Supreme Court Of Florida Holds Lapse Of Two-Year Contestability Period Precludes Challenge To STOLI

By: Joshua D. Lerner

09.28.16

Originally published in the DRI The Voice of the Defense Bar Life, Health and Disability blog on September 27, 2016.

Relying on the plain language of the Florida incontestability statute, the Supreme Court of Florida held that where an insurable interest exists at inception of a life insurance policy, such policies become incontestable after two years even if they were purchased as part of a STOLI scheme. Wells Fargo Bank, N.A. v. Pruco Life Ins. Co., Case No. SC15-382 (Fla. September 22, 2016). Responding to certified questions from the United States Court of Appeals for the Eleventh Circuit, the Court declined to create a STOLI-policy exception to section 627.455, Florida Statutes, Florida’s incontestability statute. The Court noted such an exception might be wise public policy but left that decision to the Florida legislature.

The life insurance policies at issue originated from STOLI schemes. Insurance salesmen persuaded two elderly individuals to permit life insurance policies to be taken out on their lives in exchange for free insurance and monetary compensation. In one instance the insured’s husband was listed as the policy beneficiary. In the second, the insured’s daughter was the beneficiary. Both insureds supported their applications for the policies with fraudulent financial reports. Both purchased the policies with the intent of transferring them after two years from issuance to one without an insurable interest in the insured. After two years from inception, the insurer approved requests to change the beneficiaries and owners of the policies. Later, the insurer filed separate lawsuits claiming the policies were void ab initio for lack of an insurable interest.

Section 627.404(1), Florida Statutes, requires that the policy beneficiary have an insurable interest in the insured at the time the policy is created. Section 627.455, Florida Statutes, provides that every insurance contract shall be incontestable after it has been in force during the lifetime of the insured for two years from its date of issue. The Florida supreme court noted that notwithstanding that the policies were purchased pursuant to STOLI schemes, the required insurable interest existed at policy inception and that the incontestability statute does not authorize a belated challenge to a policy, which has the required insurable interest at inception. Supporting its interpretation of the incontestability statute, the Supreme Court noted the statute has other exceptions to the two year time bar, indicating the legislature intended to limit the exceptions to those included in the statute.