Aviva Life and Annuity Co. sued six of its agents earlier this year, claiming the agents were involved in a fraudulent sale of life insurance to 119 church members. The agents recently responded, charging that Aviva was not only complicit in the charity-owned life insurance (CHOLI) scheme, but actively “directed, ordered, approved, and in all other respects, ratified the acts and performance of” the agents.

Aviva filed the lawsuit against the agents in March of this year in the United States District Court Central District of California. According to the lawsuit, the six agents arranged for church parishioners to purchase life insurance that would be held in 119 individual life insurance trusts.

The producers are accused of violating Aviva’s “producer guidelines” by participating in the sales. The scheme outlined by Aviva’s complaint is a variation on stranger-originated life insurance (STOLI), where church members were approached about participating in an endowment program under which life insurance death benefits would be split between the church, beneficiaries and a third party.

Members who allowed policies to be purchased on their lives have told Aviva that they either did not pay premiums on their life insurance policies or paid only the initial premium.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of STOLI in Advisor’s Journal, see Court Holds that STOLI Law Is Not Retroactive (CC 11-108) & STOLI Scheme Lands Insurance Agent in Jail (CC 11-92).

A California insurance agent will spend years behind bars for his part in a stranger originated life insurance (“STOLI”) scheme that swindled six victims out of almost $800,000. In addition to being sentenced to 3 years 8 months in jail, Victor L. Weber, 55, was also ordered to pay restitution to his victims.

In the typical STOLI arrangement, investors or promoters approach seniors to allow investors to purchase life insurance on the seniors’ lives. Insureds are typically enticed to sign on the dotted line by promises of “free life insurance,” cash payments, vacations or other perks. Insureds may be left unable to purchase needed life insurance because their life insurance capacity is eaten up by the investor owned policy.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber)

For previous coverage of stranger-originated life insurance in Advisor’s Journal, see New York Court of Appeals Upholds STOLI Arrangement (CC 10-106) & Recent STOLI Case Is a Big Win for Insurers (CC 10-59).

The Court of Appeals of New York—the state’s highest court— issued a decision as to whether New York’s insurable interest law was violated when an insured purchased a life insurance policy and immediately assigned the policy to a third party who did not have an insurable interest in the insured’s life.

The case involves an attorney who purchased $56.2 million in insurance coverage on his own life at the prompting of a STOLI promoter.  The policies were held by life insurance trusts that initially named the attorney’s adult children as beneficiaries of the trust, but the children immediately assigned their interests in the trusts to third party investors.  Investors paid all premiums.

When the attorney died, his wife refused to provide his death certificate to the investors.  She then sued the insurance companies and investors in federal district court, alleging that, because the policies were issued in violation of New York’s insurable interest law, policy proceeds should be paid to her instead of the investors.  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

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An insurer recently won a major victory when the U.S. District Court for Delaware voided a life insurance policy that was purchased as part of a STOLI transaction. The case—Principal Life Insurance Co. v. Lawrence Rucker 2007 Insurance Trust—is significant because the court voided the policy for lack of an insurable interest based on the finding of insured’s intent to sell, even though the insured had not identified a particular purchaser for the policy at the time it was issued.

For the complete analysis of this development by our Experts Robert Bloink and William Byrnes, please read the article via your AdvisorFX subscription at Recent STOLI Case Is a Big Win for Insurers

For in-depth analysis of STOLIs, see Advisor’s Main Library Section 19.6 Life Settlements B—The Life Settlement Industry: Stranger-Originated Life Insurance (STOLI).

For in-depth analysis of the topic of insurable interest, see Advisor’s Main Library Section 20 Beneficiaries And Settlement Options B—Insurable Interest: New York Insurance Department Invalidates STOLI Scheme For Lack of Insurable Interest

After reading the analysis, we invite your questions and comments by posting them below, or by calling the Panel of Experts.