225 F. Supp. 3d 136
E.D.N.Y2016Background
- In 2008 Lincoln Benefit Life Co. (LBL) issued a $6M+ life policy on Gabriela Fischer; the Gabriela Fischer Trust was initial owner and beneficiary. AEI Life, LLC later acquired the policy and has paid premiums for years.
- LBL alleges the policy was fraudulently procured (false financials, unknown premium source, possible forgery and third‑party financing) and argues it is voidable.
- The policy contains a New Jersey choice‑of‑law clause and a two‑year incontestability clause. New Jersey law permits rescission for fraud after the contestability period; New York law bars contesting a life policy after two years even for fraud or lack of insurable interest.
- New Jersey insurer LBL initially sued in New Jersey for declaratory relief; AEI sued in the Eastern District of New York. The court conducted evidentiary hearings on fraud and choice of law.
- The court found by a preponderance of the evidence that the policy was fraudulently obtained but that virtually all operative contacts (insured, agent, broker, trust, negotiations, and performances) were centered in New York.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Choice of law | Ignore contract’s New Jersey clause (procured by fraud); apply New York law | Enforce contractual New Jersey choice clause; or, if ignored, New Jersey is center of gravity | Choice clause invalid due to fraud; center of gravity is New York; New York law applies |
| Enforceability under incontestability clause | New York’s 2‑year incontestability bars LBL from contesting validity now | Policy is void for fraud and lack of insurable interest; public policy favors rescission | Under New York law, incontestability bars challenges after two years including for fraud; policy is enforceable |
| Effect of alleged forgery / lack of insured consent | Forgery does not defeat incontestability when beneficiary derives from purchaser (not a complete stranger) | Forgery and lack of consent void policy ab initio | Alleged forgery/consent issues are subject to the incontestability bar under New York law; AEI is not a complete stranger |
| Equity / laches / restitution | AEI paid premiums in good faith; LBL sat on rights; equities favor enforcement | If policy void, equitable restitution of premiums is possible | Equitable defenses favor AEI; laches and practical impossibility of disentangling equities support enforcement |
Key Cases Cited
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (federal court applies forum state conflict rules)
- Kramer v. Phoenix Life Ins. Co., 15 N.Y.3d 539 (New York permits immediate transfer of life policy to one without insurable interest)
- New England Mut. Life Ins. Co. v. Caruso, 73 N.Y.2d 74 (public‑policy rationale for enforcing incontestability after two years)
- Berkshire Life Ins. Co. v. Weinig, 290 N.Y. 6 (incontestability clause renders void defenses that policy was invalid at inception)
- Ledley v. William Penn Life Ins. Co., 138 N.J. 627 (New Jersey allows insurer to deny claim for fraud in application despite incontestability)
- Bank of New York v. Yugoimport, 745 F.3d 599 (description of New York’s center‑of‑gravity/grouping of contacts choice‑of‑law analysis)