Should insurance applicants and third party investors be allowed to make material representations when applying for life insurance, if they can manage to conceal misdeeds for at least two years? The United States District Court for the Southern District of New York thinks so.
In the latest STOLI case coming out of the federal courts, judge and jury considered whether outright fraud on a life insurance policy application is sufficient to invalidate a policy after the contestability period has passed. The jury and court held for the investor in the $5 million case. [Settlement Funding, LLC v. AXA Equitable Life Ins. Co., No. 09 CV 8685 (HB) (S.D.N.Y.) Mar. 21, 2011]
AXA Equitable Life Insurance Company issued a life insurance policy with a face value of $5 million on the life of Esther Adler. Although not at issue in the case, two other $5 million policies purchased from two other life insurance companies were also taken out on Mrs. Adler’s life.
The policy application claimed that Mrs. Adler had a net worth of $12 million. Originally, the policy was payable to the Esther Adler Family Trust (the “Trust”).
Sometime after the policy was issued it was sold to Settlement Funding for about $1 million.
After Mrs. Adler died, AXA refused to pay the $5 million death benefit to Settlement Funding. Settlement Funding then sued AXA in the United States District Court for the Southern District of New York.
AXA submitted evidence that Mrs. Adler did not in fact have a net worth of $12 million, but had less than $100,000 in assets and lived in an apartment at the time of the application. Evidence also showed that someone, unidentified in the case, posed as
Mrs. Adler’s accountant and verified the facts included on the policy application. In addition to this solid evidence of fraud, AXA also presented evidence that Mrs. Adler’s signature was forged on the trust agreement.