Stranger Originated life insurance has been found to be in violation of which of the following

On June 4, 2019, in a win for New Jersey residents and life insurance companies with policies underwritten in New Jersey, the Supreme Court of New Jersey took a stand against Stranger-Originated Life Insurance (STOLI) policies by holding that they violate public policy and are void at the outset in Sun Life Assurance Company of Canada v. Wells Fargo Bank, N.A. STOLI policies are schemes where disinterested third-party investors with no insurable interest on a person’s life take a gamble on that person’s life by investing in a high face value life insurance policy obtained through the submission of fraudulent documents overstating income and net worth. Moreover, the Supreme Court found that insurers such as Sun Life do not necessarily have to return the premiums paid on these voided policies.

In Sun Life, an application was received by Sun Life 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. Ms. Bergman’s grandson signed as trustee. The other members of the trust were all investors, and all strangers to Ms. Bergman. The investors paid most if not all of the policy’s premiums. Sun Life received an inspection report that listed Ms. Bergman’s annual income as more than $600,000 and her overall net worth at $9.235 million. In reality, her income was about $3,000 a month, and her estate was later valued at between $100,000 and $250,000. Although Ms. Bergman represented that she had no other life insurance policies, five policies were taken out on her life in 2007, for a total of $37 million. 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 Nancy Bergman passed away in 2014, Wells Fargo sought to collect the policy’s death benefit. Sun Life investigated the claim, uncovered the discrepancies noted above and declined to pay.

The United States District Court for the District of New Jersey partially granted Sun Life’s motion for summary judgment. The court found that 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 and because there was no dispositive New Jersey case law, the Third Circuit certified two questions of law to the Supreme Court of New Jersey: (1) Does a life insurance policy that is procured with the intent to benefit persons without an insurable interest in the life of the insured violate the public policy of New Jersey, and if so, is that policy void ab initio?; and (2) If such a policy is void ab initio, is a later purchaser of the policy, who was not involved in the illegal conduct, entitled to a refund of any premium payments that they made on the policy?

The New Jersey Supreme Court ruled on the two questions of law by answering both parts of the first certified question in the affirmative: a life insurance policy procured with the intent to benefit persons without an insurable interest in the life of the insured does violate the public policy of New Jersey, and such a policy is void at the outset. In response to the second question, a party may be entitled to a refund of premium payments it made on the policy, depending on the circumstances.

STOLI policies are tantamount to making a bet on a person’s life. This clearly violates public policy and confirmation by the Supreme Court of New Jersey is a win for the residents of the State of New Jersey as well as for life insurance companies who have been saddled in expensive litigation due to these predatory practices. By not requiring that premiums be refunded upon the voiding of a STOLI policy these bad actors may think twice before engaging in this illegal practice.

If you have questions or would like additional information, please contact Andrew Hamelsky (; 212.631.4406) or Zaara Nazir (; 973.604.5681).

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only and you are urged to consult a lawyer concerning your own situation and legal questions.

When must insurable interest be present in order for a life insurance policy to be valid

When the application is made

Which of the following consists of an offer acceptance and consideration

Which if these is considered a statement that is assured to be true in every aspect

In regards to representations or warranties which of these statements is true

If material to the risk false representation will void a policy

Insurance policies are offered a take it or leave it basis which make them

At what point does an informal contract become binding

When one makes an offer and the other party accepts the offer

Which of these arrangements allow one to bypass insurable interest laws

Investor originated insurance

What is the consideration given by an insurer in the consideration clause of a life policy

Promise to pay a death benefit to a named beneficiary

Life and health insurance policies are

Unilateral contracts

One party makes a promise and other party only accept by performance

Insurance contracts are known as ___ because certain future conditions or acts must occur before any claims can be paid

The consideration clause of an insurance contract includes

The schedule and amount of premium payments

Stranger originated life insurance has been found to be in violation of which of the following contractual elements

Legal purpose (insurable interest)

All of the following are considered to be typical characteristics describing the nature of an insurance contract except

A statement guaranteed to be true

Who makes the legally enforceable promises in a unilateral insurance policy

If a contract of adhesion contains complicated language to whom would the interpretation be in favor of

A life insurance policy would be considered a wagering contract without

A life insurance arrangement which circumvents insurable interest statutes is called

Investor originated life insurance

Insurance policies are considered aleatory contracts because

Performance is conditioned upon a future occurrence

A policy of adhesion can only be modified by whom

What is Stoli in violation of?

What is stranger

Is investor

Can you take a life insurance policy on a stranger?