Western Reserve Life Assurance Co. of Ohio v. ADM Associates, LLC
116 A.3d 794
R.I.2015Background
- Joseph Caramadre orchestrated a scheme buying variable annuities with a “Double Enhanced Death Benefit,” recruiting terminally ill annuitants and naming third‑party investors as owners/beneficiaries.
- ADM Associates (owner/beneficiary) purchased the Buckman annuity; Charles Buckman was the paid, terminally ill annuitant.
- Western Reserve (insurer) sought rescission/declaratory relief, alleging the annuity was void for lack of an insurable interest and asserting fraud and related claims.
- The annuity policy contained a clause declaring it “incontestable from the Policy Date.”
- District Court dismissed insurer’s claims against ADM; the First Circuit certified two questions of Rhode Island law to the Rhode Island Supreme Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an annuity with a death benefit is infirm for want of an insurable interest when owner/beneficiary is a stranger to the annuitant | §27‑4‑27 and common law insurable interest should apply to death‑benefit annuities; without interest the annuity is void ab initio | Annuities (even with death benefits) are structurally/functionally distinct from life insurance; statute applies to life insurance only, not annuities | No — insurable‑interest statute and common‑law rule do not apply to such annuities; lack of interest does not automatically make the annuity a wagering contract |
| Whether an incontestability clause effective from policy date bars actions based on lack of insurable interest | If policy void ab initio, clause never existed and cannot preclude insurer’s challenge; immediate incontestability can be unenforceable | The insurer drafted the clause and is bound; insurer had opportunity to investigate pre‑issuance; clause should be enforced | Yes — an incontestability clause effective from issuance is enforceable and precludes actions to invalidate the policy |
Key Cases Cited
- Cronin v. Vermont Life Insurance Co., 20 R.I. 570 (discusses insurable interest and that annuities historically were not void for lack of insurable interest)
- Murray v. State Mutual Life Insurance Co., 22 R.I. 524 (validates limited‑time incontestability clauses and enforcement even against fraud when party had opportunity to investigate)
- Winward v. Lincoln, 23 R.I. 476 (defines wagering contracts and explains elements of wagers)
- Flagg v. Gilpin, 17 R.I. 10 (public‑policy reasoning against wagering contracts)
- Grigsby v. Russell, 222 U.S. 149 (U.S. Supreme Court on insurable interest and public policy against wagering on life)
- Warnock v. Davis, 104 U.S. 775 (U.S. Supreme Court on wagering contracts being against public policy)
- Western Reserve Life Assurance Co. of Ohio v. ADM Associates, LLC, 737 F.3d 135 (1st Cir. 2013) (certified the legal questions to the Rhode Island Supreme Court)