11th Circuit Certifies Insurable Interest Questions In Pruco Cases To The Florida Supreme Court

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...