In an important decision issued in April 2024, the Florida Fifth Judicial Circuit Court, applying Delaware law, granted summary judgement to Viva Capital 3, L.P. awarding it the right to offset the amount of insurance premiums it had paid for a $10m life insurance policy issued in 2006, which Viva had purchased in a tertiary life settlement policy purchase transaction, against the death benefit to which the insured’s estate was entitled to recover from Viva under Delaware’s insurable interest statute.
Viva received payment of the policy’s death benefit in May 2017, after having owned the policy for only about six months. Nearly three years later, Mr. Albart’s estate sued Viva to recover the entire death benefit.
Earlier in this case, in October 2023, the court granted summary judgement to Mr. Albart’s estate, finding that the life insurance policy was issued without the requisite insurance interest under a non-recourse premium finance loan where the insured had not paid any portion of the premiums for the policy, and following a 2021 Florida federal court case, Estate of Malkin v. Wells Fargo Bank, which involved a life insurance policy originated under the same financing program and a claim by the insured’s estate to recover the dearth benefit that had been paid to investor that owned the policy when the insured passed.
The Malkin case did not definitively decide the question of whether the investor was entitled to offset the insurance premiums it had paid for the policy against its death benefit that the insured’s estate was able to obtain from the investor, saying only that a policyholder might be able to offset premiums it had paid if it could demonstrate a “viable legal theory” therefor.
The court in the Albart case found that Delaware’s estate recovery statute codified, prior long-standing case law, derived from Warnock v. Davis, an 1881 case, that allowed a life insurance policyholder that had applied for and purchased a life insurance policy on the life of Warnock in which the policyholder did not have an insurance interest to retain from the policy’s death benefits the amount of premiums that had been paid for the policy, leaving the insured’s estate’s recovery of the policy’s death benefit net of these premiums paid.
The court went further, however, holding in dicta that Viva’s offset claim would have prevailed based on its unjust enrichment claim even if the Warnock decision were not baked into Delaware’s estate recovery statute. As a result, this case tempers the Delaware case law that has found that a life insurance policy issued through the payment of premiums by a person other than the insured is prima facie without a valid insurable interest by reducing the amount that an insured’s estate can obtain under Delaware’s estate recovery statute.
Brian Casey is a Partner at Locke Lord
Any views expressed in this article are those of the author(s) and may not necessarily represent those of Life Risk News or its publisher, the European Life Settlement Association