Grigsby v. Russell

The year was 1911, and John Burchard was in a financial bind. He had recently purchased a life insurance policy. He made two monthly premiums and was late making the third-month premium. He needed surgery and assigned his policy’s death benefit to Dr. Grisby, who would perform the surgery. When John Burchard passed away, his heirs sued Dr. Grisby to claim the death benefit. The case would make its way to the Supreme Court. Justice Oliver Wendall Holmes would write the majority opinion.

The heirs of John Burchard argued that Dr. Grisby did not have an insurable interest, and therefore the assignment of the death benefit was not valid. The concept of insurable interest is bedrock in life insurance. It simply says that there must be a familial or financial nexus between the insured and the beneficiary. The Supreme Court held that the assignment was valid because Dr. Grisby paid consideration (the surgery) for the policy death benefit.

This case was a landmark one for the life insurance industry because it was the start of life settlements and viatical settlements. Life insurance companies are uncomfortable with third parties without insurable interests having the death benefit assigned to them. Grigsby v. Russell made that practice legal. Life Insurance carriers developed terminal, critical, and chronic illness riders to limit the need for life settlements.

Life insurance carriers will pay out a portion of the death benefit to insureds who are terminally and chronically ill or have a critical illness. These are in the form of policy riders. These include long-term care riders. A Supreme Court case from over 100 years ago continues to impact the life insurance industry.

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Disclosures:

This article is intended to assist in educating you about insurance generally and not to provide personal service. Riders are additional guarantee options that are available to a life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions, and the policyholder should review their contract carefully before making any decision. Guarantees are based on the claims-paying ability of the issuing insurance company.