On July 27, the U.S. District Court for the Southern District of New York granted a motion by defendants, New York investors in life insurance policies, to dismiss a suit by the executor of the insured’s estate and others, holding that under California law, only the life insurer has standing to challenge a policy’s validity on the ground that the purchaser lacked an insurable interest. In this case, the insured, Stuart Moldaw, a California resident, purchased $78 million dollars worth of life insurance in 2004 at the behest of investors in exchange for a fixed fee of $4 million and payment of the policy premiums in violation of insurable interest laws.
After Moldaw’s death in 2008, the life insurers paid out $78 million in proceeds to the investors. Three parties—Susan Moldaw, Moldaw’s daughter and the executor of his estate; Phyllis Moldaw, the insured’s widow; and the trustee of the irrevocable life insurance trust used to purchase the policies—then brought suit, claiming that under N.Y. Ins. Law Section 3205 they were entitled to bring an action to recover the proceeds generated by the wrongful transaction. After determining that California law governed the dispute, the court found that while N.Y. Ins. Law Section 3205(b)(4) allows either the insured or his executor to bring an action to recover benefits wrongfully paid to a third party, California law allows only the issuing insurer to challenge whether an insurable interest existed at the policy’s inception. Accordingly, the court dismissed plaintiffs’ insurable interest challenge. (The 2004 Stuart Moldaw Trust v. XE L.I.F.E., LLC, No. 08 Civ. 9421, 2009 BL 159171 (S.D.N.Y. July 27, 2009))