Crum v. Jackson Nat'l Life Ins. Co.

• Decision Date: 25 October 2022
• Docket Number: S22Q0649
• Citation: Crum v. Jackson Nat'l Life Ins. Co., 315 Ga. 67, 880 S.E.2d 205 (Ga. 2022)
• Parties: CRUM v. JACKSON NATIONAL LIFE INSURANCE COMPANY.
• Court: Georgia Supreme Court

315 Ga. 67

880 S.E.2d 205

CRUM

v.JACKSON NATIONAL LIFE INSURANCE COMPANY.

S22Q0649

Supreme Court of Georgia.

Decided: October 25, 2022

Scott Eric Zweigel, John Hartshorn Elliott, Parker Hudson Ranier & Dobbs, LLP, 303 Peachtree Street NE, Ste 3600, Atlanta, Georgia 30308, Brady Cobb, Cobb Eddy, 112 N. Flagler Drive, Fort Lauderdale, Florida 33304, for Appellant.

Robert Foust Parsley, Miller & Martin, PLLC, 832 Georgia Avenue, Suite 1200, Chattanooga, Tennessee 37402, Eileen Elizabeth H. Rumfelt, Miller & Martin, PLLC, 1180 West Peachtree Street, NW, Suite 2100, Atlanta, Georgia 30309, Michael J. Miller, Michael Broadbent, Cozen O'Conner, 1650 Market Street, Suite 2800, Philidelphia, Pennsylvania 19103, for Appellee.

Pinson, Justice.

This case comes to us from the United States Court of Appeals for the Eleventh Circuit, which has certified questions to us about Georgia life-insurance law. Those questions are set out below in full. The basic question we need to answer is whether a person can legally take out an insurance policy on his own life with the intent to turn around and sell that policy to a third party who has no "insurable interest" in the policyholder's life. The person seeking to recover on the life-insurance policy in this case says that such a policy is legal if a third party was not involved in causing the policy to be procured. The insurance company says that with or without such third-party involvement, such a policy is an illegal wagering contract and therefore void, relying on some of our case law. But as it turns out, that case law was interpreting and applying old statutes. In 1960, our General Assembly repealed those statutes and replaced them with new statutory language that codified some, but not all, of the old decisional law. See OCGA § 33-24-3. And the new language, which remains materially the same today, does not even hint at the unilateral-intent-based limitation that the insurance company advances. So we answer the certified questions as follows: under Georgia law, a life-insurance policy taken out by the insured on his own life with the intent to sell the policy to a third party with no insurable interest, but without a third party's involvement when the policy was procured, is not void as an illegal wagering contract.

1. Background

In 1999, Kelly Couch applied for a $500,000 life-insurance policy from Jackson National Life Insurance Company. When he applied, Couch told Jackson that he was healthy, but that was not true. In fact, Couch knew that he was HIV-positive, which, in 1999, meant that he had a greatly diminished life expectancy. He bought the policy with the intent to sell it on the secondary "viatical settlement" market.¹ Eight months later, Couch did just that: a brokerage agency that specialized in viatical settlements connected Couch with Sterling Crum, who bought Couch's insurance policy knowing that Couch was HIV-positive and likely had only a few years left to live.

Couch died in 2005, and years later, Crum made a claim to Jackson for the death benefit under Couch's policy. Jackson denied the claim and filed a declaratory-judgment action in the U.S. District Court for the Northern District of Georgia, seeking a declaration that the policy was void ab initio under Georgia law as an illegal human-life wagering contract, and that laches barred Crum's claim.²

After a bench trial, the district court agreed with Jackson that the policy was an illegal wagering contract. The court found that Couch bought the policy without Crum's involvement, but with the intent to sell it in the near future to someone without an insurable interest. See Jackson Nat. Life Ins. Co. v. Crum , No. 1:17-cv-03587-WMR, 2020 WL 12968089, at *9 (N.D. Ga. Mar. 2, 2020). The court acknowledged that Georgia's statute addressing insurable interests in the context of life insurance did not appear to prohibit such a policy without the involvement of a third party at the time the policy was issued. Id. at *5, *7 (citing OCGA § 33-24-3 (b), (i) ). But the court concluded that our case law treated such policies as illegal wagering contracts, see id. at *6–*7, and so it declared the policy void ab initio.

Crum appealed to the Eleventh Circuit. He contended that the district court erred in declaring the policy void ab initio based on only Couch's unilateral intent to sell the policy soon after he bought it. In Crum's view, Georgia law requires "the knowing and direct involvement of an identified third-party beneficiary at the time of the initial procurement of the policy" to find a policy void ab initio as an illegal wager on a human life. Jackson Nat. Life Ins. Co. v. Crum , 25 F.4th 854, 856–857 (11th Cir. 2022). The Eleventh Circuit, however, opined that Georgia case law did not definitively answer the question these arguments raised. So the Eleventh Circuit certified the following two questions to this Court:

1. When an insured has purchased a life insurance policy with the intent to sell the policy to a third party with no insurable interest, must either the subsequent purchaser or an intermediary[ ] be complicit in the procurement of the policy before the latter can be deemed to be an illegal wagering contract and thus void ab initio ?

2. If the answer to the above question is neither an absolute "Yes" or "No," but instead is a response that a life insurance policy can sometimes be deemed to constitute an unlawful wagering contract even without the complicity of the described third party, then we respectively [sic] seek further guidance as to the circumstances that determine when the policy is void ab initio and when it is not.

Id. at 863 (footnote omitted).

2. Analysis

We address these certified questions in three steps. We start by explaining why these questions about whether a life-insurance policy is an illegal wagering contract are generally resolved by determining whether they meet the statutory insurable-interest requirement. Next, we review the statute that imposes that requirement, the language of which—and this is not disputed—does not prohibit buying insurance on one's own life with the unilateral intent to sell the policy to a third party with no insurable interest. Finally, we address our cases interpreting prior versions of that statute, and we conclude that none of that decisional law warrants a different reading of the current statute.

(a) The first point to square away is that the question whether a life-insurance policy is an illegal wagering contract is answered by applying our statutes that govern life-insurance policies. Although our legislature has deemed "[w]agering contracts" contrary to public policy and unenforceable as a general matter, OCGA § 13-8-2 (a) (4), the prohibition against wagering contracts in the context of life insurance has been incorporated into a specific statutory requirement: the "insurable interest" rule. See OCGA § 33-24-3. Application of that rule, and not any broader foray into public policy untethered from this statute, must guide the analysis.

This conclusion follows from the history of insurance-based gambling and the law's response to it. Using life-insurance policies to "wager" on human lives is not a new practice. In the eighteenth century, it became popular in England to buy insurance on the lives of strangers—for example, elderly celebrities, or defendants being tried for capital crimes—as a form of gambling. See PHL Variable Ins. Co. v. Bank of Utah , 780 F.3d 863, 867 (8th Cir. 2015), as corrected (Mar. 17, 2015) (noting the "popular [18th-century] English gambling activity" of "using insurance to bet on strangers’ lives"); Peter Nash Swisher, The Insurable Interest Requirement for Life Insurance: A Critical Reassessment , 53 DRAKE L. REV. 477, 481 (2005). These policies were considered gambling bets, not insurance against any risk of loss, because those who bought this "insurance" had no interest in the underlying "asset," i.e., the life at stake. See, e.g., Conn. Mut. Life Ins. Co. v. Schaefer , 94 U.S. 457, 460, 24 L.Ed. 251 (1877) (defining "mere wager policies" as "policies in which the insured party has no interest whatever in the matter insured, but only an interest in its loss or destruction"). See also Hardin v. NBC Universal, Inc. , 283 Ga. 477, 479, 660 S.E.2d 374 (2008) (defining a "gambling or wagering contract" as "one in which the parties in effect stipulate that they shall gain or lose upon the happening of an ... event in which they have no interest except that arising from the possibility of such gain or loss" (quoting Martin v. Citizens' Bank of Marshallville , 177 Ga. 871, 874, 171 S.E. 711 (1933) )).

Disapproval of these human-life wagers goes back almost as far. Describing the practice of selling insurance on lives in which the insured had no interest as having "introduced a mischievous Kind of Gaming," the British Parliament passed a law in 1774 to "[r]emedy" the problem. Life Assurance Act, 1774, 14 Geo. 3, c. 48, Preamble, § 1 (Eng.). That remedy was straightforward: the law forbade anyone from taking out insurance on a life if the person "for whose Use, Benefit, or on whose Account such Policy or Policies shall be made" had no "[i]nterest" in the life, and it declared "null and void" any policy that violated that rule. Id. at § 1.³ Put simply, if someone wanted to take out insurance on another person's life, she had to have an interest of some sort in that life beyond the payout she would get at its end.

That rule is now known as the "insurable interest" rule, and it has become central to modern insurance, including life insurance in Georgia. See Ga. Farm Bureaus Mut. Ins. Co. v. Franks , 320 Ga. App. 131, 134 (1) (a), 739 S.E.2d 427 (2013) (citing Woods v. Indep. Fire Ins. Co. , 749 F.2d 1493, 1496 (11th Cir. 1985) ). See also J. STEPHEN BERRY , GEORGIA PROPERTY AND LIABILITY INSURANCE LAW § 3.1 (Aug. 2022 update). The general idea behind this rule is that a valid life-insurance policy needs some "reasonable ground ... to...