NY ruling is a boon for hedge funds, who have bought billions of dollars in life settlement policies in recent years

On Nov. 17, the New York State Court of Appeals ruled that state law allows people to buy a life insurance policy with the intent of immediately selling it to an investor who stands to make money when the insured person dies.

The closely watched case centered on Alice Kramer, a widow who sued for $56 million in coverage on behalf of the estate of her late husband. Before his death in 2008, Arthur Kramer, an attorney, bought seven insurance policies and placed them in trusts in the names of his three children. At his request, the interests were sold to hedge fund investors in exchange for cash.

The court's decision breaks the life settlement issue into two parts. It found that New York's insurance laws bar people from wagering on others by directly buying insurance on them and making the beneficiary someone who doesn't have insurable interest. However, the court ruled that state law does permit insurance contracts to be “immediately transferred” to another entity if the insured person is acting on his or her own initiative...

The ruling is a boon for hedge funds, who have bought billions of dollars in life settlement policies in recent years — and will likely influence the outcomes of similar cases in other states...