Expert Witness and 419 Plans Litigation - IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS
Expert Witness and 419 Plans Litigation - IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS
ocus on "stranger-originated life insurance" or "STOLI"-- in which a life insurance policy is originated primarily or solely for the purpose of resale. They chronicle how the clash of the insurable interest requirement and the evolving secondary life insurance market have led to the rise of STOLI lawsuits. They also analyze the myriad of legal issues that STOLI and stranger-originated annuity transactions raise. The authors write:
ReplyDeleteIV. THE RISE OF STOLI LAWSUITS
A. Salient Issues
Between 2005 and 2010, over 150 STOLI lawsuits were filed, predominantly by life insurers, although in a few cases policyholders or family members of the insureds initiated the actions. Most complaints made by insurers that alleged a policy was the product of a STOLI transaction sought to rescind the policy to avoid paying the death benefit. The insurers contended that because the ultimate policyholder did not have an insurable interest in the life of the insured at the time the policy was issued, the policy was void or voidable ab initio. Many of these cases also sought policy rescission based on alleged misrepresentations or fraud in the policy's application. Other salient issues at play in the litigations include the effects of the states' incontestability laws, whether the party or parties challenging a policy based on absence of insurable interest have legal standing, the role of premium financing, the obligation of an insurer to return premiums paid for a rescinded policy and questions of conflicts of law.
The critical issue the courts have had to examine in determining whether an insurable interest existed at the policy's inception involves the insured or policy owner's state of mind and the extent to which he or she anticipated the possibility of selling the policy at some future time. Since, in most instances, the policy owner will have died and cannot be examined in court, evidence of intent to sell must necessarily be inferred from the nature, timing and substance of communications between the policy owner, the insured and third parties regarding the potential resale of the policy or the beneficial interest in a life insurance trust.
....
C. Fraud Alleged as a Practically Necessary Element to STOLI Cases
Every STOLI case resulting in a reported opinion has alleged some element of fraud by the policyholder or insured, or both, in addition to claiming that a policy is void for lack of insurable interest. Usually, the alleged fraud consists of false statements made in the life insurance application. These misstatements primarily relate to the financial wherewithal of the proposed insured, namely either or both of his financial net worth and/or annual income and earnings, or misrepresentations about the proposed insured's health or medical condition. To date, no life insurer has filed a single STOLI suit in which only an insurable interest violation has been alleged, i.e., there have been no pure STOLI lawsuits yet. Insurers, while using the STOLI rhetoric pervasively in their complaints, strategically rely on financial or medical fraud in their STOLI rescission cases knowing that such fraud in the procurement of life insurance, which existed well before the creation of the