44 F.4th 1024
7th Cir.2022Background
- In 2006, 78‑year‑old Robert Corwell applied for a $5 million Sun Life policy with ~ $300,000 annual premiums as part of a Coventry Capital program that sourced policies for the secondary market.
- Corwell used a non‑recourse premium financing loan (administered through LaSalle Bank and Coventry) that reimbursed his initial premium and funded ongoing premiums; he bore little or no economic risk.
- The loan had a ~30‑month term; when it matured Corwell surrendered the policy and Coventry First (with AIG’s approval) purchased and transferred it to investors; Wells Fargo became record owner/servicing intermediary.
- Corwell died in 2017; Wells Fargo (on behalf of beneficial owners) filed a death claim and Sun Life sued for a declaratory judgment that the policy was void ab initio as stranger‑originated life insurance (an unlawful wager).
- The district court granted summary judgment for Sun Life, held the policy void, and allowed Sun Life to retain nearly all premiums; it ordered a small refund (~$13,000) for premiums paid by the last beneficial owner (Vida).
- On appeal the Seventh Circuit affirmed that the policy was void as a stranger‑originated wager and rejected Wells Fargo’s claims except it reversed the district court’s limited refund to Wells Fargo for Vida’s premiums.
Issues
| Issue | Plaintiff's Argument (Sun Life) | Defendant's Argument (Wells Fargo) | Held |
|---|---|---|---|
| Whether the policy is void ab initio for lack of insurable interest / is a stranger‑originated wager | The transactions’ substance (hidden financing, planned transfer to investors) shows Corwell was a mere conduit and the policy was an unlawful wager | Corwell had an insurable interest in his own life and nominal control; no explicit early agreement to transfer makes the policy valid | Affirms: policy void ab initio—substance (scheme to procure a policy for strangers) controls over form |
| Whether premiums paid for the void policy must be returned (restitution/unjust enrichment) | Insurer may retain premiums where contract void and claimant is not an innocent purchaser; Sun Life not unjustly enriched | Wells Fargo seeks full refund of all premiums as unjust enrichment to prevent insurer windfall | Affirms: Sun Life may retain the vast majority of premiums; Wells Fargo not entitled to full refund |
| Whether Vida (last beneficial owner) was an innocent purchaser entitled to refund of her premiums (~$13k) | Vida was a sophisticated, deliberate purchaser who knew the risks and cannot be treated as innocent | Wells Fargo contends Vida was an innocent buyer and refund is appropriate | Reverses district court: Vida was not an innocent purchaser; no refund due through Wells Fargo |
| Whether Wells Fargo has standing/entitlement to recover premiums paid by others (AIG/Blackstone/Vida) | Wells Fargo was only a conduit/record owner and did not pay or beneficially own premiums; it cannot recover premiums paid by third parties | Wells Fargo seeks recovery as agent or conduit for beneficial owners | Holds Wells Fargo lacks individual entitlement to recover premiums paid by other beneficial owners |
Key Cases Cited
- Grigsby v. Russell, 222 U.S. 149 (1911) (recognizes that an initially valid, good‑faith policy may be freely assigned; distinguishes legitimate assignment from stranger‑originated wagers)
- Warnock v. Davis, 104 U.S. 775 (1881) (treats stranger‑originated life insurance as void)
- Cisna v. Sheibley, 88 Ill. App. 385 (1899) (Illinois court looks to substance over form and invalidates transactions that are wagers despite nominal beneficiaries)
- Hawley v. Aetna Life Ins. Co., 291 Ill. 28 (1919) (insurable interest required at policy inception)
- Bajwa v. Metropolitan Life Ins. Co., 333 Ill. App. 3d 558 (2002) (only the initial policyholder must have an insurable interest; courts still examine substance)
- Seaback v. Metropolitan Life Ins. Co., 274 Ill. 516 (1916) (premiums may be recoverable when a policy never attached and the payer is blameless)
- Ohio Nat’l Life Assurance Corp. v. Davis, 803 F.3d 904 (7th Cir. 2015) (policy void where insured merely lent his name; courts must examine substance and who controlled the policy)
- Bloomington Mut. Life Benefit Ass’n v. Blue, 120 Ill. 121 (1887) (allows sale/assignment where initial purchase was in good faith and supported by insurable interest)