A federal judge in Pennsylvania, U.S. District Judge Christopher Conner, has ruled against insurance carriers and in favor of investors who bought several stranger-originated life insurance policies (STOLI).

In general, STOLI refers to a much-critiqued practice of some aggressive investors who purchase a life insurance policy with its immediate resale value in mind. In such a transaction, an insurance agent or other middleman typically encourages an elderly person to take out a policy that can then be sold to investors. Similar to Life Settlements, following the policy transfer, investors take on the responsibility to pay policy premiums in order to ultimately collect the death benefit upon the death of the original policyholder.

This decision reaffirmed that policies sold on the secondary market are valid, so long as the original beneficiary has an "insurable interest" in the life of the insured. Verification of insurable interest is one the quality control measures employed by Seven Hills in researching policies for our clients.

Click here to read the full story from the Wall Street Journal.