Stranger-oriented life insurance policies, or “STOLI” (shouldn’t that be STROLI? pron. STROLLY) policies, are an investment scheme. In a recent case, for example, questions were presented regarding these types of policies “that the issuing insurance company sought to have invalidated several years after their issuance.” The insurance company’s argument was apparently exclusive, in that it was based in that case on the contention that the person buying the life insurance policy (in this case as in most, a giant corporation) did not have an insurable interest from inception in the life of the person insured by the life insurance policy. As in most cases, the insurance company’s contention in that case is codified in a State statute.
The procuring corporation argued gamely that the life insurance company had waited too long to contest the procuring corporation’s lack of insurable interest, so that the insurance company, it argued, was estopped by another State statute.
The arguments played out in the case of Pruco Life Ins. Co. v. Wells Fargo Bank, N.A., 780 F.3d 1327 (11th Cir. 2015), in which the Federal Appeals Court panel certified the following question to the Supreme Court of Florida for a response:
Thus, the question before this Court is which statute controls. Stated another way, when these two statutes collide, does Florida's interest in prohibiting the issuance of insurance policies purchased by an individual with no insurable interest [Fla. Stat. § 627.404] trump its interest in requiring insurance companies to determine, within a designated period of time, whether a particular policy is subject to that or any other challenge [Fla. Stat. § 627.455]?
Pruco Life Ins. Co. v. Wells Fargo Bank, N.A., 780 F.3d 1327, 1329 (11th Cir. 2015).
So, there is no question but that the bank in this case had absolutely no insurable interest in the lives of the people on whose lives the bank placed insurance. Rather, the overall question was whether, having no insurable interest, the bank can claim the benefit of a statute which makes its interest basically incontestable, or so the bank argues in this case.
There is one further question which concerns one Berger. “That question is whether § 627.404, the insurable interest statute, is violated when the individual who procures the insurance has the required insurable interest at the time of issuance, but nonetheless has procured the policy in bad faith.” Pruco Life Ins. Co. v. Wells Fargo Bank, N.A., 780 F.3d 1327, 1329 n.3 (11th Cir. 2015). [Emphasis added.]
It is a puzzle why anyone would carve out this question of bad faith procurement from all stranger-originated life insurance policies and ask it about only one.
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