Court Rules Against STOLI Policies Valued at $8 Million in Landmark Case
The Third Circuit Court of Appeals has confirmed a lower court's decision to nullify two life insurance policies valued at $8 million, ruling them as illegal stranger-originated life insurance (STOLI) under New Jersey law. This decision favored Lincoln National Life Insurance Company in its legal confrontation with Retirement Value LLC, which sought death benefits following the 2019 passing of the insured, Haya Majerovic.
The core dispute involved two policies initially issued in 2007 by Jefferson Pilot Life Insurance Company, which later became part of Lincoln. These policies, meant to insure Majerovic's life, were acquired by Retirement Value after being transferred through multiple entities.
Lincoln initiated legal proceedings in 2021, requesting a judgment that the policies were void from the start due to the absence of a valid insurable interest, as they were designed primarily to benefit investors unrelated to the insured.
The contention primarily revolved around the applicable state law. Lincoln contended that New Jersey law was pertinent to the case, citing the presence of all contractual elements within the state. In contrast, Retirement Value argued for New York law, pointing to Majerovic's residence there.
The appeals court sided with the district court, noting that the contractual elements linked the policies to New Jersey. Judge Luis Felipe Restrepo highlighted factors such as the policies' application by a New Jersey trust, execution, and delivery within the state.
Under New Jersey legislation, STOLI policies are deemed void since they designate investors without an insurable interest as beneficiaries from inception, contradicting public policy as enforced by the state's Supreme Court. Judge Restrepo echoed this view, noting the lack of insurable interest by investors.
Additionally, Retirement Value contested the denial for the reimbursement of premiums paid on the policies. However, the court ruled that the argument had been forfeited due to insufficient presentation in prior proceedings.
The ruling upholds a previous decision by District Judge Robert Kirsch that recognized the policies as STOLI and granted summary judgment to Lincoln. This decision marks another win for insurers as courts increasingly scrutinize investor-backed life insurance deals lacking genuine insurable interests.
Court records indicate that Majerovic's son had an arrangement with investors in which he would insure his mother, with the investors covering all premium payments in exchange for 90% of the policy benefits. The policies were ultimately owned by the Haya Majerovic Family Trust, located in Lakewood, New Jersey, and transferred through various parties, including being sold to Retirement Value.
Following Majerovic's death in November 2019, claims were submitted by Retirement Value for the death benefits, but Lincoln challenged the policy's legitimacy and refused the claims.