In a Seventh Circuit opinion written by Judge Posner, the appellate panel unanimously came to the same conclusions in a case arising under Wisconsin law: Sun Life Assur. Co. of Canada v. U.S. Bank Nat'l Ass'n, ___ F.3d ___, No. 16-1049, 2016 WL 5929825 (7th Cir. October 12, 2016).
Judge Posner began his opinion recognizing the common law principle that no-one can take out insurance on someone else's life unless they have an insurable interest.
His opinion then recognized that the common law remedy was changed in Wisconsin in 1975. Thereafter, the remedy changed from cancelling a life insurance policy in which the policyholder did not have an insurable interest, to allowing a court of competent jurisdiction to order the life insurance carrier to pay the proceeds to the policyholder in certain cases.
This was such a case. After Sun Life delayed paying, it was ordered to pay the proceeds to U.S. Bank of a $6 million life insurance policy which Sun Life had issued on the life of one Charles Margolin, now deceased. "[T]he district judge ruled that the bank was entitled to the policy proceeds -- the $6 million -- plus statutory interest and 'bad faith' damages for Sun Life's foot dragging." Sun Life Assur. Co. of Canada v. U.S. Bank Nat'l Ass'n, ___ F.3d ___, No. 16-1049, 2016 WL 5929825, at *2 (7th Cir. October 12, 2016).
The Seventh Circuit affirmed. In Judge Posner's view, shared by the rest of the Seventh Circuit panel, the common law prohibition and the Wisconsin statutory remedy were easily reconcilable, to begin with:
Gambling contracts, including life insurance policies that lack an insurable interest, are still forbidden. The statute changed only the remedy for violation, from invalidation of the policy to requiring the insurer to cough up the proceeds rather than—as Sun Life claims entitlement to—being allowed to keep all the premiums and pay nothing to the policy holder because the latter had no insurable interest in the policy.
Sun Life Assur. Co. of Canada v. U.S. Bank Nat'l Ass'n, ___ F.3d ___, No. 16-1049, 2016 WL 5929825, at *2 (7th Cir. October 12, 2016). Parenthetically, noting the reference to "Sun Life claims entitlement to -- being allowed to keep all the premiums," Judge Posner mentioned that Sun Life collected $2.5 million in premiums during the life of this policy (no pun intended).
In addition to paying the $6 million proceeds here, Sun Life was required to pay interest charges imposed by a Wisconsin statute for delayed payment unless the carrier has "reasonable proof" which was "lacking here, that it does not have to pay the claim," and further to pay "bad faith" damages because first-party bad faith under Wisconsin law "has been proved as well." Sun Life Assur. Co. of Canada v. U.S. Bank Nat'l Ass'n, ___ F.3d ___, No. 16-1049, 2016 WL 5929825, at *2 (7th Cir. October 12, 2016).
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