Story Case

James King, an eccentric man, desired to give to his friend George Manning, an insurance policy for $5,000 covering his own life. Manning was in no way related to King, dependent on him, or his creditor, and therefore, had not an insurable interest in his life. Manning, however, did not object to owning the policy, and, therefore, it was arranged that King should take the contract in his own name, then making an assignment to Manning. This was done in due course. Six months later, King died, and when Manning attempted to collect on the policy, the company put in defense his lack of insurable interest. Manning maintained that the policy was valid when issued to King, and further, that insurable interest was not necessary. Is this a correct statement of the law?

Ruling Court Case. Allen Vs. Mutual Life Insurance Company, Volume 138 Massachusetts Reports, Page 24

Mrs. Fellows insured the life of her husband in the Mutual Life Insurance Company for the benefit of herself and her children. Mrs. Fellows assigned this policy to Allen by way of payment of a debt to him owed. Mr. Fellows, the insured, having died, Allen demands of the Life Insurance Company the amount of the policy. The company hesitated to pay the amount to Allen because he had no insurable interest in the life of Mr. Fellow. The question was raised whether or not an assignee, who has no insurable interest, may collect upon the policy at the death of the insured.

Mr. Justice Allen said: "If a policy of insurance is assigned in good faith to a third person, that third person is entitled to the protection of the policy, even though he had no insurable interest in the life of the person insured.." Judgment was given for Allen.

Ruling Law. Story Case Answer

The right of an assignee of a life insurance policy to recover thereon may arise in one of three cases: (1) If the policy has been taken out in the name of the insured, with the understanding that he should transfer to an assignee, who intended to pay all the premiums, the policy is void as being a mere wager, and contrary to public policy. (2) If the policy was taken out in good faith on the part of the insured in his own name, and as he has paid one or more premiums, a later assignment to one without an insurable interest is held valid in some states. On this point, however, there is a hopeless conflict of opinion among the courts. The weight of authority holds the policy void, except for the actual cash consideration paid by the assignee for the policy. (3) If the assignment is to one possessing an insurable interest, as, for example, a creditor, the assignment is valid so long as the insurable interest remains. The Story Case, apparently, illustrates the case where the parties try to evade the rule as to the insurable interest. The policy is totally void, and no one can collect thereon.