Western Reserve Life Assurance Co. v. ADM Associates, LLC, 2013 U.S. App. LEXIS 24639

Plaintiff Western Reserve issued a WRL Freedom Premier III variable annuity with a "Double Enhanced Death Benefit" to annuitant Charles Buckman; ADM Associates (a Caramadre nominee) was named owner/beneficiary.
The annuity allowed the owner to direct investments, add premiums (initial $250,000, later $750,000), and promised on death the greater of premiums plus 5% interest or the highest policy value on an anniversary.
Caramadre ran a scheme recruiting terminally ill annuitants (paid up-front) so a stranger-owner/beneficiary could speculate with limited downside because the death benefit would be triggered soon.
Western Reserve later learned of the scheme, sought rescission and filed tort claims against ADM, and sued to void the policy for lack of insurable interest and related claims.
The district court dismissed ADM from the suit, holding the contract was an annuity (not life insurance) so lack of insurable interest did not void it, and that the policy’s incontestability clause barred tort claims; Western Reserve appealed.
The First Circuit found Rhode Island law unsettled on two controlling issues and certified questions to the Rhode Island Supreme Court rather than deciding them.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether an annuity with a death benefit is invalid for lack of an insurable interest when owner/beneficiary is a stranger to the annuitant	The death benefit makes the annuity functionally life insurance; Rhode Island law and public policy bar stranger-originated contracts without insurable interest	The contract is an annuity (not life insurance); annuities traditionally do not require insurable interest and Western Reserve accepted and marketed it as such	Certified to RI Supreme Court as unsettled; First Circuit declined to resolve
Whether an "incontestable from the Policy Date" clause precludes a challenge based on lack of insurable interest	Incontestability should not defeat a public-policy defense that a policy lacking an insurable interest is void ab initio	The clause bars post-issuance challenges; immediate incontestability is permissible and insurer had pre-issuance investigation time	Certified to RI Supreme Court as unsettled; First Circuit declined to resolve

Cronin v. Vt. Life Ins. Co., 40 A. 497 (R.I. 1898) (historic Rhode Island rule condemning purely speculative contracts on another's life)
Sisson ex rel. Nardolillo v. Prata Undertaking Co., 141 A. 76 (R.I. 1928) (courts look beyond labels to substance when determining whether a contract is insurance)
Murray v. State Mut. Life Ins. Co., 48 A. 800 (R.I. 1901) (incontestability does not necessarily waive all defenses; emphasis on enforcing insurer’s plain obligations)
PHL Var. Ins. Co. v. Price Dawe 2006 Ins. Trust ex rel. Christiana Bank & Trust Co., 28 A.3d 1059 (Del. 2011) (majority view: policies lacking insurable interest are void and incontestability is inapplicable)
Bogacki v. Great-West Life Assurance Co., 234 N.W. 865 (Mich. 1931) (contrary view: lack of insurable interest renders policy voidable, so incontestability can bar the defense)
New Eng. Mut. Life Ins. Co. v. Caruso, 535 N.E.2d 270 (N.Y. 1989) (supports view that incontestability can defeat insurable-interest defenses)
Warnock v. Davis, 104 U.S. 775 (U.S. 1881) (insurable-interest principle prevents perverse incentives to hasten insured’s death)