Wells Fargo, Ameritas reach tentative settlement on STOLI lawsuit

Wells Fargo tentatively settled another federal lawsuit over what plaintiffs are calling a stranger-originated life insurance (STOLI) policy.

U.S. District Judge Zahid N. Quraishi signed a 60-day order Tuesday tentatively terminating the lawsuit filed by Ameritas Life Insurance Co. Both parties are expected to file settlement papers with the District of New Jersey within the 60 days.

The settlement news comes about six weeks after Quraishi denied Wells Fargo's motion to apply New York law to the case.

Ameritas 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.

An Ameritas spokesman declined comment on the settlement news. Wells Fargo could not be reached for a comment.

Banned in many states

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.

In his January ruling against the bank, Quraishi determined, 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.

Signed in New Jersey

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.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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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 [email protected]. Follow him on Twitter @INNJohnH.