Estate of Ann Rink, by its Executor, Michael Rink v. VICOF II Trust
On May 17, 2022, a jury verdict rejected claims brought by an executor seeking the proceeds of a $1.5 million life insurance policy in the most recent development in so-called “estate cases” brought under Delaware law.
Phoenix Home Life issued the policy in 2006, and the insured used a premium finance loan from LaSalle Bank to pay the first two years of premiums. The initial owner of the policy was a Delaware trust, of which the insured’s husband was the beneficiary and her son co-trustee. In 2008, as the premium finance loan approached maturity, the insured attempted to sell the policy as a viatical settlement but was unable to obtain a bid for more than the outstanding balance of the loan. Rather than pay off the loan and retain control of the policy, the family chose to relinquish the policy to the lender in satisfaction of the loan. The subsequent owners of the policy then continued to pay the premiums necessary to keep the policy in force. After the insured died in 2018, Phoenix paid the resulting claim to the policy’s owner.
The premium finance loan was administered and serviced by Coventry as part of the Premium Finance Plus (PFP) program that has been the subject of a flurry of litigation in recent years. Life insurance carriers have brought most cases involving the PFP program, and Sun Life has been particularly active in filing such suits. Cases by carriers have recently given way to cases brought by estates and their executors seeking to capitalize on Delaware’s “estate statute.” Estate cases brought under that statute are a recent phenomenon: the first such case, Estate of Phyllis Malkin v. Wells Fargo Bank, N.A., was filed in federal court in Florida in 2017, piggybacking off another decision in which Sun Life successfully argued that another policy on Ms. Malkin’s life was invalid.
The instant case was filed in the federal district court for the Western District of North Carolina in March 2020, just four months after the court in Estate of Malkin entered judgment in favor of Ms. Malkin’s estate. The Complaint, filed by the insured’s eldest son Michael Rink as executor for his mother’s estate, alleged that the policy was a stranger-originated life insurance policy (STOLI) that the insured did not want and could not afford, and that the estate was entitled to its proceeds. Although the policy insured a North Carolina resident and the case was filed there, the suit claimed the policy was governed by Delaware law, and asserted a claim under a provision of Delaware’s insurable interest statute, Del. Stat. 2704(b), which permits insureds or their executors to seek disgorgement of the proceeds of life insurance policies that allegedly lack insurable interest. Prior to the trial, the Court determined that the case was governed by North Carolina law, but found that there was no conflict between Delaware and North Carolina law in that both states require life insurance policies to be supported at inception by a valid insurable interest, the requirements for which were substantially identical in both states.
During the two-day trial, the jury heard testimony from two witnesses: the executor (the insured’s eldest son), and the life insurance agent that originated the policy. Both testified that the family took out the policy with the intention of selling it, and their testimony confirmed that the family not only participated in the application for (and relinquishment of) the policy but did so with a full understanding of what they were doing. Michael Rink is a CPA and financial planner, and the family sought legal advice on the loan documents.
While a few cases brought by estates, including the Estate of Malkin case, have been decided on summary judgment, this was the first time such a claim has been presented to a jury. The eight-member jury was asked to answer a straightforward question: was the policy supported by an insurable interest? Its unanimous verdict was that it was, and it thereby rejected Mr. Rink’s claim that the policy was a wager on his mother’s life. The jury may have been influenced by the family’s undisputed, knowing involvement in the application for, and relinquishment of the policy.
By ArentFox Schiff’s Insurance & Reinsurance Practice Group
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