New Jersey Enacts Anti-STOLI Law

STOLI practices, under this new law, include “cases in which (a) a policy is purchased with resources or guarantees from or through a person or entity who, at the time of policy inception, could not lawfully initiate or procure the policy himself, herself, or itself; and (b) at the time of policy inception, there exists an arrangement or agreement, to transfer, directly or indirectly, the ownership of that policy or the policy benefits to a third party.”

This law (i) prohibits anyone from engaging in any “act, practice or arrangement that constitutes” STOLI; (ii) renders “void and unenforceable” any “contract, agreement, arrangement, or transaction” including a “financing agreement” in “furtherance” or “aid” of STOLI; and (iii) provides that a “trust that is created to give the appearance of an insurable interest and that is used to initiate or procure policies for investors shall be in violation of the insurable interest laws of this State and the prohibition against wagering on life.”

The law provides a private right of action against persons who engage in acts in violation of the law. Additionally, an insurer can contest the validity of STOLI policies. A civil penalty of up to $10,000 per violation may be imposed, and the law authorizes the Commissioner of Banking and Insurance to enforce the anti-STOLI provisions, such as seeking injunctive relief to restrain violations, issuing cease and desist orders, and ordering restitution to aggrieved persons.