Liability Is Rarely Where the First Filing Assumes
When a life settlement transaction ends in litigation, the instinct is to point at whoever is closest to the loss. But in these cases, exposure follows information and duty — not proximity. After three decades watching these disputes unfold, I use a simple three-part framework to find where liability actually lives.
Part One: Who Knew — or Should Have Known?
Courts increasingly apply a “should have known” standard. The question isn’t whether a party actually caught the problem, but whether the information that would have revealed it was available to them. A settlement company with full access to a policy file and a deep actuarial database is held to a far higher standard than a downstream purchaser who saw only a summary.
Part Two: Where Did the Duty of Care Break Down?
- Originators and providers who funded the deal carry the greatest duty — the most access, the most control over underwriting.
- Institutional investors who participated in underwriting can’t later claim they relied on someone else’s diligence.
- Secondary-market purchasers have lower exposure — unless they skipped diligence of their own, which is the gray area where many firms are quietly exposed.
In these disputes, exposure follows information and duty — not proximity.
Part Three: What Does Discovery Reveal?
Most of these cases are decided in discovery. The decisive question is simple: did the responsible party have the tools to catch the problem, and fail to deploy them? A complete, well-documented underwriting file is the best defense there is. Its absence is often the case.
For Attorneys: Where to Look First
Start with the underwriting file and the org chart. Map who had access to what, and who was qualified to interpret it. The party that should have known, and could have known, is usually the party that pays.