Expect Focus Life, Annuity, and Retirement Solutions, December 2019

Third Circuit Application of Certified Questions Confirms STOLI Policies Void in New Jersey

Life, Annuity, and Retirement Litigation   |   Financial Services Regulatory   |   Securities & Investment Companies   |   February 6, 2020

We previously reported on the New Jersey Supreme Court’s ruling on the validity of stranger-originated life insurance (STOLI) policies in the June 2019 issue of Expect Focus — Life, Annuity, and Retirement Solutions. In Sun Life Assurance Company of Canada v. Wells Fargo Bank, N.A., a federal trial court originally concluded that a $5 million policy taken out on the life of Nancy Bergman, which had a trust as owner and beneficiary and which was eventually sold by investors to Wells Fargo, violated New Jersey’s statutory requirement that the policyholder have an insurable interest in the life of the insured. The Third Circuit Court of Appeals ultimately certified two questions to the New Jersey Supreme Court:

  1. Whether STOLI policies violate the public policy of New Jersey and are thereby void ab initio; and
  2. If the policy is void, is a later purchaser, who was not initially involved, entitled to a refund of premium payments?

The New Jersey Supreme Court answered the first question in the affirmative, finding that policies procured with the intent to benefit persons without an insurable interest in the life of the insured violate public policy and are void ab initio. In response to the second question, the court held that, depending on the circumstances, a party may be entitled to a refund of premiums paid on a void STOLI policy, particularly in the case of a later innocent purchaser of the policy.

Based on the New Jersey Supreme Court’s answers to its certified questions, the Third Circuit recently affirmed the district court’s finding that the Bergman policy violated New Jersey public policy. The Third Circuit held that the policy was procured with the intent of benefiting the investors in the policy rather than anyone with an insurable interest in Bergman’s life. The Third Circuit also agreed that allowing Sun Life to keep Wells Fargo’s premium payments would be a windfall, as Wells Fargo was a later innocent purchaser of the policy and had no knowledge of the STOLI arrangement.


©2024 Carlton Fields, P.A. Carlton Fields practices law in California through Carlton Fields, LLP. Carlton Fields publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information and educational purposes only, and should not be relied on as if it were advice about a particular fact situation. The distribution of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship with Carlton Fields. This publication may not be quoted or referred to in any other publication or proceeding without the prior written consent of the firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our Contact Us form via the link below. The views set forth herein are the personal views of the author and do not necessarily reflect those of the firm. This site may contain hypertext links to information created and maintained by other entities. Carlton Fields does not control or guarantee the accuracy or completeness of this outside information, nor is the inclusion of a link to be intended as an endorsement of those outside sites.

Subscribe to Publications


The information on this website is presented as a service for our clients and Internet users and is not intended to be legal advice, nor should you consider it as such. Although we welcome your inquiries, please keep in mind that merely contacting us will not establish an attorney-client relationship between us. Consequently, you should not convey any confidential information to us until a formal attorney-client relationship has been established. Please remember that electronic correspondence on the internet is not secure and that you should not include sensitive or confidential information in messages. With that in mind, we look forward to hearing from you.