Appeals court rejects investor payouts in latest decision against STOLI

A federal appeals court upheld a lower court ruling last week that voided two life insurance policies with a combined face value of $8 million, finding they were illegal stranger-originated life insurance, or STOLI, policies under New Jersey law.

The Court of Appeals for the Third Circuit affirmed summary judgment in favor of Lincoln National Life Insurance Co., rejecting claims by Retirement Value LLC, which sought to collect death benefits after the insured, Haya Majerovic, died in 2019.

The dispute centered on two policies originally issued in 2007 by Jefferson Pilot Life Insurance Co., a predecessor to Lincoln. The policies insured Majerovic's life for a total of $8 million and were ultimately purchased by Retirement Value after a series of transfers.

Lincoln filed suit in 2021 seeking a declaration that the policies were void from inception because they lacked a valid insurable interest and were structured to benefit investors with no relationship to the insured.

At issue is which state laws apply to the Majerovic policy. The insurance company argued that New Jersey law is applicable in the case, while Retirement Value claimed New York as the controlling state law because Majerovic was a resident of that state.

Panel: New Jersey law applies

The appeals court agreed with the lower court that New Jersey "was plainly the place of contracting.

"The policies were applied for by a New Jersey-based trust, the application was signed in New Jersey, the policies were issued for delivery to the Trust at its New Jersey address, and the Trust received the policies in New Jersey," wrote Judge Luis Felipe Restrepo, writing for the three-judge panel. "Moreover, the application’s cover letter stated that the application 'has been signed in NJ because it will be owned by a NJ trust.'"

Applying New Jersey law, the court concluded the policies were classic STOLI arrangements because investors with no insurable interest in Majerovic's life were the intended beneficiaries from the outset.

New Jersey law and the state's Supreme Court have consistently held that STOLI arrangements violate public policy and are void from inception.

"The investors had no insurable interest in the life of the insured but yet were the intended beneficiaries of her life insurance policies," Restrepo wrote.

Retirement Value also challenged the dismissal of its claim seeking reimbursement of premiums paid on the policies. The appeals court ruled that the company had waived the argument by failing to adequately raise and support it in the district court proceedings.

The ruling leaves intact a 2024 decision by District Judge Robert Kirsch, who found the policies "undoubtedly" qualified as STOLI policies and granted summary judgment to Lincoln.

The decision represents another victory for insurers challenging investor-backed life insurance arrangements that courts have increasingly scrutinized as illegal wagering contracts lacking a legitimate insurable interest.

No premium paid

According to court documents, Majerovic's son entered into an agreement with investors in 2007 under which he would obtain life insurance on his mother's life while the investors funded all premium payments. The investors were entitled to 90% of the policy's value upon sale or maturity, while the family would receive 10% after deducting premium costs.

The investors were identified as two religious organizations, Congregation Sons of Ateres Joshua and Congregation Beis Shloma.

The policies were owned by the Haya Majerovic Family Trust, based in Lakewood, N.J., court documents say. The trust applied for the coverage, received delivery of the policies in New Jersey and later sold them to James Settlement Services, which subsequently sold them to Retirement Value.

The Majerovic family never paid any premiums on the policies, according to the court.

After Majerovic died in November 2019, Retirement Value submitted claims seeking payment of the death benefits. Lincoln denied the claims and challenged the validity of the policies.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.