NEW: Arizona's "Unscrupulous Death Wagerers" Find Loophole; Supreme Court Points Finger At AZ Legislature

The Arizona Supreme Court today ruled unanimously in favor "unscrupulous death wagerers", determining that state laws prevented a life insurance company from contesting a policy more than two years after writing it.

The interpretation of Arizona statutes came at the request of a federal court. There, a life insurance company challenged paying out $2.5M to a third party not related to the Arizona couple who passed away. The policy had been in effect for 16 years, much longer than the two year contestability period in Arizona law.

The insurance company claimed that a STOLI Scheme (Stranger Originated Life Insurance)* makes the policy void from the beginning ("ab initio"), so that the two year contestability statute does not apply.

After considering the several relevant statutes raised in arguments, the Court found that the only way to harmonize all of them was to say the contestability limitation should apply. (The U.S. District Court will now consider the rest of the contest.)

Justice Clint Bolick made it clear that the unanimous Court understands the loophole* created:

"(It) will leave loopholes that unscrupulous death wagerers can exploit to the detriment of insurance companies. Possibly so; and indeed, we do not express any view on claims in this litigation that may remain after our decision. But once the legislature displaces common law, we shed our policy role and confine ourselves to statutory interpretation. Thus, such concerns must be directed to the legislature."

* These typically involve inducing senior citizens to take out a life insurance policy on themselves, then transferring it in return for a payment. In this case, the couple bought the policy, paid the premiums and held it for two years. Then, they sold it.

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