Principal Life Insurance Company v. Christiana Bank and Trust Company

Filing 247

MEMORANDUM OPINION. Signed by Judge Mary Pat Thynge on 6/26/2012. (cak)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

PRINCIPAL LIFE INSURANCE
COMPANY,
Plaintiff,

v.

C. A. No. 08-488-MPT

LAWRENCE RUCKER 2007
INSURANCE TRUST,
Defendant.

MEMORANDUM OPINION
Karen V. Sullivan, Drinker Biddle & Reath LLP, 1100 North Market Street, Suite 1000,
Wilmington, DE 19801.
Of Counsel: Jason P. Gosselin and Thomas J. Downie, Drinker Biddle & Reath,
One Logan Square, Suite 2000, Philadelphia, PA 19103.
Counsel for Plaintiff, Principal Life Insurance Company.
John E. James, David E. Moore and Michael B. Rush, Potter Anderson & Corroon LLP,
1313 North Market Street, Hercules Plaza, 61h Floor, P.O. Box 951, Wilmington, DE
19899.
Of Counsel: John E. Failla, Elise A. Yablonski and Nathan Lander, Proskauer
Rose LLP, 11 Times Square, New York, NY 10036.
Counsel for Defendant, Lawrence Rucker 2007 Insurance Trust.

Wilmington, Delaware
June 26, 2012

I. INTRODUCTION
On August 8, 2008, plaintiff Principal Life Insurance Company ("Principal")
instituted this action seeking declaratory relief and damages against Christiana Bank
and Trust Company ("Christiana Bank"), as trustee for the Lawrence Rucker 2007
Insurance Trust ("Insurance Trust"). 1 On September 17, 2008, the parties entered a
stipulation substituting Insurance Trust as defendant in lieu of Christiana Bank. 2
Principal subsequently amended its complaint and sought a judgment that the Rucker
life insurance policy ("Policy") was void due to material misrepresentations in the
application for insurance and to recover damages for fraud. 3 Principal claimed the
Policy issued on the life of Lawrence Rucker ("Rucker") was void because of a lack of
an insurable interest and/or material misrepresentations. 4
On August 30, 2010, this court found in favor of Principal on the insurable
interest claim and declared the Policy void for lack of insurable interest under 18 Del. C.

§ 2704. 5 On September 20, 2011, the Delaware Supreme Court addressed the
question of insurable interest in the pending cases in this court of PHL Variable Ins. Co.

v. Price Dawe 2006 Ins. Trust and Lincoln Nat'/ Life Ins. Co. v. Joseph Schlanger 2006

1

D.l. 1 at 1.
D.l. 8.
3
D.l. 9; D. I. 44 at 1. Principal filed two amended complaints. The first amended
complaint was filed on September 17, 2008 and the second amended complaint was
filed on April 24, 2009.
4
D. I. 44 at 1.
5
See Principal Life Ins. Co. v. Lawrence Rucker 2007 Insurance Trust, 735 F.
Supp. 2d 130, 140 (D. Del. 2010) (holding Policy lacked insurable interest at inception
and was void).
2

2

Ins. Trust. 6 In Price Dawe, the Delaware Supreme Court decided certified questions
from the United States District Court for the District of Delaware concerning the
insurable interest requirement under 18 Del. C.§ 2704. 7 Following the Price Dawe
decision, this court invited the parties to supplement their summary judgment briefing to
address the impact of Price Dawe on its August 30 , 2010 decision. 8 Presently before
the court is Principal's motion for summary judgment. 9 For the reasons that follow, the
court denies Principal's motion for summary judgment.

II. BACKGROUND
A. Factual Background

This is a federal diversity action applying Delaware law. Principal is a life
insurance company with its principal place of business in Des Moines, lowa. 10
Insurance Trust is a statutory trust pursuant to 12 Del. C.§ 3801 .11 Principal alleges
the Policy was procured as part of a stranger originated life insurance ("STOLl")
scheme. 12 Principal claims the Insurance Trust was used to transfer the Policy on the
secondary market and circumvent insurable interest requirements. 13
Rucker began the process of obtaining life insurance through interactions with

6

See PHL Variable Ins. Co. v. Price Dawe 2006 Insurance Trust, 28 A. 3d 1059,
1063 (noting cases involved whether life insurance policies lacked an insurable
interest).
7
/d. (describing referral of certified questions from the United States District
Court for the District of Delaware).
8
D.l. 201; D. I. 217.
9
D.l. 116; D.l. 201.
10
D.l. 44 at 1.
11
/d.; D.l. 57 at 1.
12
D.l. 201 at 1.
13 /d.
3

Wayne Aery ("Aery"). 14 Aery worked with Brad Friedman ("Friedman"), a purported
agent of Principal. 15 Aery and Friedman also did business under the brokerage firm
Lextor Financial. 16 Aery assisted Rucker in completing the application ("Application") for
life insurance. 17 The Application required disclosures as to whether "any group of
investors will obtain any right, title, or interest in any policy issued on the life of the
Proposed lnsured(s)" and whether the applicant would "borrow money to pay the
premiums for this policy or have someone else pay the premiums ... in return for an
assignment of policy values back to them." 18 Both questions were answered in the
negative. 19 The validity of those answers is disputed. 20
In addition to the Application, Rucker also submitted a Confidential Financial
Statement ("CFS"). 21 The CFS represented Rucker's yearly income at $425,000 and

14

Compare 0.1. 201 at 5 (stating Rucker was approached by Aery about taking
out a life insurance policy), with 0.1. 217 at 4 (stating Rucker approached Aery and
inquired about taking out a life insurance policy).
15
0.1. 217 at 4 (stating Aery and Friedman did work for Lextor Financial).
16
0.1. 202, Jason P. Gosselin ("Gosselin") Aft. (Counsel for Principal, affidavit in
support of Principal's motion), Ex. 0 at 15:18-16:4 (explaining Lextor Financial is
Friedman's corporation and Aery is an independent contractor of Lextor).
17
0.1. 201 at 7.
18
0.1. 204, Neal P. Halder ("Halder") Oecl. (Assistant Vice President and Chief
Underwriter for Principal, discussing the Application which Principal relied on in issuing
the Policy) at 1[1[9-1 0; Ex. T.
19

/d.

° Compare 0.1. 201

2

at 7-8 (stating Principal's belief the answer to Question 6(a)
is false because Rucker always intended to sell the Policy) and id. at 9 (noting
Principal's belief the answer to Question 6(b) is false because Rucker did not, and
could not, pay premiums), with 0.1. 133 at 22 (indicating Insurance Trust's belief the
answer to Question 6(a) is true because Insurance Trust is still owner of the Policy) and
id. at 21 (explaining Insurance Trust's belief the answer to Question 6(b) is true
because Rucker never assigned Policy in exchange for premiums).
21
0.1. 201 at 7.

4

his net worth at $4.85 million. 22 Rucker's actual income was approximately $120,000
and his net worth significantly less than represented. 23 Though the origin of this false
information is unclear, the parties agree it is invalid and not directly attributable to
Rucker. 24
Prior to submitting the Application to Principal , multiple trusts were created. On
or about August 14, 2007, the Lawrence Rucker 2007 Family Trust ("Family Trust") was
established. 25 The Family Trust listed Rucker as settlor, Christiana Bank as trustee,
and Rucker as beneficiary. 26 Additionally, on or about August 15, 2007, the Insurance
Trust was established. 27 The Insurance Trust agreement listed Rucker as settlor,
Christiana Bank as trustee, and the Family Trust as beneficiary.28 The Insurance Trust
agreement was generated by Park Venture. 29 Park Venture is a company that prepares
trust documents. Rucker also selected his friend Morris Tepper ("Tepper") to serve as
the trust protector and act on his behalf. 30 Rucker, Tepper and Christiana signed and
accepted the Insurance Trust agreement. 31 The Insurance Trust was funded with the
Policy, but Principal and Insurance Trust dispute whether the Insurance Trust could

22

D.l. 202, Gosselin Aft., Ex. A. at 88:1-89:12.
/d.
24
Compare D. I. 133 at 7 (stating information in CFS was not provided by
Rucker), with D.l. 117 at 10 (noting Rucker was not aware of false information in CFS).
25
D.l. 201 at 10; D.l. 202, Gosselin Aft., Ex. G.
26
/d.; D.l. 217 at 5-7.
27
D.l. 201 at 10.
28 /d.
29
D.l. 201 at 10-11; D.l. 217 at29.
30
D.l. 220 , Cedric Strother ("Strother'') Aft. (Trust officer of Wilmington Savings
Fund Society, successor to Christiana Bank & Trust Company, describing Christiana's
role as trustee of the Insurance Trust and the Family Trust), Ex. 1 at 12, Article IX.
31
0 .1. 217 at 7.
23

5

properly fund the Policy. 32 Insurance Trust maintains Rucker initially funded the
Insurance Trust with a $100 payment from his own funds. 33
During this period Gill was formed. 34 Gill is a Delaware statutory trust in the
business of purchasing beneficial interests in insurance trusts. 35 Gill works with Joseph
Capital LLC ("Joseph Capital") , a broker-dealer that locates insureds who are interested
in selling their trust interests to buyers. 36 Principal and the Insurance Trust dispute
whether Park Venture produced the trust agreement for the Insurance Trust at the Gill
Accumulation Trust's ("Gill") instruction Y
On September 26 , 2007, Principal issued a Flexible Premium Universal Life
Insurance Policy in the amount of $3.5 million. 38 The Policy named Insurance Trust as
the beneficiary. 39 Rucker could not afford the premium on the Policy. 40 Aery provided
Rucker with $79 ,748.77, which Rucker used to write a check to Principal for the
premium payment. 41

32

Compare D.l. 239 at 10 (explaining Aery provided the money for the premium
payment to Rucker and Rucker did not pay the premium with his own money,
preventing him from funding the trust with the Policy), with D. I. 217 at 28 (describing
Rucker as both placing the Policy in the trust and paying the premiums for the Policy by
acquiring a loan from Aery).
33
D. I. 217 at 28-30 ; D. I. 220 , Strother Aff. Ex. 2.
34
D.l. 220 , Strother Aff. , Ex. 12 at 14, Article VI.
35
D. I. 217 at 9; D. I. 219 , Jose I. Mercado ("Mercado") Aff. (Vice President of
Wells Fargo Delaware Trust Company, trustee of Gill Accumulation Trust, affidavit in
opposition to Principal's motion) at~ 3.
36 /d.
37
/d. ; D. I. 203 , Thomas S. Downie ("Downie") Aff. (Counsel for Principal , affidavit
in support of Principal's motion), Ex. A at 103:7-104 :7.
38
D.l. 201 at 13.
39
40
41

/d.
D.l. 202 , Gosselin Aff., Ex. A at 60 :1-4.
/d.
6

Gill was advised by Grant Heller ("Heller"), a representative of Joseph Capital,
that Rucker wished to sell the beneficial interest in the Insurance Trust. 42 On October
26, 2007, a purchase agreement for the beneficial interest in the Insurance Trust was
executed between the Family Trust and Glll. 43 The Family Trust was later terminated,
making Gill the sole beneficiary of the Insurance Trust. 44 Although the Insurance Trust
remains the named beneficiary of the Policy, Gill is the actual beneficiary, pursuant to
the purchase agreement, and will receive all Policy proceeds in the event they are
distributed. After selling the beneficial interest in the Insurance Trust to Gill, Rucker
repaid the money Aery provided him for the premium payment. 45

B. Procedural Background
On August 30, 2010, without the guidance of Delaware case law on this specific
issue, the court found the Policy void for lack of an insurable interest as a STOLl
scheme, and granted judgment in favor of Principal on its lack of insurable interest
claim. 46
On September 20, 2011, the Delaware Supreme Court answered three certified
questions propounded by the court in the pending cases of PHL Variable Ins. Co. v.
Price Dawe 2006 Ins. Trust and Lincoln Nat'/ Life Ins. Co. v. Joseph Schlanger 2006

42

D.l. 221, Heller Aff. (held positions in Park Venture Advisors and Radian
Funding LLC during Rucker's application process for the Policy, affidavit in opposition to
Principal's motion) at 1111 9-11, 17.
43
D.l. 219, Mercado Aff., Ex. 4.

/d.
D.l. 202, Gosselin Aff., Ex. J.
46
See Principal Life Ins. Co. v. Lawrence Rucker 2007 Insurance Trust, 735 F.
Supp. 2d 130,140 (D. Del. 2010) (holding Policy lacked insurable interest at inception
and was void).
44
45

7

Ins. Trust. 47 Both cases involved actions by life insurers seeking to have the life
insurance polices they issued to trusts declared void based on lack of insurable
interest. 48 The cases also included an investor's purchase of the trusts' beneficial
interests shortly after issuance of the life insurance policies. 49
The first certified question presented to the Delaware Supreme Court concerned
the interpretation of Delaware's incontestability statute. 50 This question does not bear
on this case because Principal filed this action within the contestability period. 5 1 The
second certified question addressed whether Delaware's insurable interest statute, 18
Del. C. § 2704 prohibited an insured from procuring a policy with the intention of
immediately transferring it to a person who does not have an insurable interest in the
insured's life. 52 The third certified question addressed the trust's interest in the
insured's policy, specifically, whether a trustee has an insurable interest, if the insured
intends to transfer the beneficial interest of the trust to a third-party having no insurable
interest in the insured's life. 53

47

See PHL Variable Life Ins. Co. v. Price Dawe 2006 Insurance Trust, 28 A.3d
1059, 1063 (Del. 2011) (noting cases involved whether life insurance policies lacked an
insurable interest).
48 /d.
49
/d. at 1063-64.
50
/d. at 1064-65.
51
D.l. 194 at 1.
52
See Price Dawe, 28 A. 3d at 1068 (asking "Does 18 Del. C. § 2704(a) and
(c)(5) prohibit an insured from procuring or effecting a policy on his or her own life and
immediately transferring the policy, or a beneficial interest in a trust that owns and is the
beneficiary of the policy, to a person without an insurable interest in the insured's life, if
the insured did not ever intend to provide insurance protection for a person with an
insurable interest in his or her own life?").
53
See id. at 1076 ("Does 18 Del. C.§ 2704(a) and (c)(5) confer upon the trustee
of a Delaware trust established by an individual insured an insurable interest in the life
of that individual when, at the time of the application for life insurance, the insured

8

In answering the second question, the court found the intent of the insured to
immediately transfer a life insurance policy to a person without an insurable interest
was not a violation of insurable interest. 54 However, the insured must have procured or
effected the policy and the policy cannot be a mere cover for wager. 5 5 A third party
cannot use the insured as a conduit to procure a policy it otherwise could not obtain
due to lack of an insurable interest. 56 Under Price Dawe, whether the third party
procured the policy through the insured is determined by identifying which party paid
the insurance premiums. 57 If the insured was responsible for paying the premiums,
then the policy is valid and freely transferrable by the insured. 58 Thus, the insured has a
right to take out a policy with the intent to immediately transfer the policy, but "that right
is limited to bona fide sales of that policy taken out in good faith ."59
With respect to the third question , the court held a trustee would have an
insurable interest, regardless of whether the trust beneficiaries had planned to sell their
beneficial interests in the trust to an investor, as long as the individual insured actually
established and provided the corpus for the trust. 60 This requirement is not satisfied if

intends that the beneficial interest in the Delaware trust would be transferred to a third
party investor with no insurable interest in that individual's life following issuance of the
life insurance policy?") .
54
/d. at 1068.
55 /d.
56
/d. at 1074.
57
/d. at 1075-76 (explaining "life insurance policies . .. do not come into effect
without premiums, so an insured cannot 'procure or effect' a policy without actually
paying the premiums").
58
59
60

/d.
/d. at 1075.
/d. at 1076.
9

the trust is created through nominal funding as a mere formality. 61 Additionally, if the
funding is provided by a third party as part of a pre-negotiated agreement, then the
substantive requirements of 18 Del. C. § 2704 are not met. 62 Therefore, if the life
insurance is procured for a legal purpose and not as a cover for wager, the trustee
would have an insurable interest. 5 3 But, in cases where a third party either directly or
indirectly funds the premium payments as part of a pre-negotiated arrangement with the
insured to immediately transfer ownership, the policy fails at its inception for lack of an
insurable interest. 64
Ill. STANDARD OF REVIEW

Under Federal Rule of Civil Procedure 56( c), summary judgment is granted only
when the record demonstrates that there is no genuine issue as to any material fact
and the movant is entitled to judgment as a matter of law. In deciding a motion for
summary judgment, a court's role is not to weigh the evidence or to determine the truth
of the matters asserted , but to determine whether there is a genuine issue of fact for
trial. 65 In so doing, the court must view all facts and draw all reasonable inferences in
favor of the non-movant, take as true all allegations of the non-movant that conflict with
those of the movant, and resolve all doubts against the movant. 66 The court also must
treat direct and circumstantial evidence alike. 67

61

/d. at 1078.
/d.
63 /d.
64 /d.
65
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 , 248 (1986).
66
United States v. Diebold, Inc. 369 U.S. 654, 655 (1962); Gans v. Mundy, 762
F.2d 338, 341 (3d Cir. 1985).
67
Desert Palace, Inc. v. Costa, 539 U.S. 90 , 94 (2003).
62

10

Delaware Insurable Interest Statute
The Delaware Insurable Interest statute, 18 Del. C. § 2704(a) and (c)(5)
provides, in pertinent part:
(a) Any individual of competent legal capacity may procure or effect an
insurance contract upon his/her own life or body for the benefit of any
person, but no person shall procure or cause to be procured any
insurance contract upon the life or body of another individual unless the
benefits under such contract are payable to the individual insured or
his/her representatives or to a person having, at the time when such
contract was made, an insurable interest in the individual insured.
(c)(5) The trustee of a trust created and initially funded by an individual
has an insurable interest in the life of that individual and the same
insurable interest in the life of any other individual as does any person
who is treated as the owner of such trust for federal income tax purposes
without regard to:
a. The identity of the trust beneficiaries;
b. Whether the identity of the trust beneficiaries changes from time to
time; and
c. The means by which any trust beneficiary acquires a beneficial interest
in the trust.
The trustee of a trust has the same insurable interest in the life of any
individual as does any person with respect to proceeds of insurance on
the life of such individual (or any portion of such proceeds) that are
allocable to such person's interest in such trust. If multiple beneficiaries of
a trust have an insurable interest in the life of the same individual, the
trustee of such trust has the same aggregate insurable interest in such life
as such beneficiaries with respect to proceeds of insurance on the life of
such individual (or any portion of such proceeds) that are allocable in the
aggregate to such beneficiaries' interest in the trust.

IV. DISCUSSION
A. Intent to Transfer
The Delaware Supreme Court held an insured was not prohibited from

11

transferring a life insurance policy to a person without an insurable interest. 68 The
court, however, limited this right to circumstances where the insured procured or
effected the policy and the policy was not a mere cover for wager. 69 In determining
whether an insured or another person without an insurable interest, procured a policy
the court focused on who paid the insurance premiums.70
1. Whether the Insured Procured and Effected the Policy
Although the Price Dawe decision permits an insured to obtain a policy and
designate someone without an insurable interest as its beneficiary, Principal argues the
Rucker Policy is void because it was not acquired in good faith and is, in effect, "a
wager on human life. "71 Insurance Trust counters Rucker procured the Policy and
Principal has not demonstrated Gill used Rucker as a means to secure the Policy. 72
The Delaware Supreme Court found payment of the premiums by the insured
was a key fact supporting the insured procured the policy.73 Here, Rucker paid the
premiums with money he received from Aery.74 Principal characterizes Aery's provision
of money to Rucker as a financial inducement to Rucker and points to the intent of
Rucker to resell the Policy as evidence of a wagering contract.15 Insurance Trust
maintains Rucker obtained the Policy and paid the premiums by receiving a loan from

68

69
70
71

72
73

74
75

Price Dawe, 28 A. 3d at 1068.
/d.
/d. at 1075-76.
D. I. 201 at 3-4.
D.l. 217 at 14.
Price Dawe, 28 A. 3d at 1068.
D.l. 202, Gosselin Aft. , Ex. A at 60:19-62:4.
D.l. 201 at 16-17.

12

Aery. 76 Insurance Trust also describes Rucker as initially expressing interest in
premium financing. 77 Premium financing allows an insured to obtain money from a
bank to pay premiums on a policy which he intends to sell at a later date. 78 Insurance
Trust argues premium financing and the payment of premiums through loans is a
common occurrence and part of a regulated industry in Delaware. 79 Additionally,
insurance companies and agents are expressly permitted to loan premium funds to
insureds. 80
Although there was no official loan agreement between Rucker and Aery, Price
Dawe does not foreclose an insured from borrowing money to pay for premiums. An

insured's ability to procure a policy is not limited to paying the premiums with his own
funds; borrowing money with an obligation to repay would also qualify as an insured
procuring a policy. Additionally, both Rucker and Aery acknowledge an agreement
between them that Aery would provide the money for the premium and Rucker would
repay it. 81
Principal urges the court to "scrutinize the circumstances under which the policy
was issued and determine who in fact procured or effected the policy." 82 Principal

76

D. I. 217 at 22-23.
/d. at 4; D.l. 224, John E. James ("James") Aff. (Counsel for Insurance Trust,
affidavit in opposition to Principal's motion), Ex. 2 at 17:4-19:9.
78 /d.
79
D.l. 217 at 22; D.l. 218, William D. Hager ("Hager") Aff. (expert witness for
Insurance Trust, affidavit in opposition to Principal's motion) at~~ 13-16;
18 Del. C.§§ 4801-4812.
80
D.l. 217 at 22; 18 Del. C.§ 4812.
81
D.l. 202, Gosselin Aff., Ex. A at 60:19-62:4; 100:12-105:7; D.l. 224 James Aff.,
Ex. 1 at 159;1-12; Ex. 2 at 175).
82
Price Dawe, 28 A.3d at 1076.
77

13

alleges a third-party investor participated prior to the issuance of the Policy and
provided the funding to Rucker to pay the premiums. 83 To support this claim, Principal
points to the false information provided on the CFS and the Application , Rucker's
statement that he did not need life insurance and his intention to sell the Policy after
acquiring it. 84 That Aery provided money to Rucker to pay the premiums is undisputed ,
but there is not unrefuted evidence Gill , or any third-party investor, was the source of
the money Aery gave to Rucker. 85 Additionally, Aery testified no third party requested
for him to provide the loan , nor did he advise anyone besides Rucker that he provided
the loan. 86 Aery also testified he obtained the loan for the initial premium from a
commission he had made on the sale of a prior insurance policy. 87 Finally, Gill testified
at the time it purchased the beneficial interest in the trust, both Rucker and Friedman
represented Rucker had paid the premium himself, and not with money from Aery. 88
Unlike Price Dawe, where the investor paid the premiums, and the court
considered this fact as substantial evidence of a lack of insurable interest, Aery testified
he provided funds to Rucker for the premium. 89 In short, a reasonable jury could find
Rucker procured the Policy himself and paid the premium by obtaining a loan from
Aery. Absent evidence of third-party investors or Aery acting on their behalf funding the

83

D. I. 201 at 4-5.
/d. at 5-9.
85
D. I. 219, Mercado Aff. at~~ 5, 13-21.
86
D. I. 224, James Aff. , Ex. 2 at 167:20-175:12.
87 /d.
88
D. I. 219 , Mercado Aff. at~~ 20-21.
89
Compare Price Dawe, 28 A. 3d at 1076 (finding investor's payment of
premiums was a key fact supporting lack of insurable interest), with D. I. 202, Gosselin
Aff. , Ex. D at 17:17-20:9 (where Aery describes loaning the money for the premiums to
Rucker).
84

14

premium payment by Rucker, there is a genuine issue of material fact as to whether
Rucker procured the Policy himself.

2. Whether the Policy Was a Mere Cover for Wager
In Price Dawe , the court emphasized "if a th ird party financially induces the
insured to procure a life insurance contract with the intent to immediately transfer the
policy to a third party, the contract lacks an insurable interest. "90 The Delaware
Supreme Court identified payment of premiums as the primary means for determining
whether the insured was used as a means to procure a life insurance policy.91 While a
policyholder's intent to transfer the beneficial interest to a trust who will then own and
become the beneficiary of a life insurance policy is not inconsistent with 18 Del. C.

§ 2704, to demonstrate a STOLl scheme, the court still must determine whether a third
party with no insurable interest in the life of the insured used the insured as an
"instrumentality" to obtain the policy.92 The right to transfer a policy is thus not
unlimited ; it requires a bona fide sale of the policy acquired in good faith. 93
Principal argues even if a dispute exists as to whether Rucker procured the
Policy through a loan from Aery, there is no insurable interest because the Policy was
not secured in good faith. 94 Principal alleges Rucker was, in essence, a mere conduit
for investors who would fund the Policy, and , thereby wager on Rucker's life. To
demonstrate how Gill used Rucker as a conduit to procure the Policy, Principal relies

90
91
92

93
94

Price Dawe, 28 A.3d at 1075.
/d. at 1075-77.
/d.
/d. at 1075.
D. I. 239 at 3.
15

on the facts surrounding the acquisition of the Policy and the formation of the trusts. 95
Aery's loan to Rucker for the premiums, the misrepresentation on the Policy
Application , and Rucker's complete lack of knowledge about the trusts, their formation
and purpose call into question the acquisition and subsequent sale of the Policy.
However, these facts do not adequately demonstrate third-party investors used Rucker
as an instrumentality to obtain the Policy. Gill paying the premiums or loaning money
to either Rucker or Aery to cover the premiums, would be clear evidence of an
agreement for Rucker to later sell the Policy to Gill.
To support that Rucker was a mere instrumentality, Principal relies heavily on
Rucker's consistent testimony that he always intended to sell the Policy. 96 However,

Price Dawe noted the intent of the policyholder alone to immediately transfer a newly
purchased life insurance policy to be insufficient to create a STOLl scheme under
Delaware law. 97 For a policy to constitute a wager voiding any insurable interest, both
an intent to immediately transfer the policy to a third party and a financial inducement
by a third party to procure a life insurance contract on the insured are required.
Rucker's testimony demonstrates a clear and pre-existing intent to transfer the Policy
when it was issued, but there is less support for a financial inducement to Rucker.
Here, Gill denies any arrangement with Rucker, Friedman or Aery that Gill would

95

See generally id.
0.1. 202, Gosselin Aff., Ex. A at 59:4-11.
97
Price Dawe, 28 A. 3d at 1074 ("The insurable interest requirement does not
place any restrictions on the subsequent sale or transfer of a bona fide life insurance
policy ... a life insurance policy that is validly issued is assignable to anyone, with or
without an insurable interest, at any time. The key distinction is that a third party cannot
use the insured as a means or instrumentality to procure a policy that, when issued,
would otherwise lack an insurable interest.").
96

16

purchase the Policy. 98 In addition, affidavits from Strother, Friedman, Mercado and
Heller indicate Christiana Bank, Park Venture and Joseph Capital were not part of an
arrangement to fund the premium payments or purchase the Policy. 99 Thus, the facts
and circumstances provided by Principal to support the contention Rucker was used as
a means to procure a policy are all disputed by testimony from various witnesses.
Once again, there are genuine issues of material fact as to whether Rucker was
financially induced to procure the Policy, which prevents a conclusion that Rucker was
a mere instrumentality, and the Policy operated as a wagering contract.

B. The Trust's Interest
In situations involving a trust as the owner of the life insurance policy, Price
Dawe instructs the court to assess whether the trust was actually created and funded
by the insured, as opposed to the trust being established to effect a wager. 100 There
the court held a trust has the same insurable interest as the insured, provided the
insured funded his or her own trust to purchase the policy. 101 The court concluded
whether the trust's beneficiaries intended to sell their beneficial interests in the trust to
an investor was irrelevant to the insurable interest analysis. 102 However, if the trust

98

D. I. 219, Mercado Aff. at 1111 5, 12-19; D. I. 223, Friedman Aff. (Writing agent for
the policy issued by Principal to Insurance Trust, affidavit in opposition to Principal's
motion) at 1111 6-13; D. I. 224, James Aff., Ex. 4 at 142:11-21; Ex. 5 at 176:2-177:3.
99
D. I. 219, Mercado Aff. at 11115, 12-19; D.l. 220, Strother Aff. at 111113, 18-28;
D.l. 221, Heller Aff. at 1111 6, 14, 18, 21, 27-29; D.l. 223, Friedman Aff. at 1111 6-13.
100
Price Dawe, 28 A. 3d at 1076.
101

/d.

102

/d. at 1077 (18 Del. C.§ 2704(c)(5) provides a trustee has an insurable
interest "without regard to the identity of the trust beneficiaries, whether the trust
beneficiaries would change and the means by which any trust beneficiary acquires a
beneficial interest in the trust").
17

were funded by a third party as part of a pre-negotiated agreement, then the insurable
interest requirement would not be met. 103
1. Creating the Trust
Principal argues Rucker did not create the trust because the Insurance Trust
applied for and became the owner of the Policy and the Policy was delivered to the
Insurance Trust, not to Rucker. 104 In addition, Principal alleges the trust forms were
required by Gill and prepared by an affiliate of Gill, Park Venture. 105 Principal also
claims Christiana Bank and Gill affiliates communicated about Rucker's trust
application and referenced Glll. 106 Insurance Trust maintains Rucker did create the
Insurance Trust because he signed the trust agreement, where he was named as
settlor. 107 Additionally, Rucker provided a $100 check from his own funds to serve as
the initial corpus of the trust, selected Tepper to serve as trust protector and designated
his family as the Insurance Trust's beneficiaries. 108
Principal argues Insurance Trust was not created by Rucker, but for the benefit
of Gill. Principal points to testimony from Frank Sarropochiello ("Sarropochiello") that
he heard the phrase Gill used to describe Park Venture's work in processing trusts. 109
However, Sarropochiello also indicated he was not familiar with Gill, never processed

103

/d. at 1078.
0.1. 239 at 9.
105 /d.
106 /d.
107
0.1. 217 at 27-30.
108
/d. at 28.
109
0.1. 201 at 11; 0.1. 203 Downie Aft., Ex. A at 49:3-11; 0.1. 222, Sarrapochiello
Aft. (held positions in Horizon Life Solutions, Inc. and Park Venture during Rucker's
application process for the Policy, affidavit in opposition to Principal's motion) at 1f8.
104

18

trusts at the request of Gill, nor supervised the sale of beneficial interests to Gll1. 110
Similarly, Insurance Trust disputes the inference that Gill affiliates prepared the trust
forms for Rucker, arguing companies like Park Venture are commonly sought to assist
clients in forming trusts. 111 Moreover, Insurance Trust relies on testimony from Gill that
it never created, funded or knew of an agreement to fund the Rucker Trust in order to
purchase its beneficial interest. 112
Rucker's testimony indicates he did not understand the role of the trusts, or why
he needed to obtain them, which clearly undercuts the contention Rucker created the
trusts. 113 However, Insurance Trust points to Rucker's execution of the trust agreement,
and his selection of beneficiaries and Tepper as trust protector, as facts which illustrate
Rucker met the technical requirements for creating a trust. 114 In sum, whether the trusts
were established by Gill and for its sole benefit, as well as who actually established the
Insurance Trust raises a genuine issue of material fact about which a reasonable jury
could disagree.
2. Funding the Trust

In Price Dawe, the court explained "where the ... insured creates a trust to hold
a life insurance policy on his life and funds the trust with that policy or money to pay its
premiums then the trustee has the same insurable interest that the settlor has in his
own life." 115 Principal argues Rucker did not initially fund the Insurance Trust because

D. I. 222, Sarrapochiello Aff. at~~ 7-8.
D. I. 217 at 29-30.
112
/d. at 24-26.
113
See generally D. I. 202, Gosselin Aff., Ex. A at 65:22-75:22.
114
D.l. 217 at 28.
115
Price Dawe, 28 A.3d at 1078.
110
111

19

the Insurance Trust was funded by the Policy, which was obtained through premium
payments made through Aery, not Rucker's own funds. 11 6 Insurance Trust asserts
Rucker funded the trust with an initial $100 check from his own money, as well as by
putting the Policy in the Insurance Trust and by paying the premiums through a loan
secured from Aery.117
Principal has not met its burden of proving Rucker did not initially fund the
Insurance Trust. Insurance Trust has presented facts, including the initial $100 check
from Rucker, which contradict Principal's position on the funding of the Insurance
Trust. 118 Additionally, evidence has been proffered suggesting Rucker paid the
premiums for the Policy through a loan from Aery. 119 Whether an insured procured a
policy is not limited to paying premiums with his own funds; borrowing money with an
obligation to repay also qualifies. As noted herein, a reasonable jury could find Rucker
procured the Policy himself by paying the premium through a loan from Aery, which
means Rucker provided the initial funding for the trust. Additionally, since Rucker
designated the Insurance Trust as the owner and beneficiary of the Policy, by obtaining
the Policy through a loan from Aery, he also funded the Insurance Trust with the
Policy. 120
Price Dawe stated the requirement to establish a trust "is not satisfied if the trust

is created through nominal funding as a mere formality. If the funding is provided by a

116
117
118
119
120

0.1.
0 .1.
0 .1.
0.1.
/d.

239 at 10.
217 at 28-30.
224, James Aff., Ex. 2 at 69:20-70:25; 0.1. 220, Strother Aff. , Ex. 2.
217 at 7-8,12.

20

third party as part of a pre-negotiated agreement, then the substantive requirements of
sections 2704(a) and 2704(c)(5) are not met." 121 Assuming the $100 check Rucker
used to initially form the trust is an example of nominal funding, the Insurance Trust
maintains that by putting the Policy in the Insurance Trust and agreeing to reimburse
Aery on the loan for the premiums, Rucker's conduct satisfies the requirements in Price
Dawe for funding a trust. 122 Thus, there are disputed issues of material fact whether
Gill or Rucker initially funded the Insurance Trust, which prevent granting judgment in
favor of Principal.
Finally, despite whether Rucker did initially fund the trust, Principal is unable to
demonstrate the funding provided to Rucker was part of a pre-negotiated agreement.
Gill testified it did not create or initially fund the Insurance Trust, nor provide funding to
Rucker prior to the Policy being issued , and had no agreement with Rucker to purchase
the beneficial interest. 123 Similarly, no unrefuted evidence of another third-party investor
providing the funding to Rucker, the Insurance Trust or Aery has been presented .124
Rather, the Insurance Trust points to testimony from Strother, Heller and Friedman that
Gill , Christiana Bank, Park Venture and Joseph Capital did not provide funding to
Rucker or have a prearrangement to buy the beneficial interest in the Insurance
Trust. 125 Therefore, the evidence on which Principal relies is disputed by evidence

121

Price Dawe, 28 A. 3d at 1078.
0.1. 217 at 28-30.
123
0.1. 219, Mercado Aff. at
5, 12-19.
124
0.1. 217 at 29.
125
0.1. 220, Strother Aff.
13, 18-28; 0.1. 221, Heller Aff. at
6, 14, 18, 21,
27-29; 0.1. 223, Friedman Aff. at~~ 6-13; 0 .1. 224, James Aff., Ex. 4 at 142:11-21; Ex.
5 at 176:2-177:3.
122

,m

,m

,m

21

offered by Insurance Trust, thereby creating genuine issues of material fact whether
Rucker procured the Policy, and created and funded the trust, as well as whether Gill
had a prior agreement with Rucker to immediately obtain ownership of the Policy or the
beneficial interest in the Insurance Trust.
V. CONCLUSION

For the reasons herein , Principal's motion for summary judgment is denied as to
Count I insurable interest of the Second Amended Complaint.

22