United States: Florida Supreme Court Holds That STOLI Challenges Are Barred By Two-Year Contestability Clause

Last Updated: September 27 2016
Article by Stephen G. Foresta

On September 22, 2016, the Florida Supreme Court issued an eagerly-awaited opinion in Wells Fargo Bank, N.A. v. Pruco Life Insurance Co.  The Court held that Florida's two-year contestability statute applies to bar an insurer's challenge to a life insurance policy on the basis that it was procured through an alleged STOLI transaction, as long as the policy nominally benefitted persons with an insurable interest in the life of the insured.  The decision answered questions of Florida insurance law presented in two federal district court cases that were consolidated on appeal before the U.S. Court of Appeals for the 11th Circuit and certified to the Florida Supreme Court.  The decision lifts the cloud that hung over Florida policies that complied with the letter of the law concerning insurable interest, but were procured through what some insurance companies have characterized as STOLI schemes that involved misrepresentations about the insureds' finances, use of premium financing, or intent to transfer the policy.  After Pruco, such policies should now be insulated from challenge outside of the contestability period.

The policies at issue in Pruco were all originated through so-called STOLI transactions, which, according to the Court, occurs "when an investor actively seeks out elderly people to purchase life insurance with the promise of 'no risk' money in exchange for transferring the policy to the investor after the general two year contestability period has expired."  One of the policies, on the life of Arlene Berger, was procured through Stephen Brasner, an infamous insurance broker who subsequently pleaded guilty to insurance fraud.  Mr. Brasner solicited Ms. Berger and her husband to participate in a STOLI scheme at a financial planning seminar advertising "free insurance."  Mr. Brasner submitted an application to Pruco for a policy on Ms. Berger's life, which included a fraudulent financial report.  The policy was issued to a trust with Ms. Berger's husband as co-trustee and beneficiary, but the Bergers did not need or want the insurance, never intended to pay the premiums, and had no intention of keeping the policy.  Brasner obtained financing for the policy through a premium finance lender and the Berger policy was later transferred to that lender in satisfaction of obligations under the premium financing agreement.  The Bergers received $173,000 in exchange for their participation in the transaction. 

The other two policies at issue in the case were on the life of Rosalind Guild, who was also persuaded to participate in the scheme with an offer of free life insurance and monetary compensation.  Like the Berger policy, the two Guild policies were procured with an application containing a fraudulent financial statement and issued to a trust, listing a blood relative (Ms. Guild's daughter) as the beneficiary.  However, it was understood that Ms. Guild's daughter would not receive the death benefit and that any beneficial interest in the policies would be sold to an investor with no insurable interest.  After the policy was issued, a third party paid the premiums for the next few years, and the policy was subsequently transferred to U.S. Bank, as securities intermediary.

Applying Florida law to these facts, the Florida Supreme Court concluded that the plain language of Florida's insurable interest statute only required an insurable interest at the inception of a life insurance policy and found that such an interest was present at the inception of both the Berger and the Guild policies because, at inception, they benefitted individuals with insurable interests (Ms. Berger's husband and Ms. Guild's daughter).  Although the Court found that the policies were procured in furtherance of a STOLI scheme, it held that the plain language of Florida's incontestability statute does not authorize a belated challenge on that basis.  The Court observed that the incontestability statute provided for specific exceptions allowing certain types of challenges outside the two-year period and concluded that the Florida legislature intended to limit insurers to those exceptions.  Because a STOLI challenge was not an enumerated exception to incontestability, the Court held that it was barred by the incontestability clause. 

Quoting the Eighth Circuit's decision in PHL Variable Ins. Co. v. Bank of Utah, which also held that an incontestability statute barred challenges based on lack of insurable interest, the Florida Supreme Court noted that whether there is an agreement at inception to sell a policy, either to an identified person who lacks an insurable interest or to a third-party investor in the secondary market, is a risk that an insurance company can promptly investigate, and that "to declare that a facially valid policy on which [the insurance company] collected substantial premiums.... was never in force is simply a fiction." 

The Pruco decision is welcome news to investors that own policies issued in Florida, as insurance companies should now be barred from challenging policies as STOLI if the policies were issued more than two years ago and complied with Florida insurable interest law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
22 Apr 2019, Speaking Engagement, New York, United States

Lorraine McGowen will be speaking at the upcoming “Bankruptcy & Reorganizations 2019: Current Developments” conference hosted by the Practising Law Institute.

1 May 2019, Other, New York, United States

Join VC/PE and other fellow professionals, academics to hear up to date insights on the fast changing venture community in the nation’s capital.

9 May 2019, Speaking Engagement, California, United States

This unique, one-day event brings together current and former senior SEC and DOJ officials, leading securities enforcement and white collar attorneys, in-house counsel and compliance executives, and other top professionals in the field.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions