Sun Life Assurance Company of Canada v. Wells Fargo Bank NA (080669) (Statewide)
208 A.3d 839
| N.J. | 2019Background
- In 2007 investors financed a $5 million life policy on Nancy Bergman through an irrevocable trust; Bergman and her grandson were nominal signatories but investors paid most premiums and quickly became trust co‑trustees and beneficiaries.
- Sun Life issued the policy with a two‑year incontestability clause; the trust sold the policy after two years and Wells Fargo later acquired it and continued paying premiums.
- Bergman died in 2014; Sun Life refused payment, alleging the policy was a STOLI (stranger‑originated life insurance) scheme lacking an insurable interest and sought a declaration that the policy was void ab initio; Wells Fargo counterclaimed for benefits or refund of premiums.
- The District Court held the policy was a STOLI and void ab initio and ordered Wells Fargo to recover premiums; the Third Circuit certified two questions to the New Jersey Supreme Court.
- New Jersey statute requires an insurable interest when a contract is made (N.J.S.A. 17B:24‑1.1) and mandates a two‑year incontestability clause; the Viatical Settlements Act generally bars transfers to strangers within two years of issuance.
Issues
| Issue | Plaintiff's Argument (Sun Life) | Defendant's Argument (Wells Fargo) | Held |
|---|---|---|---|
| Whether a policy procured to benefit persons lacking an insurable interest violates NJ public policy | Such policies are wagers without insurable interest and violate statutory and constitutional anti‑gambling policy | The policy complied at issuance because a trust/beneficiary had an insurable interest; sale rules are governed by Viatical Settlements Act timing | Yes. A policy procured to benefit strangers (classic STOLI) violates public policy and contravenes N.J.S.A. 17B:24‑1.1(b) |
| Whether feigned compliance (temporary nominee beneficiary or rapid transfer) satisfies the insurable interest requirement | Feigned compliance is insufficient; substance controls over form | Technical compliance at issuance should be respected; incontestability bars late challenges | Feigned compliance does not cure lack of insurable interest; courts may look to intent, funding, timing and substance over form |
| Whether a policy that violates public policy is void ab initio or voidable | Policy is an illegal wager and therefore void ab initio | Fraud could render policies voidable; insurer might be estopped/waive defenses | Void ab initio: a wagering policy that lacks insurable interest never legally came into effect |
| Remedy for a later purchaser who paid premiums in good faith | Insurer may retain premiums as parties to illegal contracts are typically left as found | Later, innocent purchasers should be able to recover premiums paid | Equitable, fact‑sensitive approach: later purchasers not involved in the illicit scheme may recover premiums; courts must balance culpability, knowledge, red flags, and equitable factors |
Key Cases Cited
- Grigsby v. Russell, 222 U.S. 149 (U.S. 1911) (life policies are property and may be sold; insurable interest requirement protects against wagering)
- Warnock v. Davis, 104 U.S. 775 (U.S. 1882) (insurable interest distinguishes valid policies from wagers; interest must favor continuance of life)
- PHL Variable Ins. Co. v. Price Dawe, 28 A.3d 1059 (Del. 2011) (policy lacking insurable interest is void ab initio and incontestability clause does not bar challenge)
- Ohio Nat’l Life Assurance Corp. v. Davis, 803 F.3d 904 (7th Cir. 2015) (STOLI schemes are wagers; feigned compliance insufficient; awarded mixed relief based on culpability)
- Kramer v. Phoenix Life Ins. Co., 940 N.E.2d 535 (N.Y. 2010) (New York law then permitted immediate transfer of self‑procured policies; later addressed by statute)
- Sun Life Assurance Co. of Canada v. U.S. Bank Nat’l Ass’n, 839 F.3d 654 (7th Cir. 2016) (discusses Wisconsin approach and remedies for policies bought without insurable interest)