In consolidated Pruco Life Insurance Co. v. Wells Fargo Bank, N.A., 2017 WL 360512 (11th Cir. Jan. 25, 2017), the Eleventh Circuit applied guidance from the Florida Supreme Court and held that Stranger-Originated Life Insurance (“STOLI”) policies have an “insurable interest” as required by Florida Statute § 627.404, so a standard contractual provision limiting challenges to the validity of the policy to two years was enforceable.
The insurance company sought to have two STOLI policies invalidated more than two years after issuance, arguing that these STOLI policies violate a Florida statute requiring that life insurance policies have an “insurable interest” at the time of their inception. A separate Florida statute also requires all life insurance policies to contain a provision providing that the policy is incontestable after it has been “in force” for two years, and the insurance policies at issue here had that provision. In response to this challenge, the Eleventh Circuit certified two questions to the Florida Supreme Court:
- Can a party challenge an insurance policy as being void ab initio for lack of the insurable interest required by Fla. Stat. § 627.404 if that challenge is made after expiration of the two-year contestability period mandated by Fla. Stat. § 627.455?
- Assuming that a party can do so, does Fla. Stat. § 627.404 require that an individual with the required insurable interest also procure the insurance policy in good faith?
The Florida Supreme Court determined that an insurance interest does exist in these STOLI policies, and therefore the policies at issue became incontestable within two years of their issuance. The Florida Supreme Court rephrased the Eleventh Circuit’s question to: “Can a party challenge the validity of a life insurance policy after the two-year contestability period established by section 627.455 because of its creation through a STOLI scheme?” The Florida Supreme Court answered this question in the negative.
Posted by Margaret Flatt.