![]() Wells Fargo counterclaimed for breach of contract, and sought the full death benefit. Sun Life filed suit seeking a declaration that the policy was void ab initio as part of a STOLI arrangement. Upon Bergman’s death, Sun Life denied the death benefit claim of Wells Fargo, concluding that the policy had been fraudulently obtained. Wells Fargo ultimately obtained the policy as part of a settlement in the new owner’s bankruptcy proceeding and continued to make premium payments. Wells Fargo loaned funds to that new owner, and the loan proceeds were used to pay premiums on the policy. ![]() The policy was later sold to another company. The trust subsequently sold the policy to a life settlement company, and the majority of the sale proceeds were received by the investors. One month subsequent to policy issuance, Bergman’s grandson resigned as trustee, appointed the investors as successor co-trustees, and the terms of the trust were then amended to provide that the majority of the policy benefits would flow to the investors and further to allow the investors to sell the policy without Bergman’s or her grandson’s consent. Bergman’s net worth and income, and the group of investors actually funded the policy. The insurance application and related materials grossly overstated Ms. The trust had four additional members, all of whom were investors and all of whom were so-called “strangers” to the policy and had no insurable interest in the life of Ms. Bergman signed the application as grantor of the trust, and her grandson was named as trustee. Bergman’s irrevocable trust as the sole owner and beneficiary of the policy. ![]() In this case, Sun Life Assurance Company of Canada issued a $5 million life insurance policy on Nancy Bergman. Wells Fargo Bank, NA, as Securities Intermediary. See Sun Life Assurance Company of Canada v. Given the nature of these contracts, state regulators, including the New Jersey Department of Banking and Insurance, have carefully regulated STOLI and STOA transactions as they can violate the essential social purpose of life insurance, which is protection, not advancement of investment objectives, or use of insurance as a vehicle for financial speculation on human life.Īpplying New Jersey law and upholding a partial summary judgment award by the District Court, the United States Court of Appeals for the Third Circuit ruled that stranger-owned life insurance policies are void ab initio, though parties to the policy may, under certain circumstances, be entitled to a refund of premium payments. Stranger-Owned Life Insurance or Annuity Policies (“STOLI”) or” ( STOA”) are generally arrangements, at or prior to policy issuance, to initiate or facilitate the issuance of a life insurance policy or annuity contract for the intended purpose of transferring beneficial interest in the policy or contract to third parties who, at the time of policy/contract origination, had no insurable interest in the life of the insured under applicable state law.
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