Nyet, we don’t mean the vodka. In the life insurance world, STOLI stands for “stranger owned life insurance.”

In Pruco Life Ins. Co. v. Brasner, Case No. 10-80804,U.S. Dist. Ct S.D. Florida, November 14, 2011, the court once again found that an investor or stranger who owned a life insurance policy lacked an insurable interest. In this case, Arlene Berger was interested in obtaining the lucrative cash payment that was the pot at the end of the rainbow of this life insurance arrangement, but with a net worth of under $1 Million, she really had no need for the life insurance. Ms. Berger learned of the life insurance arrangement from a free seminar she and her husband had attended, and she was referred to Mr. Brasner, who was a life insurance agent for Pruco.

Ms. Berger, through the help of Mr. Brasner, applied for the life insurance, but had no intention of paying any premium, and she knew the policy would be owned by someone else. Mr. Brasner decided how much insurance to buy and how much premium should be paid and arranged for the premium financing through the bank. The policy application grossly overstated Ms. Berger’s wealth and income for this $10 Million policy. After the 2 year contest period, Ms. Berger was paid a large sum and the policy was sold to investors in the secondary market.

Pruco sued for a declaratory judgment that the policy owners lacked an insurable interest. The District Court agreed that the policy lacked an insurable interest when issued and granted a summary judgment to Pruco declaring that the policy was void ab initio, as without an insurable interest – the policy was the equivalent of a wagering contract. While Florida law would permit a policy to be issued to someone with an insurable interest and later transferred to another who does not have an insurable interest, here the Berger policy was issued in bad faith based upon misrepresentations in the application, with the intention that it be assigned to someone who had no insurable interest. In view of the bad faith and fraudulent procurement, Pruco was not required to return the premiums paid on the policy.