Nebraska Supreme Court to Rule on Insurance Guaranty Fund Viatical Role

By Margery A. Gibbs | March 4, 2009

Nebraska’s highest court will determine whether a state insurance guaranty fund must cover nearly $1 million in losses suffered by 26 Nebraskans in a life insurance deal.

The Nebraska Supreme Court heard arguments this week in the appeal and cross appeal of a lawsuit filed by the Nebraskans. Members of the group argue they are entitled to recoup their losses from a state association designed to protect residents who own life or health insurance policies or annuity contracts with companies that become insolvent.

But the Nebraska Life and Health Insurance Guaranty Association counters that the plaintiffs are not the victims of an insurance company that’s gone belly-up, but investors who lost on a gamble –and, therefore, are not entitled to relief.

The 26 who sued had bought viatical settlements, in which life insurance policies are bought at a discount from the terminally ill or elderly in need of cash. The sellers of the policies get a quick infusion of cash — usually to pay for medical treatments — and the buyers of those policies collect the benefit when the seller dies.

The Nebraskans bought the viaticals through a Nebraska insurance agent, who purchased them from a Florida company called Future First Fidelity Group. Future First has since folded amid accusations of fraud.

That left the 26 Nebraskans holding the bag for the viaticals, on which they had spent between $10,000 to $192,000 each, for a total of nearly $906,000.

The Nebraskans filed a claim with, and later sued, Nebraska Life and Health Insurance Guaranty Association, which provides limited coverage for policy holders — up to $300,000 for death benefits on a life insurance policy.

Every state has an association like Nebraska’s designed to protect policy owners. Funding for the Nebraska association comes from insurance companies licensed to do business in the state.

The Nebraskans who lost money with the viaticals say that because they are the holders of life insurance policies, they are entitled to reimbursement from the association.

But the association argues in its cross appeal, among other things, that because Future First was never licensed with it to do business in Nebraska, it is not obligated to cover the group’s losses.

In August 2007, a Lancaster County district judge ruled in favor of the investors, granting them partial summary judgment and denying a motion by the state association for partial summary judgment.

But eight months later, the trial court reconsidered and reversed its ruling, citing state law that says contracts in which the risk is borne by the policy holder are not subject to coverage.

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On the Net:

Nebraska Supreme Court: http://www.supremecourt.ne.gov

Nebraska Life and Health Insurance Guaranty Association: http://www.nelifega.org/

Topics Nebraska

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