Georgia's highest court just handed insurers a playbook for spotting stranger-originated life insurance schemes, rejecting simplistic tests in favor of examining the full picture.
The Supreme Court of Georgia ruled February 17 that determining whether third-party investors illegally procured a life insurance policy requires looking at the totality of circumstances, not just who paid premiums or whether the insured signed paperwork. The unanimous decision came in a dispute over a $6 million policy that an insurance company refused to pay, claiming it was essentially a wager on the insured's life.
The case involved Jacqueline Leone, a Miami resident who died in November 2022, fifteen years after Ameritas Life Insurance Company issued a universal life policy on her life. When Wilmington Trust, which had acquired the policy, sought the death benefit, Ameritas declined to pay, arguing the policy was part of an elaborate premium financing scheme designed to benefit investors, not Leone's family.
The facts read like a STOLI case study. In 2006, an insurance agent marketed what he called a cost-free, risk-free program to the Leones, promising free insurance for two years and possible financial compensation. The arrangement was backed by a $50 million premium financing facility between a company called Peachtree Settlement Funding and Barclays Bank.
Here's where it gets interesting for claims investigators. The Leones' trust was created using boilerplate documents that couldn't be altered. The trustee was Ken Shapiro, one of only two people allowed to serve as trustees under the financing agreement. Shapiro later testified he had never met or spoken to Mrs. Leone and didn't know anyone in her family. Yet when the insurer asked about his relationship to the client, the insurance agent called him the Leones' "accountant and trusted advisor."
The trust was nominally funded with just ten dollars. Mrs. Leone signed documents waiving all rights and powers over the policy, disclaiming any ability to control it. On the same day the policy was issued in February 2007, the trust borrowed money from Barclays to pay premiums and immediately assigned all rights to the policy to the bank as collateral. Barclays had sole authority to collect death benefits, surrender the policy, or make changes from day one.
Peachtree had obtained life expectancy reports calculating a 98.7 percent chance that Leone would survive the two-year loan term. When the loan matured in 2009, it automatically defaulted, and a Peachtree entity purchased the policy rights from Barclays. Shapiro testified that in thirty to forty similar trusts where he served as trustee, he couldn't recall a single instance where the insured extended the loan or where a beneficiary received policy proceeds.
When the case reached federal court on cross-motions for summary judgment, the district court asked Georgia's Supreme Court for guidance on what "procured or caused to be procured" actually means under state law.
Wilmington Trust argued that if an insured consents and participates in applying for coverage, the insured alone procured the policy, regardless of third-party involvement. Ameritas took the opposite extreme, contending that whoever pays the premium automatically procured the policy.
Justice Ellington, writing for the court, rejected both approaches. The narrow focus on premium payment, he explained, could mean that someone who completes every step of obtaining a policy but borrows the premium from a friend might fall under the prohibition. Similarly, the court found that insured participation shouldn't exclude examination of steps taken by third parties.
Instead, the court provided a list of factors for insurers to consider: who paid premiums, who located the potential insured, who participated in forming the policy, who prepared and controlled documents, whether the policy was created for the insured's benefit or investors' benefit, who controlled any trust involved, the insured's financial sophistication, and the extent of the insured's participation in the application process.
The court stressed that this isn't a checklist where certain factors automatically win. Courts must weigh everything together to determine who actually obtained the policy. A third party can be found to have procured a policy even if the insured played some role, if the insured was ultimately just a strawman for investors.
The decision draws on Georgia cases dating back to 1899 and 1906 that said the law prohibiting wagers on human lives couldn't be evaded through immediate assignment of policies pursuant to preconceived plans or by making the insured merely an agent for someone without an insurable interest.
The Georgia Supreme Court has now sent the case back to federal court to apply this framework to determine whether the $6 million death benefit should be paid. For insurers nationwide, though, the decision offers concrete guidance on investigating STOLI arrangements and defending claim denials when premium financing schemes look more like investor profit opportunities than legitimate insurance coverage.
