PHL Variable Insurance v. Price Dawe 2006 Insurance Trust Ex Rel. Christiana Bank & Trust Co.
28 A.3d 1059
| Del. | 2011Background
- Delaware life policy on Dawe's life issued March 8, 2007; ownership/beneficiary the Dawe Trust; policy contains incontestability clause after two years.
- Dawe died March 3, 2010; Dawe Trust filed death-claim; Phoenix challenged validity, alleging lack of insurable interest and STOLI scheme.
- District court denied motions to dismiss and certified three questions to Delaware Supreme Court on incontestability and insurable interest.
- Statutes at issue: 18 Del. C. § 2908 (contestability) and § 2704(a)/(c)(5) (insurable interest and trust ownership).
- Issues involve whether lack of insurable interest can be challenged post-contestability, and how intent and trust ownership affect insurable interest.
- Court holds: (1) post-contestability challenge permitted if void ab initio for lack of insurable interest; (2) intent to transfer does not alone violate § 2704; (3) a trust established by the insured can confer insurable interest to the trustee if properly created and funded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Post-contestability challenge based on lack of insurable interest allowed? | Phoenix: incontestability bars any post-period challenge. | Dawe: contracting void ab initio; contestability does not apply. | Yes; insurer may challenge void ab initio policies after contestability. |
| Does insurable interest prohibition apply when insured intends immediate transfer to non‑interested party? | Dawe: intent to transfer creates wagering contract and violates § 2704. | Dawe: statute ambiguous; transfer aligns with life settlement market. | No; intent alone not violation if policy is bona fide and not mere wagering. |
| Does § 2704(c)(5) confer insurable interest to trustee when insured intends transfer to non‑interested third party? | Phoenix: trust-based insurable interest should be recognized broadly. | Dawe: prior language limited; requires unicorn-like interpretation; funding matters. | Yes, if trust is established by the insured and properly funded; otherwise no. |
Key Cases Cited
- Grigsby v. Russell, 222 U.S. 149 (U.S. 1911) (insurable interest required; life insurance not a mere wager)
- Baltimore Life Ins. Co. v. Floyd, 91 A.653 (Del. Super. Ct. 1914) (insurable interest required; wagering contracts void)
- Oglesby, 695 A.2d 1146 (Del. 1997) (incontestability limits; fraud in inducement vs. insurable interest)
- Caruso, 535 N.E.2d 273 (N.Y. 1989) (insurable interest doctrine; contestability scope diverges by jurisdiction)
- Kramer v. Phoenix Life Ins. Co., 15 N.Y.3d 539 (N.Y. 2010) (STOLI context; insurable interest debated under New York law)