## Facts

- John C. Burchard purchased a life insurance policy on his own life and paid two premiums but fell behind on the next premium.
- Needing funds for surgery, Burchard agreed to assign the policy to his surgeon, Dr. Grigsby, in exchange for $100 and Grigsby’s promise to pay future premiums.
- After Burchard’s death, the insurer filed an interpleader action to determine whether proceeds belonged to Grigsby as assignee or to the administrators of Burchard’s estate.
- The estate argued the assignment was invalid because Grigsby lacked an insurable interest in Burchard’s life and the transaction was contrary to public policy.
- The court of appeals limited Grigsby’s recovery to the $100 plus premiums paid, effectively treating the assignment as security rather than a full transfer.
- The Supreme Court granted certiorari to determine whether Grigsby was entitled to the full policy proceeds.

## Issues

1. Whether an insured may assign a valid life insurance policy to a person lacking an insurable interest, permitting the assignee to collect the full proceeds at death.
2. Whether a policy clause stating the policy is “void” upon nonpayment of premiums renders it automatically void or merely voidable at the insurer’s option.
3. Whether a life insurance policy valid at issuance becomes invalid if an insurable interest later ceases to exist.

## Decision

- The Supreme Court reversed the court of appeals.
- The Court held that an insured may assign a valid life insurance policy to any purchaser, including one without an insurable interest, so long as the policy was not procured as a wagering arrangement at inception.
- The Court treated a life insurance policy as the insured’s transferable property that may be sold, assigned, or pledged.
- The Court construed a “void for nonpayment” provision as making the policy voidable at the insurer’s election, not automatically a nullity.
- The Court held that cessation of insurable interest after valid issuance does not avoid the policy absent a policy term requiring that result.
- Because the insurer did not insist on defenses based on lack of insurable interest in the assignee and sought direction through interpleader, the estate could not use policy clauses to reduce the assignee’s rights.

## Legal Principles

- The public-policy bar against wagering policies primarily targets procurement of insurance by a party without insurable interest at inception; it does not generally invalidate a later assignment by the insured of a validly issued policy to a non–insurable-interest assignee.
- Once validly issued, a life insurance policy is a transferable property interest of the insured, freely alienable unless restricted by the policy or applicable law.
- Insurable interest is required at the time the policy is issued; the later cessation or absence of insurable interest in a subsequent assignee does not, by itself, defeat enforceability.
- A policy term declaring the policy “void” for nonpayment of premiums is ordinarily construed as conferring a forfeiture option on the insurer (voidable), rather than automatically extinguishing rights for all purposes.
- When the insurer waives or does not assert contractual defenses and instead interpleads the proceeds, competing claimants cannot rely on waived conditions to defeat an assignee’s title.

## Conclusion

The Court held that Burchard’s assignment of his valid life insurance policy to Grigsby was effective despite Grigsby’s lack of insurable interest, entitling Grigsby to the full proceeds, and it clarified that insurable interest is an inception requirement and that “void” for nonpayment provisions are generally voidable at the insurer’s option.


Grigsby v. Russell, 222 U.S. 149 (1911)