Wells Fargo Bank, N.A. v. Pruco Life Insurance Company , 200 So. 3d 1202 ( 2016 )

Supreme Court of Florida
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No. SC15-382
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WELLS FARGO BANK, N.A., et al.,
Appellants,
vs.
PRUCO LIFE INSURANCE COMPANY,
Appellee.
[September 22, 2016]
POLSTON, J.
This case is before the Court for review of two questions of Florida law
certified by the United States Court of Appeals for the Eleventh Circuit that are
determinative of a cause pending in that court and for which that court has
indicated there appears to be no controlling precedent.1
In this dispute over the validity of three stranger-originated life insurance
(STOLI) policies, the certified questions involve two Florida statutes, namely
section 627.404(1), requiring that an insurable interest exist at the inception of
1. We have jurisdiction. See art. V, § 3(b)(6), Fla. Const.
each life insurance policy, and section 627.455, providing that an insurance policy
is incontestable two years after its issuance. Specifically, the Eleventh Circuit
certified the following questions:
1. Can a party challenge an insurance policy as being void ab initio
for lack of the insurable interest required by Fla. Stat. § 627.404 if that
challenge is made after expiration of the two-year contestability
period mandated by Fla. Stat. § 627.455?
2. Assuming that a party can do so, does Fla. Stat. § 627.404 require
that an individual with the required insurable interest also procure the
insurance policy in good faith?
Pruco Life Ins. Co. v. Wells Fargo Bank, N.A., 780 F.3d 1327, 1336 (11th Cir.
2015).
As explained below, we decline to read the statutes at issue contrary to their
plain language in order to create a STOLI-policy exception to section 627.455’s
two-year contestability period. A STOLI transaction “is when an investor actively
seeks out elderly people to purchase life insurance with the promise of ‘no risk’
money in exchange for transferring the policy to the investor after the general two
year incontestability period has expired.” 5 Couch on Insurance § 67.3 (2015 ed.).
While such an exception might be wise public policy, that decision is for the
Florida Legislature, not this Court.
BACKGROUND
In Florida, insureds have long been permitted to sell their life insurance
policies on the secondary market in accordance with Florida law permitting the
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assignment of such policies unless the policy itself prohibits the assignment (which
the policies at issue in this case did not). See § 627.422, Fla. Stat. The secondary
market provides an alternative for policyholders desiring to cash out their policies
because it allows them to sell to an investor at a higher amount than they would
receive by surrendering the policies back to the insurance company. STOLI
transactions, which are not prohibited by Florida law, are designed to take
advantage of this secondary market by offering an insured (often an elderly one)
“free” or “risk-free” insurance with the intent that—after the contestability period
passes—the insured will receive some remuneration to transfer the policy to an
investor that could not have taken out the policy in the first instance for lack of an
insurable interest.
As the Eleventh Circuit explained, the insurance policies at issue in this case
originated from STOLI schemes:
The two cases before us involve three STOLI policies. Wells
Fargo, N.A., the present owner of a STOLI policy on the life of
Arlene Berger, appeals a district court’s final judgment, entered in
favor of Pruco Life Insurance Company, invalidating this policy. As
to the second appeal before us, Pruco has appealed a different district
court’s order dismissing its claim seeking the invalidation of two
STOLI policies issued on the life of Rosalind Guild.
A. The Berger Policy
Throughout 2005 and 2006, Arlene and Richard Berger
attended financial planning seminars at which they were told that they
could obtain “free life insurance.” The Bergers talked with insurance
salesman Stephen Brasner, who arranged for them to participate in his
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STOLI scheme by obtaining (1) financing for the payment of
premiums from a third-party lender and (2) a fraudulent financial
report listing Arlene Berger’s net worth as $15.9 million and her
annual income as $245,000. Brasner then applied to Pruco for a $10
million insurance policy on the life of Arlene Berger, naming her
husband Richard as beneficiary. Pruco issued the policy on April 27,
2006.
Brasner subsequently established an irrevocable trust to hold
the Berger policy. The trust named Wilmington Trust Company as
trustee and Richard Berger as co-trustee and beneficial owner. In
conjunction with the financing agreement and the creation of the trust,
Arlene Berger granted the third-party lender a power of attorney and
the authority to obtain her medical records.
Despite their signed authorizations, the Bergers claim not to
have realized the implications of these actions. Richard Berger was
shocked when he discovered that Arlene Berger had granted an
irrevocable power of attorney pursuant to the financing agreement.
Moreover, according to the Bergers, they neither needed nor wanted
life insurance when they joined Brasner’s STOLI scheme, did not
intend to pay any of the premiums, never had any intention of
controlling or keeping any insurance procured through Brasner, and
only accepted the policy because it was free.
At some point, ownership of the Berger policy was transferred
to the trust. For their participation in this insurance policy transaction,
the Bergers received a payment of nearly $173,000 from Brasner in
May of 2008. Then, in September of 2008, Arlene Berger instructed
Wilmington Trust to relinquish all her interests and rights under the
policy to the third-party lender in satisfaction of the financing
agreement. The policy was ultimately sold to a client of Wells Fargo.
On July 9, 2010, approximately four years after it had issued
the Berger policy, Pruco filed suit against Wells Fargo asserting that
the policy was void ab initio for lack of an insurable interest, as
required by § 627.404. The district court granted summary judgment
to Pruco on its claim. Adopting its previous analysis of this issue in
an order denying Wells Fargo’s motion to dismiss, the court held that
there was no valid insurable interest in the life of the insured by the
party procuring the insurance, meaning that the policy ran afoul of
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Florida Statute § 627.404’s requirement of such an interest at the time
an insurance policy is issued. See Pruco Life Ins. Co. v. Brasner, No.
10-80804-CIV, 2011 WL 134056, at *3-6 (S.D. Fla. Jan. 7, 2011)
(Cohn, J.). From this conclusion, the court reasoned that the policy
was void ab initio and therefore the incontestability provision of §
627.455 did not bar Pruco’s claim, asserted more than two years after
issuance of the policy.
B. The Guild Policy
In September of 2005, insurance broker Gary Richardson
persuaded octogenarian Rosalind Guild to participate in a $10 million
STOLI scheme by offering her free life insurance and monetary
compensation. To implement the scheme, Richardson established an
irrevocable trust to hold the Guild policies. Richardson then
submitted two life insurance applications to Pruco, each seeking a $5
million policy and listing Guild’s daughter as primary beneficiary and
the trust as contingent beneficiary. It was understood that Guild’s
daughter would not receive the death benefit from the policies and
that any beneficial interest would eventually be sold to an investor
with no insurable interest in Ms. Guild’s life. In support of the
applications, Richardson submitted a fraudulent financial statement
portraying Guild’s net worth as $19.2 million and annual income as
$345,000.
Pruco issued the Guild policies on October 21, 2005. A third
party paid over $2 million in premiums over the course of the next
few years. Then, on February 13, 2008, Pruco received a request to
change the ownership and beneficiary of the policies from the Guild
Trust to securities intermediary, U.S. Bank, N.A., in connection with
the sale of the beneficial interest in the policies to an investor. Pruco
made the requested change.
On December 17, 2012, approximately seven years after it had
issued the Guild policies and almost five years after it had approved
the change in beneficiary and ownership to U.S. Bank, Pruco filed suit
against U.S. Bank asserting that the policies were void ab initio under
§ 627.404. U.S. Bank filed a motion to dismiss Pruco’s complaint.
Analyzing the interplay between the two Florida statutes differently
than did the district court in the Berger case, the district court in Guild
found that, because Pruco had run afoul of the two-year time limit
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provision to contest the policy, Pruco’s claim was barred.
Accordingly, the district court granted U.S. Bank’s motion to dismiss
Pruco’s claim. See Pruco Life Ins. Co. v. U.S. Bank, No. 12-24441-
CIV, 2013 WL 4496506, at *2, *5 (S.D. Fla. Aug. 20, 2013) (Moreno,
J.).
Pruco Life Ins. Co., 780 F.3d at 1329-31 (footnotes omitted).
ANALYSIS
Whether the Berger or Guild trial court’s ruling is correct depends upon the
interplay between Florida’s insurable interest and incontestability statutes, and we
look to the plain language of these statutes. See Thayer v. State, 335 So. 2d 815,
816 (Fla. 1976) (“To determine the legislative intent [this Court] look[s] to the
plain language of the statute.”).
Florida’s insurable interest statute provides in pertinent part:
Any individual of legal capacity may procure or effect an insurance
contract on his or her own life or body for the benefit of any person,
but no person shall procure or cause to be procured or effected an
insurance contract on the life or body of another individual unless the
benefits under such contract are payable to the individual insured or
his or her personal representatives, or to any person having, at the
time such contract was made, an insurable interest in the individual
insured. The insurable interest need not exist after the inception date
of coverage under the contract.
§ 627.404(1), Fla. Stat. Section 627.404(2)(b)2. defines “insurable interest” to
include the interest of “[a]n individual . . . in the life, body, and health of another
person to whom the individual is closely related by blood or by law and in whom
the individual has a substantial interest engendered by love and affection.”
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Florida’s incontestability statute provides:
Every insurance contract shall provide that the policy shall be
incontestable after it has been in force during the lifetime of the
insured for a period of 2 years from its date of issue except for
nonpayment of premiums and except, at the option of the insurer, as to
provisions relative to benefits in event of disability and as to
provisions which grant additional insurance specifically against death
by accident or accidental means.
§ 627.455, Fla. Stat. The Berger and Guild policies at issue contained the
statutorily-required incontestability clause.
Under the plain language of the insurable interest statute, section 627.404,
the policies on the lives of Ms. Berger and Ms. Guild, at their inception, benefitted
individuals with insurable interests. Specifically, Ms. Berger’s policy benefitted
her husband, and Ms. Guild’s policies benefitted her daughter.
While the Berger and Guild policies were procured in furtherance of STOLI
schemes, the incontestability statute, section 627.455, by its plain language does
not authorize a belated challenge to a policy, which has the required insurable
interest as the result of a STOLI scheme. The statute does, however, include other
exceptions to the two-year time bar (for premium nonpayment and other
exceptions available at the insurer’s option), indicating that the Florida Legislature
specifically intended to limit the exceptions to those listed in the statute. See
Citizens Prop. Ins. Corp. v. Perdido Sun Condo. Ass’n, Inc., 164 So. 3d 663, 666
(Fla. 2015) (“[W]here the Legislature articulates clear exceptions to a statute, ‘no
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other exceptions may be implied.’ ” (quoting Citizens Prop. Ins. Corp. v.
Garfinkel, 25 So. 3d 62, 65 (Fla. 5th DCA 2009))).
The point of a STOLI scheme is for the insured to work with an investor to
create the insurable interest necessary, hold the policy until the two-year
contestability period expires, and then transfer the policy as permitted by section
627.422 to an investor who would not have had the insurable interest required to
procure the policy in the first place. Thus, as a result of STOLI schemes, life
insurance policies like the Berger and Guild policies, which at their inception
named members of the insureds’ immediate family as beneficiaries, have the
insurable interest required by section 627.404. See PHL Variable Ins. Co. v. Bank
of Utah, 780 F.3d 863, 871 (8th Cir. 2015) (“Whether the insured has an agreement
with an insurance agent or broker or a premium financing company at the time the
policy is issued that it will be sold, either to an identified person who lacks an
insurable interest or, more typically, into a secondary market of insurance policy
investors, is a risk the insurer can promptly investigate . . . . Therefore, absent a
supervening statute, the defense [that the policy is void for lack of an insurable
interest] is subject to the [statutory] incontestability provision[.] To declare that a
facially valid policy on which [the insurance company] collected substantial
premiums for over four years was never ‘in force’ is simply a fiction.”) (emphasis
added) (footnote omitted).
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Accordingly, under the plain language of section 627.455, a policy that has
the required insurable interest at its inception, even where that interest is created as
the result of a STOLI scheme, is incontestable after two years. See also Prudential
Ins. Co. of Am. v. Prescott, 176 So. 875, 878 (Fla. 1937) (explaining that an
incontestability clause is “in the nature of, and serves a similar purpose as, a statute
of limitations”); Paul Revere Life Ins. Co. v. Damus, Ecker, Rosenthal & Marshall,
M.D., 864 So. 2d 442, 444 (Fla. 3d DCA 2003) (“The provision that a policy shall
be incontestable after it has been in force during the lifetime of the insured for a
period of two years . . . means [that,] within the limits of the coverage the policy
shall stand, unaffected by any defense that it was invalid at its inception.”)
(emphasis added) (citation omitted).
CONCLUSION
Because STOLI policies like the Berger and Guild policies at issue have the
insurable interest required by section 627.404(1) at their inception, they become
incontestable two years after their issuance under the plain language of section
627.455. Accordingly, we rephrase the questions certified by the Eleventh Circuit
into the following question:
Can a party challenge the validity of a life insurance policy after the
two-year contestability period established by section 627.455 because
of its creation through a STOLI scheme?
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We answer this rephrased question in the negative and return this case to the
Eleventh Circuit.
It is so ordered.
LABARGA, C.J., and PARIENTE, LEWIS, QUINCE, and PERRY, JJ., concur.
CANADY, J., concurs in result with an opinion.
NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION, AND
IF FILED, DETERMINED.
CANADY, J., concurring in result.
Although I agree with the majority’s answer to the rephrased certified
question, I do not concur with the suggestion that the existence of an insurable
interest at the inception of a policy is a precondition for operation of the
incontestability provisions of section 627.455, Florida Statutes. That statute does
not expressly provide that the existence of an insurable interest at inception is a
precondition for its operation. Whether such a precondition is implicit in the
statutory scheme is a question that is not actually presented by this case but
remains for resolution in a case where it is presented.
Certified Question of Law from the United States Court of Appeals for the
Eleventh Circuit - Case Nos. 13-12135 and 13-15859
Raoul G. Cantero, III, Maria Josefa Beguiristain, and Lawrence Gordon Horsburgh
of White & Case LLP, Miami, Florida; John Kressfield Shubin and Juan Jose
Farach, Jr. of Shubin & Bass, P.A., Miami, Florida,
for Appellants Wells Fargo Bank, N.A. and U.S. Bank, N.A.
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Bruce S. Rogow and Tara A. Campion of Bruce S. Rogow, P.A., Fort Lauderdale,
Florida; Stephen A. Serfass, D. Alicia Hickok, and Nolan B. Tully of Drinker
Biddle & Reath LLP, Philadelphia, Pennsylvania; and Wendy Lynn Furman of Pett
Furman PL, Boca Raton, Florida,
for Appellee
Jesús E. Cuza, J. Raul Cosio, Monica Vila Castro, and Rebecca Jo Canamero of
Holland & Knight LLP, Miami, Florida,
for Amici Curiae Full Value Partners L.P. and Life Insurance Settlement
Association
Jason Anthony Richardson, David T. McDowell, and Hutson B. Smelley of
Edison, McDowell & Hetherington LLP, Houston, Texas,
for Amicus Curiae The American Council of Life Insurers
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