Opinion ID: 2325732
Heading Depth: 3
Heading Rank: 4

Heading: The General Assembly codified the common law insurable interest requirement

Text: The tenets of statutory construction require us to interpret statutes consistent with the common law [56] unless the statutory language clearly and explicitly expresses an intent to abrogate the common law. [57] Although the insurable interest requirement is originally a creature of both state and pre- Erie [58] federal common law, [59] it is now codified in the Delaware Insurance Code. In relevant part, the Insurance Code provides: Any individual of competent legal capacity may procure or effect an insurance contract upon his/her own life or body for the benefit of any person, but no person shall procure or cause to be procured any insurance contract upon the life or body of another individual unless the benefits under such contract are payable to the individual insured or his/her personal representatives or to a person having, at the time when such contract was made, an insurable interest in the individual insured. [60] Section 2704(a) has two parts. The first clause provides that a person may procure or effect insurance on his own life for the benefit of anyone. This clause has no limiting language concerning intent, or even requires the beneficiary to have an insurable interest in the life of the insured. Section 2704(a) provides that [a]ny individual of competent legal capacity may procure or effect an insurance contract upon his/her own life or body for the benefit of any person ... [61] In contrast to the first clause, the remainder of the section concerns procuring insurance on the life of another. Under this language, policies procure[d] or cause[d] to be procured on the life of someone other than the person seeking the insurance must be payable to the insured or his/her personal representatives or to a person having, at the time when such contract was made, an insurable interest in the individual insured. [62] Although the statute has been periodically updated, [63] the substance of Delaware law on insurable interest has remained the same. An insured is permitted to take out an insurance policy on his own life, but the law prohibits persons other than the insured from procuring or causing to be procured insurance, unless the benefits are payable to one holding an insurable interest in the insured's life. [64] The insurable interest requirement serves the substantive goal of preventing speculation on human life. For this reason, section 2704(a) requires more than just technical compliance at the time of issuance. Indeed, the STOLI schemes are created to feign technical compliance with insurable interest statutes. If a third party procures life insurance on another person or causes the procurement of life insurance on another personthe beneficiary of that contract must have an insurable interest in the life of the insured. At issue is whether a third party having no insurable interest can use the insured as a means to procure a life insurance policy that the statute would otherwise prohibit. Our answer is no, because if that third party uses the insured as an instrumentality to procure the policy, then the third party is actually causing the policy to be procured, which the second clause of section 2704(a) proscribes. The statute defines the moment in time the insurable interest requirement appliesthe time when such contract was made, i.e., the moment the life insurance contract becomes effective. [65] Thus, the insurable interest requirement does not place any restrictions on the subsequent sale or transfer of a bona fide life insurance policy. Indeed, section 2720 of the Delaware Insurance Code makes life insurance policies assignable to anyone, even a stranger, subject to any contractual restrictions in the policy. [66] Section 2720 comports with the United States Supreme Court decision Grigsby v. Russell [67] and does not abrogate the common law as established in Baltimore Life Ins. Co. v. Floyd . Read this way, a life insurance policy that is validly issued is assignable to anyone, with or without an insurable interest, at any time. The key distinction is that a third party cannot use the insured as a means or instrumentality to procure a policy that, when issued, would otherwise lack an insurable interest. Recently, the New York Court of Appeals answered a similar certified question, holding that an insured may procure insurance on his own life with the intent to immediately assign it to another. We find Kramer v. Phoenix Life Ins. Co. [68] distinguishable because the insured purchased policies on his own life and a provision of the New York insurance law [69] that did not contain an insurable interest requirement governed those policies. Moreover, Kramer was decided on a narrow set of issues applying unique New York insurance statutes, which are not applicable here. [70] Notably, after Kramer the New York legislature revised the state's insurance laws to prohibit STOLI transactions, limiting the precedential value of Kramer, even in New York. [71]