The New York State Court of Appeals issued a decision today interpreting New York Insurance Law to permit what are known as Stranger Oriented Life Insurance transactions (also known as “STOLI” or “SOLI”). In a typical STOLI transaction, an elderly individual is approached by an investor with the following proposal: The individual takes out an insurance policy on himself, usually for millions of dollars. The premiums, of course, are usually far more than the individual can afford to pay for any length of time. The investor pays the individual a lump sum, typically several hundered thousand dollars and the individual immediately transfers ownership of the policy to the investor, which usually establishes a trust to own the policy.  The investor/trust continues to pay the premiums, wagering that the individual will soon die and that the amount collected under the policy will exceed the premiums paid to the insurer and the lump sum paid the the individual.

Prior decisions from lower courts held that such transactions were not permitted under interpretations of NY Insurance Law and were void as against public policy as “wagering on the life of another,” when the insurance was procured by the individual solely with the intent to transfer or sell the policy to a third-party.

Additional post to follow.