BILL ANALYSIS Ó
AB 459
Page 1
ASSEMBLY THIRD READING
AB
459 (Daly)
As Introduced February 23, 2015
Majority vote
--------------------------------------------------------------------
|Committee |Votes |Ayes |Noes |
|----------------+------+------------------------+-------------------|
|Insurance |12-0 |Daly, Beth Gaines, | |
| | |Travis Allen, Calderon, | |
| | |Cooley, Cooper, | |
| | |Frazier, Gatto, | |
| | |Gonzalez, Grove, Mayes, | |
| | |Rodriguez | |
|----------------+------+------------------------+-------------------|
|Judiciary |10-0 |Mark Stone, Wagner, | |
| | |Alejo, Chau, Chiu, | |
| | |Gallagher, Cristina | |
| | |Garcia, Holden, | |
| | |Maienschein, O'Donnell | |
| | | | |
| | | | |
--------------------------------------------------------------------
SUMMARY: Provides for a process to resolve disputes regarding the
validity of life insurance policies issued before January 1, 2010.
Specifically, this bill:
1)Permits the owner of a life insurance policy to ask a court to
AB 459
Page 2
declare that the life insurance policy has a valid insurable
interest if the policy:
a) Was purchased before January 1, 2010.
b) Has a death benefit of more than $1 million.
2)Repeals the provisions of the bill on January 1, 2017.
EXISTING LAW:
1)Provides that every person has an insurable interest in their
own life.
2)Provides that a person has an insurable interest in the life of
another if that person:
a) Has a reasonable expectation of pecuniary advantage
through the continued life of the insured;
b) Is dependent on the insured for education or support; or,
c) Is related to another person by blood or law.
3)Permits the owner of a life insurance policy to designate any
person as the beneficiary of the policy.
4)Provides that trusts and special purpose entities seeking to
AB 459
Page 3
purchase life insurance policies for investors have no insurable
interest unless the designated beneficiary of the policy has an
otherwise valid insurable interest in the life of the insured.
FISCAL EFFECT: Unknown. This bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS:
1)Purpose. According to the author, this bill helps to resolve
potential litigation regarding life insurance policies issued
before California law was changed to prohibit "stranger
originated life insurance" (STOLI). An individual has the legal
right (under both state and federal law) to sell his or her life
insurance policy to a third party. These transactions allow
consumers to access the cash value of their life insurance
policies to meet unforeseen financial needs. When the policy is
sold the third party becomes the beneficiary of the policy and
is responsible for paying the premium. Typically, the third
parties consist of financial firms which specialize in "life
settlements" and commonly bundle up a number of policies to be
sold as a group to institutional investors. For a number of
years, firms solicited individuals (and in some cases provided
them with the money) to buy life insurance policies that were
then sold back to these firms. These arrangements were
characterized as STOLI by the insurance industry and California
enacted legislation in 2010 to restrict the purchase of life
insurance policies in some of these circumstances.
Many policies issued prior to the 2010 legislation have been the
subject of litigation by insurers who characterize them as STOLI
and have denied claims. Insurers have denied claims by
asserting that the policy was "void at issuance" because of the
absence of an "insurable interest" by the purchaser. In some of
AB 459
Page 4
these cases, judges have upheld the denial of the claim by the
insurer and allowed the insurer to keep the premiums paid on the
policy despite the policy being determined to be "void at
issuance." Owners of these policies object strenuously to
allowing insurers to retain the premium paid on these policies
if the policies were never valid. This bill provides policy
owners with the right to go to court now instead of allowing
insurers to collect years of premiums before contesting the
validity of the policy.
2)Insurable Interest. There is a long-standing principle in
insurance law that anyone buying a life insurance policy must
have a legitimate interest in the life of the insured. To allow
people without a legitimate interest in the life of the insured
would permit wagering on the lives of others and is against
public policy and standards of decency. California law has a
very expansive definition of insurable interest and regulates
the life settlement industry to protect consumers from potential
abuses when buying and selling life insurance policies.
Analysis Prepared by:
Paul Riches / INS. / (916) 319-2086 FN: 0000188