Judge rejects Wells Fargo motion to toss STOLI lawsuit

Image shows a montage of Wells Fargo logos. — Wells Fargo lost a bid to apply New York laws to a lawsuit over a Stranger-Originated Life Insurance policy.

By John Hilton

A federal lawsuit over what plaintiffs are calling a stranger-originated life insurance (STOLI) policy will continue after a judge denied Wells Fargo's motion to apply New York law to the case.

Ameritas Life Insurance Co. sued the bank last year, alleging that the policy in question is a STOLI policy that violates New Jersey law. Wells Fargo countered by noting the New York connections to the purchase of the policy.

Stranger-originated life insurance (STOLI) is a policy someone, usually an investor, buys on another person with whom they don't have an existing relationship. Several states have laws banning the practice.

U.S. District Judge Zahid N. Quraishi ruled, in part, that a fax transmission shows New Jersey as the "state of application" for the Ameritas policy.

"Whether the facsimile transmission is itself considered a part of the Policy is unclear," the judge wrote. "Nevertheless, the document is likewise inconsistent with Defendant’s assertion that the Policy should be considered to have been executed in New York."

Wells Fargo lost a similar STOLI case in 2022 when a federal appeals court ruled that Sun Life Assurance of Canada does not have to pay a $5 million death benefit on a life insurance policy because it was an illegal “wager on the life of a stranger.”

The 7th U.S. Circuit Court of Appeals affirmed that former Illinois business owner Robert Corwell was acting as a straw man for an investment company, Coventry Capital, when he “seemed to buy” a policy on his own life in 2006.

Policy purchased years ago

In July 2006, Union Central Life Insurance Co., a predecessor of Ameritas, received an application for a $4 million life insurance policy insuring Frieda Silbiger, court documents say. A trust created in her name, and with a New Jersey address, was named as the beneficiary.

Written on "New Jersey forms," the application stated that the trust would pay the premiums for the policy and that the purpose for the insurance was “Estate Tax,” court documents say.

Union Central issued the policy in September 2006, court documents say, after receiving a letter from the Silbiger’s accountant summarizing her financial situation and advising that she purchase life insurance “for effective estate and tax planning purposes.”

The owner and beneficiary of the policy changed several times over the years, court documents note, with Wells Fargo the beneficiary when Silbiger died in March 2023.

In the meantime, New Jersey moved to ban STOLI policies. A 2019 decision by the Supreme Court of New Jersey found that STOLI policies may be invalidated for lack of an insurable interest following the contestability period. That was followed by the state Legislature enacting anti-STOLI legislation in 2020 that effectively codified that decision.

Lawsuit filed

On April 5, 2023, Ameritas filed a complaint against Wells Fargo in U.S. District Court for the District of New Jersey, alleging that the Silbiger policy is a SOLI policy in violation of state law. A month later, the bank filed a motion to dismiss.

Wells Fargo attorneys argue that because part two of the application was signed in Brooklyn, then the Silbiger policy is subject to New York law as well.

"Defendant additionally points to the Policy’s 'Incontestability' provision to argue that the Policy cannot now be challenged because it is past the two-year contestability period," Judge Quraishi wrote in summarizing the Wells Fargo argument.

While New York also has a state law banning STOLI policies, "New York has an interest in preserving the incontestability of policies after the contestability period has expired," court documents say.

Judge Quraishi was not convinced, concluding that "the Court finds that Plaintiff has plausibly pled that the Policy was executed in New Jersey and that New Jersey law applies."

InsuranceNewsNet Senior Editor John Hilton 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.

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.