Opinion ID: 2325732
Heading Depth: 3
Heading Rank: 5

Heading: Determining who procured or effected the policy

Text: The General Assembly did provide one specific exception to the insurable interest requirement, which allows issuance of a policy where the person paying the premiums does not have an insurable interest in the insured's life. Under that exception, the beneficiary must be a benevolent, educational or religious institution and the payor be designated as the owner. [72] The logical implication of this exception is that in cases not covered, it would be impermissible if the person paying the premium had no insurable interest in the life of the insured or if the person paying the premiums were not the policy owner. For this reason, we must interpret section 2704 and section 2705 in harmony and not render the language of section 2705 superfluous. If the insured procures the policy at the behest of another, the policy may nevertheless lack a legally insurable interest. [73] To determine who procured the policy, we look at who pays the premiums. [74] Indeed, section 2704(a) and section 2705 read together require the insured to fund the premiums on the policy unless the payor is a charitable, benevolent, educational, or religious institution. Therefore, if a third party financially induces the insured to procure a life insurance contract with the intent to immediately transfer the policy to a third party, the contract lacks an insurable interest. Stated differently, if an insured procures a policy as a mere cover for a wager, then the insurable interest requirement is not satisfied. [75] An insured's right to take out a policy with the intent to immediately transfer the policy is not unqualified. That right is limited to bona fide sales of that policy taken out in good faith. [76] A bona fide insurance policy sale or assignment requires that the insured take out the policy in good faithnot as a cover for a wagering contract. [77] Certainly, if A cannot procure a life insurance policy on the life of B without having an insurable interest in B's life then A cannot induce B's procurement of a life insurance policy with the intent to allow A to immediately purchase the policy for a nominal sum. If the first is a speculating and wagering policy so is the last. [78] Thus, section 2704 requires courts to scrutinize the circumstances under which the policy was issued and determine who in fact procured or effected the policy. Payment of the premiums by the insured, as opposed to someone with no insurable interest in the insured's life, provides strong evidence that the transaction is bona fide. [79] Under section 2704(a), the insured is free to procure or effect a policy on his own life for the benefit of anyone. Life insurance policies, however, do not come into effect without premiums, so an insured cannot procure or effect a policy without actually paying the premiums. Notably, section 2708, which prohibits policies issued without the consent of the insured except in narrow situations not present here, utilizes the phrase applies therefore or has consented thereto in writing. By implication, procuring or effecting a policy has to be something more than simply applying for a policy or providing written consent to the policy's issuance. Therefore, if a third party funds the premium payments by providing the insured the financial means to purchase the policy then the insured does not procure or affect the policy. Accordingly, third parties are prohibited from procuring or causing to be procured insurance contracts on the life of the insured unless the policy benefits are payable to someone with an insurable interest. In summary, the insured's subjective intent for procuring a life insurance policy is not the relevant inquiry. The relevant inquiry is who procured the policy and whether or not that person meets the insurable interest requirements.