## Facts

- An application was submitted for a $5 million life insurance policy on Nancy Bergman, listing a trust as owner and sole beneficiary with her grandson as trustee.
- The trust arrangement included investors who were strangers to Bergman and who funded most or all premiums from the outset.
- The application materials materially overstated Bergman’s income and net worth and falsely indicated she had no other life insurance, though multiple large policies were procured on her life in the same period.
- Sun Life issued the policy to the trust; the policy contained an incontestability clause barring challenges after two years during Bergman’s lifetime (except for nonpayment).
- Within weeks, the grandson resigned and investor-linked successor trustees were installed; trust amendments diverted most benefits to the investors and authorized sale of the policy.
- More than two years after issuance, the policy was sold; Wells Fargo later obtained the policy through a bankruptcy settlement and continued paying premiums.
- After Bergman died in 2014, Wells Fargo claimed the death benefit; Sun Life denied payment and sought a declaration that the policy was void from inception as an unlawful STOLI policy. Wells Fargo counterclaimed for benefits and alternatively sought return of premiums if voided.
- A federal court declared the policy void ab initio under New Jersey public policy but awarded Wells Fargo a refund of its premium payments; the federal appellate court certified questions to the New Jersey Supreme Court on voidness and premium recovery.

## Issues

1. Under New Jersey law, does a life insurance policy procured with the intent to benefit persons lacking an insurable interest violate public policy and render the policy void ab initio?
2. If the policy is void from inception, may a later purchaser recover premiums it paid after acquiring the policy?

## Decision

- The court held that a life insurance policy procured with the intent to benefit persons without an insurable interest violates New Jersey public policy and is void ab initio.
- The court held that a later purchaser may be entitled to a refund of premiums it paid, but entitlement depends on equitable, fact-specific considerations, including the purchaser’s knowledge of or participation in the original STOLI scheme.
- The court explained that because a void ab initio policy never became a valid contract, contractual provisions such as an incontestability clause do not bar a challenge based on lack of insurable interest at inception.

## Legal Principles

- New Jersey law requires an insurable interest at the time of issuance; policies engineered at inception for the benefit of strangers function as wagering contracts and contravene public policy.
- A STOLI policy structured from the outset to transfer benefits to persons without an insurable interest is void ab initio, not merely voidable.
- An incontestability clause cannot validate a policy that is void ab initio for violating insurable-interest requirements at inception.
- When a policy is void ab initio, premium recovery by a subsequent holder is governed by equity rather than policy terms, and may turn on the holder’s knowledge, conduct, and involvement in the illegality.

## Conclusion

The court held that New Jersey treats STOLI arrangements intended from inception to benefit strangers as void ab initio for lack of insurable interest, and that any premium refund to a later purchaser is a fact-dependent equitable remedy that may be denied where the purchaser knew of or participated in the unlawful scheme.


Sun Life Assurance Co. of Can. v. Wells Fargo Bank, N.A., 208 A.3d 839 (N.J. 2019)