In some instances, a life settlement company will make a claim for death benefits upon the maturity of a policy only to have the claim rejected by the carrier. Alleged reasons for denial often include claims that there was no insurable interest at policy inception, claims that the policy was a “stranger-originated life insurance” policy (a “STOLI” policy), claims that the policy is owned by another party or claims of misrepresentation during the application process. If a policy is wrongfully denied, legal representation experienced and skilled in the life settlement industry is imperative.
Similarly, if one has invested in life settlements through a life settlement company and the investment has not turned out as represented, retention of legal counsel experienced and knowledgeable in the life settlement industry is imperative. Commons areas of fraud by unscrupulous life settlement companies include misrepresenting the life expectancy of the insured, selling STOLI policies and use of investor funds held in escrow to buy additional policies.
Heygood, Orr & Pearson is one of the most experienced law firms in the country in handling life settlement related litigation. The firm has represented well over 100 investors, life settlement companies and/or brokers.
What are ‘life settlements’?
Life settlements are investment transactions which involve the sale of an existing life insurance policy by the insured/owner to another party. By selling the policy, the policyholder receives an immediate cash payment. The investor, on the other hand, takes ownership of the policy and the right to receive the associated death benefits. Once the policy is purchased, the new owner must pay premiums going forward to keep the policy in force, and receives a cash payment from the death benefits of the policy when the insured dies. The profit or return made on the transaction is the difference between the price paid for the policy (plus any premium payments to keep the policy in force) and the death benefits which are paid upon the death of the insured (called a “maturity”).
The value or fair market price of a life settlement is primarily based on 3 factors: (1) the face amount of the policy (the death benefit); (2) the life expectancy of the insured; and (3) the premiums that must be paid to keep the policy in force. Participants in a life settlement transaction typically include: (a) the insured individual or the owner of the policy who is the seller; (b) a broker who represents the seller; (c) a licensed life settlement provider who offers the policy for sale and acts as a middle man between the seller (or their broker) and the buyer of a life settlement (or their agent); (d) life expectancy estimate providers; and (e) investors or buyers of the underlying policy who may have financial planners.
Life Settlements Investments and ‘STOLI’ Policies
In some cases, life settlements companies who hold an interest in a life insurance policy have had their attempts to collect benefits denied after the policy holder’s death. Some insurance companies have wrongfully claimed that these policies were so-called “stranger-originated life insurance” or “STOLI” policies in an attempt to avoid paying claims to life settlements companies who hold an interest in the policy. Likewise, sometimes a life settlement company knowingly buys STOLI policies and sells them to investors without advising of the risk that the policy could be denied.
STOLI is a practice in which an investor induces an individual (usually a senior) to take out an insurance policy solely for the purpose of selling the policy. Often, the insured is paid to take out the insurance policy. Once the policy is issued, the policy is sold and the investor either keeps all of the sale proceeds or splits the money in some fashion with the insured. The setting up of a STOLI transaction involves a misrepresentation because the insured intends to sell the policy from the beginning and all applications for life insurance include a question about any intent to sell the policy. This question must be answer in the negative for the policy to issue.
Although different states have their own unique laws governing STOLI, life insurance companies may refuse to pay the death benefit on a life settlement investment if they suspect a STOLI policy. Depending on the laws in the state where the policy was issued, the insurance company may be able to have the insurance policy declared void, forcing the investor to absorb the loss and costing them the entire value of the investment.
Life Partners life settlements lawsuits
Lawsuits have been filed by Heygood, Orr & Pearson on behalf of many clients against the life settlements company Life Partners accusing the company and its executives of misleading investors about the value of the life settlement investments they offer.
According to these lawsuits, Life Partners hired a doctor to provide life expectancy assessments on insured individuals that were far shorter than their true life expectancies. Because a policy with a shorter life expectancy is more valuable than one with a longer life expectancy, the lawsuits allege, among other things, that Life Partners was able to use inaccurate short life expectancies to induce investors to pay much more for life settlement investments than they were worth.
In addition to lawsuits filed against Life Partners by Heygood, Orr & Pearson on behalf of investors—including two class action lawsuits filed by Heygood, Orr & Pearson – the company is also facing lawsuits by the Securities and Exchange Commission (SEC) and the Texas attorney general’s office. These lawsuits have likewise accused Life Partners of fraud in connection with their life settlement investments.
The lawsuit filed by the SEC against Life Partners Holdings, Inc. and its executives Pardo and Peden went to trial in January 2014. Following almost two days of deliberations, the jury in the case found in favor of the SEC on Section 13(a) of the Securities Exchange Act of 1934, Rules 12b-20, 13a-1 and 13a-13, as well as Section 17(a)(1) of the Securities Act of 1933. The jury in the SEC lawsuit also found that Pardo had falsely certified reports filed with the agency. These reports contained untrue statements of material fact or omitted material facts necessary to make the reports not misleading. The jury found in favor of Life Partners Holdings, Inc. on the SEC’s claims under Section 10(b) and Rule 10b-5 and in favor of Pardo and Peden on the SEC’s allegations of insider trading.
Life Settlements Lawsuits filed by Heygood, Orr & Pearson
The lawyers at Heygood, Orr & Pearson have filed lawsuits on behalf of many investors related to life settlement investments, including several class action lawsuits. Our law firm has also filed claims on behalf of life settlements companies who have been denied the death benefit on a life insurance policy due to wrongful claims by an insurance company that it was a STOLI policy. The firm has also represented brokers in life settlement related litigation.
If you or your company has been aggrieved by wrongful conduct related to a life settlement, then you may need a sophisticated and knowledgeable law firm such as Heygood, Orr & Pearson to represent you. For more information and a case evaluation, please contact us by calling toll-free at 1-877-446-9001, or by filling out the free case evaluation form located on this page.