis & Frankel, set up an insurance deal before he died designed to raise immediate cash for family members and even more money for investors in the long-term.
Now that deal is the subject of “sprawling litigation” that involved three insurance companies, five courts and an appeal pending before New York’s highest court, the Wall Street Journal reports. Kramer’s widow wants the bigger payout, insurance companies say they shouldn’t have to pay, and investors who paid the premiums claim a breach of contract.
The story describes the deal this way: Kramer took out $56.2 million in seven life insurance policies and transferred ownership to family trusts benefiting three adult children. The kids then transferred their interest to investors who paid the trust about $760,000 and took over the premiums. After waiting two years—the period in which insurers can contest the policies—the initial investors sold six of the policies to new investors.
The premiums in such deals are less than the expected payout because insurance companies set the amount based on expectations that the policies will lapse before the insured’s death. After a boom in the deals from 2004 to 2008, new state laws and revised actuarial tables largely put an end to them, the story says.
Kramer died in January 2008 at the age of 81 after a ski trip to Sun Valley, Idaho. His widow sued, claiming that the proceeds of the policies should be paid to her, according to the article. Alice Kramer argued that the deal violated a state “insurable interest” law that bars insurance policies being taken out for beneficiaries who aren’t close to the insured.
Alice Kramer has apparently settled with a unit of Credit Suisse, which bought five of the policies, the story says. But litigation involving other parties continues. The New York Court of Appeals, the state’s highest court, is set to consider the big issue in the case—whether state law bars such transactions.