294 A.3d 1062
Del.2023Background
- Sun Life issued two high‑value life policies in 2006 on Bernard De Bourbon and Samuel Frankel; policies were procured through an LPC STOLI scheme though Sun Life did not know that at issuance.
- LPC and affiliated entities acquired and resold the policies; Wilmington Trust (for Viva Capital Trust) bought the policies in 2014 and paid subsequent premiums; total premiums collected by Sun Life ≈ $6.9M, Wilmington Trust paid ≈ $2.3M.
- After the insureds died (2017, 2018), Sun Life sued in Superior Court for declaratory judgments that the policies were STOLI, lacked insurable interest, and were void ab initio; sought to avoid death benefits and retain premiums.
- Superior Court found the policies were STOLI and void ab initio, dismissed Wilmington Trust’s promissory‑estoppel claim and struck equitable defenses to the extent they sought death benefits, denied recovery of death benefits, but ordered Sun Life to disgorge all premiums to the entities that paid them (automatic refund) and denied prejudgment interest.
- On appeal the Delaware Supreme Court affirmed dismissal of claims seeking death benefits, reversed the automatic premium‑return ruling (adopting the Seck fault‑based Restatement approach), and remanded for fact‑intensive allocation of premiums and reconsideration of prejudgment interest.
Issues
| Issue | Wilmington Trust's Argument | Sun Life's Argument | Held |
|---|---|---|---|
| Whether an owner may recover a STOLI policy's death benefit via promissory estoppel or equitable defenses | Sun Life induced continued premium payments and approved ownership changes; estoppel/bad‑faith should allow recovery | Enforcing the death benefit would enforce an illegal STOLI wager; void ab initio policies cannot be enforced or reformed by estoppel | Trial court and Supreme Court: promissory estoppel/equitable defenses cannot be used to recover death benefits; claim dismissed/struck |
| Whether premiums must be automatically returned to the payors when a policy is void ab initio | Automatic disgorgement to whoever paid premiums; or at least return to downstream owner | Insurer should be able to retain premiums if investors knowingly purchased STOLI; automatic refund frustrates public policy | Automatic‑refund rule reversed; premium return requires fault‑based Restatement analysis (Seck) on remand |
| Whether a downstream purchaser (Wilmington Trust/Viva) can recover premiums paid by prior owners | Downstream purchaser seeks all premiums (including those paid by predecessors) as alternative relief | Insurer argues downstream purchaser lacks claim to predecessors’ payments, particularly where predecessors were STOLI perpetrators | Deferred to remand: entitlement to predecessors’ premiums is fact‑specific under fault‑based test; Superior Court must decide |
| Availability and accrual date of prejudgment interest on any premium refund | Prejudgment interest should run from each premium payment date | Interest should not accrue before refund claim was due; earliest accrual likely when refund demanded or suit filed | Prejudgment interest may be available if refund awarded; interest for Wilmington Trust’s recoverable premiums should accrue from date Wilmington Trust demanded refund or filed counterclaims (not before 2014 purchases by predecessors) |
Key Cases Cited
- PHL Variable Ins. Co. v. Price Dawe, 28 A.3d 1059 (Del. 2011) (STOLI policies lack insurable interest and are void ab initio as wagers on human life)
- Lavastone Capital LLC v. Estate of Berland, 266 A.3d 964 (Del. 2021) (answers on STOLI policy death‑benefit recovery questions)
- Estate of Malkin, 278 A.3d 53 (Del. 2022) (STOLI policies are void ab initio and never enforceable)
- Geronta Funding v. Brighthouse Life Ins. Co., 284 A.3d 47 (Del. 2022) (adopts fault‑based Restatement analysis for premium returns when policy is void ab initio)
- Citadel Holding Corp. v. Roven, 603 A.2d 818 (Del. 1992) (prejudgment interest generally awarded as a matter of right)