In 1911, Oliver Wendell Holmes, writing for the majority of the United States Supreme Court, unequivocally (if unknowingly) established the legal distinction between the secondary life market and what has become known as stranger originated life insurance (“STOLI”). The common law in both England and the United States long-abhorred insurance without an interest as a “mischievous kind of gaming” and so developed the insurable interest doctrine i.e., that an owner of a policy must have an interest in that insured. However, the application of the doctrine to specific cases involving the purchase of life insurance produced varied results throughout the Eighteenth and Nineteenth Centuries. In Grigsby v. Russell, Justice Holmes established that a life insurance policy, once purchased in good faith, could subsequently be assigned or otherwise alienated by its rightful owner. Grigsby brought clear, manageable legal principles to nearly two centuries of inconsistent jurisprudence on the insurable interest doctrine, principles that were subsequently adopted by statute in all of the jurisdictions of the United States.
To read the full article in New Appleman on Insurance: Current Critical Issues in Insurance Law
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