The opinion of the court was delivered by: Ciparick, J.
This opinion is uncorrected and subject to revision before publication in the New York Reports.
The United States Court of Appeals for the Second Circuit has certified the following question for our consideration:
"Does New York Insurance Law §§ 3205 (b) (1) and (b) (2) prohibit an insured from procuring a policy on his own life and immediately transferring the policy to a person without an insurable interest in the insured's life, if the insured did not ever intend to provide insurance protection for a person with an insurable interest in the insured's life?"
We now answer in the negative and hold that New York law permits a person to procure an insurance policy on his or her own life and immediately transfer it to one without an insurable interest in that life, even where the policy was obtained for just such a purpose.
This litigation involves several insurance policies obtained by decedent Arthur Kramer, a prominent New York attorney, on his own life, allegedly with the intent of immediately assigning the beneficial interests to investors who lacked an insurable interest in his life. In May 2008, Arthur's widow, plaintiff Alice Kramer, as personal representative of her husband's estate, filed an amended complaint in the United States District Court for the Southern District of New York seeking to have the death benefits from these insurance policies paid to her. She alleges that these policies, which collectively provide some $56,200,000 in coverage, violate New York's insurable interest rule because her husband obtained them without the intent of providing insurance for himself or anyone with an insurable interest in his life.
As alleged in the plaintiff's complaint, defendant Steven Lockwood, the principal of Lockwood Pension Services, Inc. ("Lockwood Pension"), approached Arthur, presumably a sophisticated investor, about participating in a "stranger-owned life insurance" ("SOLI" or "STOLI") scheme as early as 2003.*fn1
They commenced such a scheme in June 2005, when Arthur established the first of two insurance trusts ("the June trust") and named two of his adult children, Andrew and Rebecca Kramer, as beneficiaries. A present Lockwood Pension employee was named as trustee, succeeded by defendant Jonathan Berck. In June and July 2005, defendant Transamerica Occidental Life Insurance Co. funded the trust with one or more insurance policies with a total death benefit of approximately $18,200,000. Andrew and Rebecca then assigned their beneficial interests in the trust to a stranger investor, defendant Tall Tree Advisors, Inc. ("Tall Tree"). In 2007, Berck, as trustee, sold the ownership interests in the policies to a non-party purchaser.
Arthur established a second trust in August 2005 ("the August trust") and named a third adult child, Liza Kramer, as beneficiary. Hudson United Bank ("Hudson") was named trustee,*fn2 also succeeded by Berck. In July 2005, defendant Phoenix Life Insurance Co. ("Phoenix") issued three insurance policies to fund the August trust, with a total death benefit of $28,000,000, and Liza likewise assigned her interest to Tall Tree. In November 2005, defendant Lincoln Life & Annuity Co. of New York ("Lincoln") also issued a policy to the August trust with a death benefit of $10,000,000, and Liza assigned her interest to another stranger investor, defendant Life Products Clearing, LLC ("Life Products"). Intervenor Lifemark alleges that it purchased the Phoenix policy from the August trust in August 2007, just over two years after its issuance. Allegedly both trust agreements were prepared by counsel for Lockwood Pension, neither Arthur Kramer nor his children ever paid premiums on the policies, and the Kramer children were never "true beneficiaries" of the trusts after the policies were issued. Phoenix and Lincoln allege that Lockwood served as broker pursuant to an "Independent Producer Contract" he had with Phoenix and a "Broker Agreement" he had with Lincoln.
Following Arthur's death in January 2008, Alice refused to turn over copies of the death certificate to investors holding beneficial interests in the policies. She filed this action alleging that these policies violated New York's insurable interest rule and so should be paid to her, as the representative of the decedent's estate. Defendants are the insurance companies that issued the policies, trustees, and various insurance brokers/investors. They filed counterclaims, cross-claims, and third-party complaints. As relevant here, Berck, as trustee, and Life Products filed nearly identical answers seeking to have the proceeds of the Lincoln policy awarded to them. Intervenor Lifemark, claiming to be a good faith purchaser for value, seeks to have the Phoenix policy proceeds paid to it. Phoenix and Lincoln brought claims against Lockwood for breach of contract and also seek a declaratory judgment declaring that the policies are void and that they are not required to pay policy proceeds to anyone.
District Court granted motions to dismiss many of the parties' claims, but denied Lockwood's motion to dismiss the insurers' claims against him. Relying primarily on District Court precedent, the court stated that, according to the alleged facts:
"Lockwood breached provisions of the New York Insurance Law in that he caused to be procured directly or through assignment or other means, a contract of insurance upon the life of the decedent [Kramer] for the benefit of strangers who did not have an insurable interest in his life at the time the policy was obtained" (Kramer, 653 F Supp 2d at 388 [internal quotation marks omitted]).
The court also permitted Alice, Life Products, and Berck's declaratory judgment claims, counterclaims, and cross-claims to go forward.*fn3
District Court certified its order to allow for an interlocutory appeal to the Second Circuit pursuant to 28 USC § 1292 (b), noting that "there is indeed substantial ground for difference of opinion on the application of New York Insurance Law to SOLI arrangements of this type" (653 F Supp 2d at 398), and that "[n]umerous claims in this suit, including but not limited to the initial Declaratory Judgment action by Plaintiff, turn on the interpretation of" New York Insurance Law § 3205 (id.). The Second Circuit granted Lifemark's petition for leave to appeal District Court's interlocutory order, and certified the question at issue to us.*fn4
New York's insurable interest requirement is codified in Insurance Law § 3205 (b). Section 3205 (b) (1) addresses individuals obtaining life insurance on their own lives:
"Any person of lawful age may on his own initiative procure or effect a contract of insurance upon his own person for the benefit of any person, firm, association or corporation. Nothing herein shall be deemed to prohibit the immediate transfer or assignment of a contract so procured or effectuated" (Insurance Law § 3205 [b] ).
Section 3205 (b) (2) addresses a person's ability to obtain insurance on another's life and requires, in that circumstance, that the policy beneficiary be either the insured himself or someone with an insurable interest in his life:
"No person shall procure or cause to be procured, directly or by assignment or otherwise any contract of insurance upon the person of another unless the benefits under such contract are payable to the person insured or his personal representatives, or to a person having, at the time when such contract is made, an insurable interest in the person insured" (Insurance Law § 3205 [b] ).
An insurable interest is defined as, "in the case of persons closely related by blood or by law, a substantial interest engendered by love and affection" or, for others, a "lawful and substantial economic interest in the continued life, health or bodily safety of the person insured" (Insurance Law § 3205 [a] ).*fn5
The insurable interest requirement at common law was designed to distinguish an insurance contract from a wager on someone's life (see Ruse v Mutual Benefit Life Ins. Co., 23 NY 516, 523  ["A policy, obtained by a party who has no interest in the subject of insurance, is a mere wager policy"]). From the first, an insurable interest was required only where a policy was "obtained by one person for his own benefit upon the life of another" (id.). This basic distinction between policies obtained on the life of another and those obtained on one's own life is reflected in the twin provisions of § 3205 (b) (1) and (b)(2). As we have explained: "When one insures his or her own life, the wagering aspect is overridden by the recognized social utility of the contract as an investment to benefit others. When a third party insures another's life, ...