Recently, the Supreme Court of Delaware issued two rulings regarding life settlements that have attracted media and life settlement industry attention. The Delaware high court ruled in both cases that under Delaware state law, insurance companies may challenge the validity of insurance policies on the basis of lack of an insurable interest after the expiration of the two-year statutory contestability period. This DechertOnPoint briefly discusses these two recent cases and their potential impact on life settlement transactions in Delaware and throughout the United States.

In September 2011, the Supreme Court of Delaware, the state’s highest court, rendered significant decisions in connection with life settlement litigation pending in the Delaware federal court. The United States District Court for the District of Delaware certified three legal questions to the Delaware high court that arose in the cases of Lincoln Nat. Life Ins. Co. v. Joseph Schlanger 2006 Ins. Trust (“Schlanger”) and PHL Variable Ins. Co. v. Price Dawe 2006 Ins. Trust (“Dawe”). Both Dawe and Schlanger involved insurance companies challenging the validity of life insurance policies that the companies claimed had been issued in connection with so-called stranger-originated life insurance (“STOLI”) transactions.