Georgia Judge Calls Viatical A Case Of Illegal ‘Wagering’

A Georgia federal court decision involving a viatical settlement of a term life policy is being appealed after a judge ruled the transfer an “unlawful wagering contract.”

The lawsuit focuses on a 10-year, $500,000 term life policy issued in 1999 to Kelly Douglas Couch, who hid his HIV-positive status and died in June 2005. Later in 1999, Couch transferred ownership of his policy to Sterling Crum, an investor in such policies.

The policy was issued by a predecessor to the Jackson National Life Insurance Company. Crum did not learn that Couch had died until December 2016, court documents say. Jackson sued Crum in October 2017.

Crum countersued and Judge William M. Ray II sided with Jackson in March. But Crum appealed and the case continues.

Viatical settlements can be traced to the 1980s and the AIDS outbreak. The deal starts with a chronically ill policy holder selling his or her life insurance policy, which was acquired when the policy holder was healthy, to a third party for a lump sum. The third party then becomes the new owner of the policy and is responsible for paying the policy’s premiums.

The practice became popular and fraudulent practices developed.

In his ruling, Ray cited Georgia law prohibiting wagering contracts, although he conceded that its applicability to life insurance is murky.

“The law is less clear as to what constitutes a wagering contract when a life insurance policy is lawfully taken out on an insured’s own life, but later assigned to a third party without an insurable interest,” Ray wrote, adding that “a preponderance of evidence” shows that Couch always intended to immediately sell the policy.

Questionable Circumstances

Couch, 32 at the time, revealed his intention to convert his policy to a wagering contract in three ways, Judge Ray said:

No family. Couch was a residential house cleaner with no spouse or dependents. Crouch also took out a second $500,000 term life policy at the same time, Ray noted.

“Couch’s acquisition of these life insurance policies is suspect, particularly in light of his lack of any apparent family members who were dependent on him for support,” Ray wrote.

Application lies. On his application, Couch claimed he was HIV-free and had never filed for bankruptcy. Both of those were lies, Ray said. In fact, Couch had two bankruptcies. His Social Security number was also incorrect on the application.

These misstatements indicate “an intent to obtain the Policy fraudulently and sell it for quick cash,” Ray wrote.

The timing. Thirdly, Ray questioned the timing of Crum acquiring both insurance policies from Couch, just eight months after they were issued.

“In sum, the Court finds that Jackson demonstrated, by a preponderance of the evidence, that Mr. Couch intended to enter into a wagering contract at the time he procured the Policy,” Ray concluded.

Policy Lapsed

Court documents paint Crum as an investor in viatical settlements who worked through various third-party companies. One of those companies brought the Couch policies to Crum, stating that Couch had been HIV-positive since 1996 and had 24-30 months to live, court documents say.

Via intermediaries, Crum made the annual $250 premium payments on the Jackson policy through 2008. He let the policy lapse when the premiums increased in 2010, court documents say.

Crum “admitted he did not monitor Mr. Couch’s mortality,” court documents say, but relied on his attorney to do so via “Google searches.” The attorney never learned that Couch died until he acquired a Lexus search tool in 2016. Crum filed a life claimant statement on March 17, 2017.

Jackson has not paid the claim.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.