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STOLI Statute at Issue in New Eleventh Circuit Case

STOLI Statute at Issue in New Eleventh Circuit Case

The Eleventh Circuit Court of Appeals has asked the Florida Supreme Court to determine which of two Florida statutes control in two cases involving alleged stranger-originated life insurance (“STOLI”) policies: section 627.404, which requires a person who buys a life insurance policy to have an insurable interest in the life of the insured at the inception of the policy; or section 627.455, which requires all insurance policies to include a clause that the policy is incontestable after it has been in force for two years.

The Eleventh Circuit certified the following two questions to the Supreme Court:

  1. Can a party challenge an insurance policy as being void ab initio for lack of the insurable interest required by Fla. Stat. s. 627.404 if that challenge is made after expiration of the two-year contestability period mandated by Fla. Stat. s. 627.455?
  2. Assuming that a party can do so, does Fla. Stat. s. 627.404 require that an individual with the required insurable interest also procure the insurance policy in good faith?

The two district courts in the underlying cases reached different conclusions on the same question, thus prompting this consolidated appeal and the certified questions. The two cases involve three STOLI policies. Wells Fargo, N.A. is the present owner of a STOLI policy on the life of Mrs. Berger, issued by Pruco Life Insurance Company. In the second case, Pruco is appealing a different district court’s order on two STOLI policies on the life of Mrs. Guild, currently owned by U.S. Bank, N.A.

Pruco is seeking to invalidate the policies, four and seven years after their issuance, based on the alleged absence of an insurable interest at the time of the policies’ issuance. However, the current owners of the policies argued that Pruco’s tardiness should defeat its efforts. The “Berger court” ruled for Pruco, holding that “the STOLI policy at issue was void ab initio because it violated s. 627.404, the insured-interest statute. A contract that is void ab initio is a contract that never existed.” Therefore, the two-year incontestability provision never took effect because that provision only applies to an “in force” policy and was thus not a bar to Pruco’s claim to invalidate the insurance policies.

However, the “Guild court” found that Pruco’s late insurable-interest claim was barred by that same incontestability provision, comparing s. 627.455 to a statute of limitations that applies regardless of the basis of any challenge to the underlying policy.