266 A.3d 964
Del.2021Background
- Beverly Berland obtained a $5 million Lincoln life policy in 2006 through a trust (Berland Insurance Trust) and an intermediary (Simba/Coventry) using a nonrecourse premium-financing loan; the trust was Delaware‑based.
- Berland signed a special durable POA, provided medical records, and submitted an application that included alleged misstatements about assets and income.
- The trust held the policy past the two‑year contestability period, then sold it (Coventry First/Lavastone bought the beneficial interest) for roughly $453,823; Berland received surplus proceeds.
- Lavastone kept the policy in force and, after Berland’s death, received about $5,041,032 in death benefits from Lincoln.
- Berland’s estate sued under 18 Del. C. § 2704(b) seeking recovery of death benefits, arguing the policy lacked an insurable interest (a STOLI scheme) and was void ab initio; the District Court certified three legal questions to the Delaware Supreme Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Whether a death benefit paid on a policy void ab initio is paid “under any contract” for § 2704(b) | Estate: § 2704(b) must apply — a benefit paid on a policy lacking insurable interest is recoverable and the statute would be meaningless otherwise | Lavastone: did not press a position on this question; generally disputed that the policy lacked an insurable interest | Held: Yes. § 2704(b)’s reference to a “contract” can mean the policy document identifying payees even if the policy is void ab initio under Price Dawe. |
| 2. Whether premium financing (nonrecourse loan) and intent to transfer after contestability violates §§ 2704(a) & (c)(5) | Estate: Nonrecourse funding shows third parties effectively procured the policy, indicating lack of insurable interest and a STOLI scheme | Lavastone: Premium financing is a permissible tool; transfer after contestability is allowed if Price Dawe’s limits are respected | Held: No categorical ban. Such financing is permissible so long as the insured (or insured’s trust) actually paid premiums (i.e., funding didn’t allow obtaining the policy without paying) and the policy was procured in good faith for lawful insurance purposes, not as a wager. |
| 3. Whether estate recovery under § 2704(b) is barred where decedent committed fraud in application and profited from prior sale | Estate: Fraud or prior profit should not necessarily bar the statutory remedy | Lavastone: Fraud and the insured’s profitable sale should bar the estate (in pari delicto, estate bound by decedent) | Held: Fraud in the application does not automatically bar § 2704(b) recovery. The estate may recover unless the recipient of benefits can establish it was the victim of the fraud; mere prior sale/profit does not bar recovery absent more. |
Key Cases Cited
- PHL Variable Ins. Co. v. Price Dawe 2006 Ins. Trust, 28 A.3d 1059 (Del. 2011) (establishes that policies lacking an insurable interest at inception are void ab initio and frames the Price Dawe tests)
- Grigsby v. Russell, 222 U.S. 149 (1911) (historical U.S. Supreme Court condemnation of wagering contracts on life)
- Warnock v. Davis, 104 U.S. 775 (1881) (early Supreme Court discussion of insurable interest requirement)
- Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11 (1979) (discusses statutory declarations of void contracts)
- Sun Life Assurance Co. of Canada v. Wells Fargo Bank, N.A., 208 A.3d 839 (N.J. 2019) (recent decision addressing premium financing/STOLI indicia and third‑party procurement)