March 9, 2015


Life Settlements



11th Circuit Certifies Insurable Interest Questions in Pruco Cases to the Florida Supreme Court

For more information about Orrick's Life Settlements practice, please contact us:

Stephen Foresta
New York
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Khai LeQuang
Orange County
(949) 852-7708
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On February 27, 2015, the United States Court of Appeals for the Eleventh Circuit certified two important questions of Florida insurable interest law to the Florida Supreme Court. The Eleventh Circuit asked the Supreme Court to determine: (1) whether under Florida law, an insurer may challenge a policy for lack of insurable interest after expiration of the statutory two-year contestability period; and (2) whether Florida insurable interest law requires that an individual procuring life insurance do so in “good faith” and not with the intent to effect an assignment of the policy to one without an insurable interest. The certified issues arose in separate appeals from conflicting decisions rendered by two federal courts in the Southern District of Florida interpreting Florida law. In both Pruco Life Ins. Co. v. Brasner and Pruco Life Ins. Co. v. U.S. Bank, the insurer filed suit years after the statutory contestability period expired, alleging that the policies at issue were procured as part of a stranger-originated life insurance (“STOLI”) scheme and seeking to invalidate them for lack of insurable interest.

In Brasner, an infamous insurance broker, Stephen Brasner, arranged for an elderly couple, Arlene and Richard Berger, to participate in a “STOLI scheme.” On Brasner’s application, which contained fraudulent misrepresentations concerning Ms. Berger’s net worth and annual income, Pruco issued a policy on Ms. Berger’s life. Her husband was the beneficiary, but the Bergers claimed they did not need and never intended to keep the insurance. Brasner secured third-party financing to pay the policy premiums, and arranged the transfer of the policy to a trust. More than two years after the policy was issued, the trust, with Ms. Berger’s consent, surrendered the policy to the third-party premium lender in satisfaction of the debt incurred to finance the premiums. The beneficial interest in the policy was subsequently sold to a different investor.

The U.S. Bank case involved a different insurance broker and insured but, like Brasner, the case concerned a similar “STOLI scheme” in which Pruco issued a policy based on a fraudulent application submitted by an insurance broker. The policy named the insured’s daughter as the primary beneficiary, although it was understood that the insured and her named beneficiary intended to transfer the beneficial interest in the policy to an investor. As in Brasner, a third party paid the policy premiums, and the beneficial interest in the policy was sold to an investor.  

While the facts of the two cases were similar, the courts reached vastly different decisions. In Brasner, the court invalidated the policy for lack of insurable interest, notwithstanding that Pruco initiated its challenge outside the contestability period. In so holding, the Brasner court ruled that because the policy at issue was void ab initio, the clause in the policy providing for a two-year contestability period never took effect. The court then ruled that Florida law required persons procuring life insurance policies to do so in “good faith” and that purchasing a policy with the intent of effecting an assignment to a person without an insurable interest, as was the case in Brasner, did not satisfy that requirement.

By contrast, the U.S. Bank court dismissed Pruco’s claim on the grounds that it was initiated outside of the two-year contestability period, and therefore barred as a matter of law. The court reasoned that in the STOLI context, a lack of insurable interest is inseparable from the fraud employed to procure the insurance policy, and because Florida law required insurers to contest fraudulently procured policies within the two-year contestability period, Pruco’s challenge to the policy was time-barred. Having dismissed Pruco’s claim as untimely, the U.S. Bank court did not address the substance of Pruco’s insurable interest claims. 

Because the Florida Supreme Court has the final word on the interpretation of Florida law, and insurable interest is governed by state law, the resolution of the certified questions by the Florida Supreme Court should provide answers to issues that have long remained unclear under Florida law. The Eleventh Circuit’s certification order provides an opportunity for the Florida Supreme Court to upend rulings issued by federal trial courts that have largely interpreted Florida law unfavorably for investors.