Sun Life Assurance Co. of Canada v. Conestoga Trust Services, LLC
263 F. Supp. 3d 695
E.D. Tenn.2017Background
- Sun Life issued a $2 million policy on Erwin Collins in April 2008; Conestoga is the sixth assignee and filed a death claim after Collins died in 2014.
- Broker Eugene Houchins solicited Collins, used a Georgia trust (with a friend as trustee) to apply, removed Tennessee indicia, and paid initial premiums from Bonded Life funds.
- Life Asset (via broker David Wolff) had pre-priced acquisition of the beneficial interest at 4% of face ($80,000) plus reimbursement of premiums; closing occurred immediately after policy issuance.
- Evidence shows a pre-existing arrangement: Collins (and the trust) did not fund premiums, documents were backdated/misstated Georgia signatures/addresses, and intermediaries were paid commissions/referral fees.
- Sun Life sued for declaratory relief asserting the policy was a STOLI (stranger-originated life insurance) wagering contract void ab initio; Conestoga sought recovery of premiums and alleged bad faith.
Issues
| Issue | Plaintiff's Argument (Sun Life) | Defendant's Argument (Conestoga) | Held |
|---|---|---|---|
| Whether the policy is a STOLI wagering contract (insurable interest at inception) | Policy was procured by strangers as a wager; premiums funded by third parties; trust was a sham | Policy was legitimate; resale intent and a later transfer to secondary market is lawful; premium payments were loans | Policy is STOLI and void ab initio — no insurable interest at inception |
| Whether Conestoga is an innocent/bonafide assignee entitled to proceeds | Assignment cannot cure a contract void from inception | Conestoga claims good-faith assignee status and entitlement | Assignee innocence does not revive a void wagering policy; no recovery of death benefit |
| Whether premiums paid should be returned to Conestoga | Sun Life argues policy void so keep parties as found; Sun Life incurred commissions and expenses | Conestoga seeks refund of premiums it paid in good faith after acquiring the policy | Conestoga may recover premiums it paid after acquiring the policy (April 30, 2013 onward); Sun Life must refund those premiums |
| Whether Conestoga has a viable bad-faith claim against Sun Life | Sun Life had reasonable legal grounds to deny payment | Conestoga alleges bad faith refusal to pay | Bad-faith claim fails because Sun Life’s challenge to policy validity was reasonable and substantial |
Key Cases Cited
- Sciarretta v. Lincoln Nat. Life Ins. Co., 778 F.3d 1205 (11th Cir. 2015) (describing mechanics and policy rationale behind STOLI transactions)
- Clement v. New York Life Ins. Co., 46 S.W. 561 (Tenn. 1898) (contracts wagering on life are void; assignor cannot convey greater rights than possessed)
- Marquet v. Aetna Life Ins. Co., 159 S.W. 733 (Tenn. 1913) (reaffirming wagering-contract doctrine and insurable-interest rule)
- PHL Variable Ins. Co. v. Price Dawe, 28 A.3d 1059 (Del. 2011) (third-party-funded premiums and prearranged transfers indicate lack of insurable interest)
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standards and burden allocation)
- Executive Jet Aviation, Inc. v. United States, 507 F.2d 508 (6th Cir. 1974) (objective factors for determining whether an advance is a loan)
- Tyber v. Great Central Ins. Co., 572 F.2d 562 (6th Cir. 1978) (no bad-faith liability where insurer’s denial rests on legitimate legal grounds)
- Washington v. Atlanta Life Ins. Co., 136 S.W.2d 493 (Tenn. 1940) (assignee who paid premiums in good faith may recover premiums when policy is void due to others’ misconduct)