STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL

November 16, 1973

James Guffey, Secretary
Commerce & Consumer Affairs
Pierre, South Dakota 57501

OFFICIAL OPINION NO. 73-39

Director of Division of Insurance should take appropriate action against insurer violating state law.

Dear Mr. Guffey:

Your department has requested an official opinion on the following factual situation:

An insurer has been issuing individual life insurance contracts on all enrolled Indians in a given Tribe in South Dakota. The premiums are paid by the Tribal Council.

The insurance policy is a level premium policy, with the amount of death benefits varying between $500 and $5,000 according to the age of the insured member.

The beneficiary of the policies is the Tribal Council which uses the money to defray the burial expense of the deceased. However, the burial expense never exceeds $500. This would seem to put the Tribal Council in the position of receiving a windfall when the death benefit exceeds $500.

This brings up the question of whether or not the Tribal Council has an insurable interest in its enrolled members over and above any amounts necessary for burial expense for which it has a legal or moral responsibility. SDCL 58-10-3 prohibits issuing insurance contracts where there is no insurable interest.

In connection with the above factual situation, you have asked:

Does the Division of Insurance have jurisdiction, as it files and approves policies for sale to the citizens and policyholders of the State of South Dakota, to make judgments concerning whether or not the prospective owner of any given insurance contract or type of insurance contract, has an insurable interest in the prospective insured?

The answer to your question is, YES.

SDCL 58-10-3 provides:

Any individual of competent legal capacity may procure or effect an insurance contract upon his own life or body for the benefit of any person. But no person shall procure or cause to be procured any insurance contract upon the life or body of another individual unless the benefits under such contract are payable to the individual insured or his personal representatives, or to a person having, at the time when such contract was made, an insurable interest in the individual insured.

The statute is clear that the issuance of such a policy is forbidden by state law. Also, from your factual situation, it is clear that the Tribe does not have an insurable interest above $500 on each member.

This is not a question involving State versus Indian jurisdiction, nor is it a question of whether a company can write insurance to Indians living on a reservation without being licensed by the state.

What we have here is an insurance company who is licensed to do business anywhere in the State of South Dakota, but is selling insurance to South Daktta citizens in violation of state law. The Division of Insurance has the authority to regulate sales of insurance, by regulating the issuance of licenses to do business in South Dakota. If an insurance company neglects or refuses to abide by our statutes, even on a reservation, the Director of the Division of Insurance should take whatever appropriate action is necessary to stop the prohibited practices.

SDCL 58-11-12 requires the filing of policy forms with the Director of the Division of Insurance for approval. The purpose of the statute is to see that policies sold to the citizens of South Dakota comply with South Dakota laws.

The fact situation indicates that many of the insured members don't even know that insurance has been procured on their behalf, let alone the manner of payment or the amount of benefits involved. To put these widely scattered individuals in the position of having to decide for themselves whether or not the owner of the policy had an insurable interest on them, and then forcing each of them to challenge the owner in a lawsuit, would create many hardships and inequities. Our Legislature has seen fit to establish the Division of Insurance to correct such problems. It is my opinion that the Division of Insurance has jurisdiction and should exercise such jurisdiction to rule on questions of insurable interest.

Respectfully submitted,

Kermit A. Sande
Attorney General