Legal Due Diligence
Our legal experts employ their vast knowledge and robust processes to ensure that assets being acquired have strong insurable interest and clear title. This enables our clients to avoid purchasing risky assets that may be subject to subsequent litigation, and maximizes the potential marketability and value of assets acquired.
- A client submitted a life policy that it was considering purchasing to NorthStar, along with the related due diligence materials, for review and risk analysis. NorthStar’s legal department was able to identify that the policy owning trust was established for the benefit of a “friend of the insured.” The laws of most states specifically provide that a person who purchases a life policy must have an “insurable interest” in the insured at the time the life policy was originated. Generally, this means someone closely related to an insured by blood or marriage or otherwise has some business need for the insurance. In this case, because the insurance was purchased for the benefit of a “friend of the insured” it failed to satisfy the insurable interest requirement. In addition, this particular case was originated in a state that takes the position that a life policy purchased for the benefit of someone lacking insurable interest is treated as void. Therefore, NorthStar was able to identify a clear risk that the carrier may later raise the insurable interest issue to attempt to avoid paying the related death claim on this life policy. The client passed on the purchase of this life policy based on NorthStar’s risk analysis.
- A client submitted a life policy that it was considering purchasing to NorthStar, along with related due diligence materials, for review and risk analysis. The purchase was considered a “tertiary” transaction, as the life policy had already been sold or assigned from the original owner at an earlier date. NorthStar’s legal department was able to identify a significant chain of title risk that may have materially adversely impacted the future marketability and value of the life policy. In this case, the original owner was the insured and the original beneficiary was the insured’s spouse. Sometime following origination, the insured separated from his spouse and his financial position declined such that he was unable to fund the ongoing premium requirements. As a result, the insured elected to transfer ownership of the life policy to a family friend. However, the terms of the transfer were only agreed upon verbally by the parties. The only written evidence of the transfer of the life policy was the change of ownership form filed with the carrier. NorthStar worked together with counsel for the family friend and the insured to reaffirm the prior transaction in writing. Documenting the prior transfer in a notarized agreement corrected a potential chain of title issue, greatly reducing the risk that the insured’s estate (including his estranged spouse) would be able to make a legitimate claim to the death benefit, therefore improving the future marketability and value of the asset for the investor.