Sun Life Assurance Co. of Canada v. U.S. Bank National Ass'n
2016 U.S. App. LEXIS 18403
| 7th Cir. | 2016Background
- Common-law rule: life insurance requires an insurable interest; otherwise policy is treated as a wager and traditionally invalid.
- Wisconsin modified the remedy in 1975: Wis. Stat. § 631.07(4) makes policies not invalid solely for lack of insurable interest and authorizes courts to order proceeds paid to whoever is equitably entitled.
- Sun Life issued a $6 million life policy on Charles Margolin (age 81); U.S. Bank purchased the policy and became beneficiary; Margolin died in 2014.
- Sun Life refused payment pending investigation, having collected nearly $2.5 million in premiums during the policy’s life. U.S. Bank sued under § 631.07(4) to compel payment.
- District court awarded the $6 million benefit to U.S. Bank plus statutory interest and bad-faith damages for delay; Sun Life appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 631.07(4) requires insurer to pay beneficiary despite lack of insurable interest | § 631.07(4) changed remedy; beneficiary (U.S. Bank) is entitled unless another equitable claimant appears | Policy is a wager due to lack of insurable interest, so insurer may refuse payment | Court: § 631.07(4) governs; beneficiary entitled absent an equitable claimant |
| Whether gambling statute (§ 895.055) voids payment obligation | § 631.07(4) is part of insurance code and controls; no conflict precludes payment | Gambling statute voids wagering contracts, so insurer may refuse to pay | Court: No conflict that defeats § 631.07(4); wagering label does not avoid statutory duty to pay |
| Whether Wisconsin Constitution’s ban on gambling bars legislative remedy | Legislature did not authorize gambling; statute changed remedy only, not legalization of gambling | Constitutional ban would preclude enforcement of a wagering policy | Court: Constitution not violated; statute preserved prohibition but altered remedy |
| Entitlement to statutory interest and bad-faith damages for delayed payment | Bank seeks 12% statutory interest (Wis. Stat. § 628.46) and bad-faith damages for unreasonable delay | Sun Life argued against interest/penalties as justified by investigation | Court: Award affirmed—no reasonable proof to avoid interest; bad faith shown (lack of reasonable basis and reckless disregard) |
Key Cases Cited
- Ohio Nat. Life Assur. Corp. v. Davis, 803 F.3d 904 (7th Cir. 2015) (recognizing insurable-interest common-law rule)
- Conn. Mut. Life Ins. Co. v. Schaefer, 94 U.S. 457 (1876) (insurable interest limits life insurance to prevent speculation)
- Grigsby v. Russell, 222 U.S. 149 (1911) (contracts of insurance without insurable interest are wagers)
- Venisek v. Draski, 150 N.W.2d 347 (Wis. 1967) (premiums may be recoverable)
- Anderson v. Continental Ins. Co., 271 N.W.2d 368 (Wis. 1978) (standard for insurer bad-faith liability)