Sun Life Assurance Company of Canada v. Wells Fargo Bank, N.A.

In April 2007, Sun Life Assurance Company of Canada received an application for a $5 million insurance policy on the life of Nancy Bergman. The application listed a trust as the sole owner and beneficiary of the policy. Bergman’s grandson signed as trustee; the other members of the trust were all investors, and all strangers to Bergman. The investors paid most if not all of the policy’s premiums. Sun Life issued the policy. About five weeks after the policy was issued, the grandson resigned as trustee and appointed the investors as successor co-trustees. The trust agreement was amended so that most of the policy’s benefits would go to the investors, who were also empowered to sell the policy. More than two years later, the trust sold the policy and the investors received nearly all of the proceeds from the sale. Wells Fargo Bank, N.A. eventually obtained the policy in a bankruptcy settlement and continued to pay the premiums. After Bergman passed away in 2014, Wells Fargo sought to collect the policy’s death benefit. Sun Life investigated the claim, uncovered discrepancies, and declined to pay. Instead, Sun Life sought a declaratory judgment that the policy was void ab initio, or from the beginning. Wells Fargo counterclaimed for breach of contract and sought the policy’s $5 million face value; if the court voided the policy, Wells Fargo sought a refund of the premiums it paid. The United States District Court for the District of New Jersey partially granted Sun Life’s motion for summary judgment, finding New Jersey law applied and concluded “that this was a STOLI [(stranger-originated life insurance)] transaction lacking insurable interest in violation of [the State’s] public policy. . . . As such, it should be declared void ab initio.” The court also granted Wells Fargo’s motion to recover its premium payments, reasoning that “Wells Fargo is not to blame for the fraud here” and that “[a]llowing Sun Life to retain the premiums would be a windfall to the company.” Both parties appealed. Finding no dispositive New Jersey case law, the United States Court of Appeals for the Third Circuit certified two questions of law to the New Jersey Supreme Court regarding the Sun Life policy. In response to the certified questions, the Supreme Court found that STOLI policies were against public policy and void ab initio. The Court also noted that a party may be entitled to a refund of premium payments depending on the circumstances. “Among other relevant factors, courts should consider a later purchaser’s participation in and knowledge of the original illicit scheme.” View "Sun Life Assurance Company of Canada v. Wells Fargo Bank, N.A." on Justia Law