AEI Life, LLC v. Lincoln Benefit Life Company
JUDGMENT, MEMORANDUM & ORDER granting Plaintiff's 55 Motion for Summary Judgment in the instant action, AEI Life, LLC v. Lincoln Benefit Life Co., No. 14-CV-6449. Policy No. 01N1404934 is enforceable. No costs or disbursements are granted. The case was brought in the interest of improving ethics and open dealing in the insurance industry. Ordered by Judge Jack B. Weinstein on 12/22/2016. (Barrett, C)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
MEMORANDUM & ORDER
AEI LIFE, LLC,
– against –
LINCOLN BENEFIT LIFE COMPANY,
AEI Life, LLC
Eric A. Biderman
Julius A Rousseau
James M. Westerlind
Arent Fox LLP
New York, NY 10019
ALS Capital Ventures, LLC
Treff & Lowy PLLC
342 Bedford Avenue
Brooklyn, NY 11211
William J. O’Mahony
Paneth & O’Mahony PLLC
2329 Nostrand Avenue, Suite M-300
Brooklyn, NY 11210
1704 Avenue M
Brooklyn, NY 11230
Thomas Charles Landrigan
Joshua Adam Scerbo
Cohen, LaBarbera & Landrigan, LLP
40 Mathews Street, Suite 203
Goshen, NY 10924
Ira S. Lipsius
Lipsius-BenHaim Law, LLP
80-02 Kew Gardens Road
Kew Gardens, NY 11415
JRJ Services, Inc.
1704 Avenue M
Brooklyn, NY 11230
Thomas Charles Landrigan
Joshua Adam Scerbo
Cohen, LaBarbera & Landrigan, LLP
40 Mathews Street, Suite 203
Goshen, NY 10924
Katherine Leigh Villanueva
Leslie J. Coletti
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103
Lincoln Benefit Life Company
JACK B. WEINSTEIN, Senior United States District Judge:
Table of Contents
September 23 and September 26, 2016 Evidentiary Hearing
November 22, 2016 Hearing
Choice of Law
Findings of Fact Based on Evidentiary Hearing
Application of Law to Facts
Choice of Law
Equity and Laches
This case challenges the validity of a “stranger-owned life insurance” (“STOLI”) policy
issued by defendant Lincoln Benefit Life Company (“LBL”). LBL commenced a declaratory
judgment action in the federal district court in New Jersey seeking to have two of its life
insurance policies (Policy No. 01N1404844 and Policy No. 01N1404934) declared invalid. That
action was dismissed for lack of personal jurisdiction. The Court of Appeals for the Third
Circuit reversed. The case was then transferred to this court. See 16-CV-2049 (“New Jersey
Action”); Lincoln Benefit Life Co. v. AEI Life, LLC, No. 13-CV-4117 (D.N.J. Apr. 26, 2016).
While the New Jersey Action was on appeal to the Court of Appeals for the Third Circuit,
AEI Life, LLC (“AEI”), as beneficiary of one of the policies (Policy No. 01N1404934) sued on
in the New Jersey Action by LBL, filed an action in the Federal District Court for the Eastern
District of New York. See 14-CV-6449 (“New York Action”). References to fact finding and
law by the court in the instant memorandum and order refer only to the New York Action, 14CV-6449.
The policy was issued in 2008. LBL has been receiving premiums ever since then. If
New York law applies – as this court now holds – its two-year incontestability clause controls,
and the policy is enforceable even if it had been obtained by fraud.
The New York and New Jersey Actions were not consolidated. The New Jersey Action
was stayed pending a resolution of the New York Action. Order, 14-CV-6449, Aug. 4, 2016,
ECF No. 68; Hr’g Tr., Aug. 3, 2016, at 68:12-68:23.
AEI moves for summary judgment in the New York Action on two grounds: (1) LBL is
barred from contesting the validity of the insurance policy under the policy’s incontestability
clause; and (2) LBL has waived its rights to challenge validity – or should be estopped from
challenging validity by laches and general equitable principles.
The case turns on whether New York or New Jersey substantive law applies. New York
life insurance incontestability law rejects an insurer’s defense that after two years a policy was
invalid at its inception. Under New Jersey law, a policy may be challenged at any time after
issuance if fraud was committed in the policy application process.
Since this court sits in New York, in deciding what state substantive law applies the court
looks to New York’s conflicts law. New York applies the choice of law clause in the insurance
contract, unless the contract was fraudulently obtained (as it was here). If there was fraud at the
inception, New York then applies its center of gravity rule in choosing which state law governs.
The policy owned by AEI was fraudulently procured so that the clause in the policy
favoring New Jersey law is not in force. The center of gravity here is as clearly fixed in New
York as is the Empire State Building. New York substantive law therefore applies – and with it,
as a matter of law – its two-year applicable incontestability rule.
The court conducted a full bench trial on the preliminary issues of fraud and contacts
with New York and the state of New Jersey. It concluded: (1) that there was fraud in the
inducement, and (2) that every contact of significance was in New York. The policy is thus
incontestable and enforceable under New York law.
The factual background is detailed in the court’s February 24, 2015 and December 21,
2015 memoranda and orders, both of which addressed and denied motions to transfer venue. See
AEI Life, LLC v. Lincoln Benefit Life Co., 305 F.R.D. 37, 40-42 (E.D.N.Y. 2015); AEI Life, LLC
v. Lincoln Benefit Life Co., No. 14-CV-6449, 2015 WL 9286283, at *1-2 (E.D.N.Y. Dec. 21,
2015). Those memoranda and orders are incorporated as if fully set forth in the present
In 2008 LBL issued a life insurance policy (Policy No. 01N1404934) for over six million
dollars on the life of Gabriela Fischer. The initial owner and beneficiary of the policy was “The
Gabriela Fischer Trust.” The Trust’s initial beneficiary was Ms. Fischer’s son, Irving Fischer.
Shortly before the Trust purchased the policy, one Shlomo Reichnitz wired one million dollars to
be deposited in the Trust’s bank account. AEI Life, 305 F.R.D. at 40. On August 29, 2011, the
insurance policy was sold by the Trust to Progressive Capital Solutions, LLC. Several days later,
AEI, the present owner, purchased the policy, and it has been paying premiums ever since. Id.
LBL contends that the policy was executed in fraud and is unenforceable. AEI, the
current bona fide purchaser-owner of the policy, responds that the policy is enforceable under
New York’s two-year incontestability rule. AEI Life, 305 F.R.D. at 41; Pl.’s Mem. of Law in
Supp. of its Renewed Mot. for Summ. J., 14-CV-6449, June 9, 2016, ECF No. 55-1 (“Pl.’s
Summ. J. Mot.”).
In April 2016, AEI’s first motion for summary judgment was denied with leave to renew.
Order, 14-CV-6449, Apr. 13, 2016, ECF No. 51. Discovery was extended so the parties could
obtain any evidence with respect to the circumstances of issuance. Id.; Hr’g Tr., 14-CV-6449,
Apr. 13, 2016, at 20:20-22:1.
AEI renewed its motion for summary judgment in June 2016. Additional evidence was
submitted, particularly in the form of the deposition of Joel Jacob, the insurance agent who
brokered the policy. See Decl. of Eric A. Biderman in Supp. of Pl.’s Renewed Mot. for Summ. J.
at Ex. 25, 14-CV-6449, June 9, 2016, ECF No. 55-28 (May 10, 2016 Dep. Tr. of Joel Jacob).
AEI’s substantive argument is that the incontestability clause in the insurance policy
prevents LBL from challenging the policy’s validity on the ground that the policy lacks an
insurable interest. Pl.’s Summ. J. Mot. at 16-18. The policy’s incontestability clause reads:
We [LBL] will not contest this certificate after it has been inforce
during the lifetime of the insured for two years from the issue date
unless one of the following exceptions occurs:
1) Any increase in face amount: This contestable period with
respect to the increase amount will be measured during the lifetime
of the insured for two years form the effective date of the increase.
2) Reinstatement of this certificate or any riders: This contestable
period will be measured during the life-time of the insured for two
years following the reinstatement date.
3) An attached rider has a separate incontestability provision.
This contestable period will be measured in accordance with the
incontestability provision provided in the rider.
We may contest this certificate at any time for the failure to make
sufficient payments to cover the monthly deductions required to
keep this certificate and its riders in force.
Decl. of Eric A. Biderman in Supp. of Pl.’s Renewed Mot. for Summ. J. at Ex. 3, 14-CV-6449,
June 9, 2016, ECF No. 55-6, at p. 15 (emphasis added). None of the above exceptions apply.
AEI contends that the court should disregard the choice of law provision in the insurance
contract (which points to New Jersey law) and apply New York law to the dispute. Under New
York law, so long as there was an insurable interest when the policy was created – and even
though fraud permeated its creation – the New York two-year incontestability rule governs. The
fact that it was assigned to a party without an insurable interest does not invalidate it. Pl.’s
Summ. J. Mot. at 16-18.
LBL argues that the New Jersey choice of law clause in the insurance contract should be
enforced because a reasonable relationship between the parties and the transaction to New Jersey
existed. Def. Lincoln Benefit Life Co.’s Response in Opp’n to Pl.’s Renewed Mot. for Summ. J.,
14-CV-6449, June 27, 2016, ECF No. 60 (“Def.’s Opp’n Mem.”), at 11-13.
Should the court disregard the choice of law clause in the insurance contract on the
ground of fraud (as it does), LBL asserts that under the “center of gravity” test used in New
York, New Jersey has the most significant contacts with the policy and its law should apply. Id.
at 13-17. Its main arguments rest on the facts that the signature block of the policy application
indicates that it was signed in Lakewood, New Jersey, that the application was printed on “New
Jersey forms,” and that notices and verifications of coverage indicated they were for policies
under New Jersey law. Def.’s Pre-Hr’g Br. for the Sept. 23, 2016 Evidentiary Hr’g on Choice of
Law, 14-CV-6449, Sept. 16, 2016, ECF No. 84 (“Def.’s Pre-Hr’g Br.”), 2-8.
LBL contends that the insurance policy is void ab initio under both New Jersey and New
York law. Def.’s Opp’n Mem. at 17-33. Under New Jersey law, LBL contends that the policy is
an illegal wagering contract, barred by the state’s constitution, and that it lacked an insurable
interest at inception. With respect to New York law, LBL invokes an exception to the
contestability period for situations where the insured was fraudulently represented by an
imposter, and where an insurable interest was lacking at inception. Id.
C. September 23 and September 26, 2016 Evidentiary Hearing
Following the August 3, 2016 evidentiary hearing, the court determined that an additional
hearing and briefing was necessary to ascertain: (1) fraud, (2) the center of gravity, and (3)
particularly, where the insurance application was signed. See Order, 14-CV-6449, Aug. 8, 2016,
ECF No. 74 (“Aug. 8 Order”). The court is satisfied that no further relevant evidence on
contestability is available.
D. November 22, 2016 Hearing
On November 22, 2016, the court orally summarized the evidence and heard arguments
concerning AEI’s motion for summary judgment. See Lincoln Benefit Life Company’s PostHr’g Br. In Opp’n to Pl.’s Mot. for Summ. J., 14-CV-6449, Oct. 20, 2016, ECF No. 94 (“Def.’s
Post-Hr’g Br.”); Pl.’s Post-Hr’g Br. In Supp. of its Renewed Mot. for Summ. J., 14-CV-6449,
Nov. 3, 2016, ECF No. 97 (“Pl.’s Post-Hr’g Br.”); Amicus Curiae – Post-Hr’g Br. of Innovative
Brokers – Defendant in Civil Action 1:16-CV-02049-JBW-JO, 14-CV-6449, Nov. 3, 2016, ECF
LBL submitted a letter with supplemental authority for its contention that, if the court
were to deem the policy void, it would have the authority through its equitable powers to make
plaintiff whole through a return of premiums paid. See Letter from Jason Gosselin, 14-CV-6449,
Nov. 28, 2016, ECF No. 103, at 1. The court considered authority provided by LBL. See, e.g.,
Sun Life Assurance Co. of Canada v. Wells Fargo Bank, N.A., No. 14-CV-5789 (D.N.J. Sept. 30,
2016). It determines that in the instant case it would be impossible to disentangle equities and
avoid LBL’s laches, given that the policy was issued years ago with premiums being paid and
accepted since then.
A. Summary Judgment
Summary judgment is appropriate when the movant shows that there is “no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(a). “When ruling on a summary judgment motion, the district court must construe
the facts in the light most favorable to the non-moving party, resolving all ambiguities and
drawing all reasonable inferences against the movant.” Hernandez v. Int’l Shoppes, LLC, 100 F.
Supp. 3d 232, 247 (E.D.N.Y. 2015), appeal dismissed (June 18, 2015). The substantive law
governing the case will identify those facts that are material, and “[o]nly disputes over facts that
might affect the outcome of the suit under the governing law will properly preclude the entry of
summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
No genuinely triable factual issue exists “if, on the basis of all the pleadings, affidavits
and other papers on file, and after drawing all inferences and resolving all ambiguities in favor of
the non-movant, it appears that the evidence supporting the non-movant’s case is so scant that a
rational jury could not find in its favor.” Chertkova v. Conn. Gen. Life Ins. Co., 92 F.3d 81, 86
(2d Cir. 1996). If the movant meets this burden, the non-moving party must provide “specific
facts showing that there is a genuine issue for trial.” Anderson, 477 U.S. at 250 (internal
quotation marks and citation omitted).
B. Choice of Law
In a diversity action, a federal court applies the conflict of law rules of the state in which
it sits. OneWest Bank, FSB v. Joam LLC, No. 10-CV-1063, 2012 WL 195013, at *5 (E.D.N.Y.
Jan. 23, 2012); Schwartz v. Liberty Mut. Ins. Co., 539 F.3d 135, 147 (2d Cir. 2008); Klaxon Co.
v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941).
Under New York conflict of law, a choice of law provision in the parties’ contract is
“entitled to a presumption of enforceability.” Dukes Bridge LLC v. Sec. Life of Denver Ins. Co.,
No. 10-CV-5491, 2015 WL 3755945, at *4 (E.D.N.Y. June 16, 2015) (quoting Aguas Lenders
Grp. v. Suez, S.A., 585 F.3d 696, 800 (2d Cir. 2009)); see also Granite Ridge Energy, LLC v.
Allianz Global Risk U.S. Ins. Co., 979 F. Supp. 2d 385, 391 (S.D.N.Y. 2013) (“New York law
provides that, ‘[a]s a general matter, the parties’ manifested intentions to have an agreement
governed by the law of a particular jurisdiction are honored.’” (quoting Freedman v. Chem.
Constr. Corp., 372 N.E.2d 12, 15 (N.Y. 1977))).
This presumption is rebutted when it is shown that the provision or the contract as a
whole was procured through fraud, violates public policy, or the selected forum has insufficient
contacts with the dispute. Hartford Fire Ins. Co. v. Orient Overseas Containers Lines (UK) Ltd.,
230 F.3d 549, 556 (2d Cir. 2000); Opulen Ventures, Inc. v. Axcessa, LLC, No. 12-CV-01776,
2013 WL 829230, at *1 (E.D.N.Y. Jan. 22, 2013) (citing Fieger v. Pitney Bowes Credit Corp.,
251 F.3d 386, 393 (2d Cir. 2001)), report and recommendation adopted, No. 12-CV-1776, 2013
WL 828922 (E.D.N.Y. Mar. 6, 2013); Benefitvision Inc. v. Gentiva Health Servs., Inc., No. 09CV-0473, 2011 WL 888280, at *5 (E.D.N.Y. Mar. 14, 2011) (“New York law is clear that absent
fraud or violation of public policy, contractual selection of governing law is generally
determinative so long as the State selected has sufficient contacts with the transaction.” (internal
quotation marks and citation omitted)).
If the contractual choice of law clause is disregarded (as it must be here because of fraud
in the inducement), New York compels the court to “determine whether there is an actual
conflict between the laws of the jurisdictions involved.” 2004 Stuart Moldaw Trust v. XE
L.I.F.E., LLC, 374 F. App’x 78, 80 (2d Cir. 2010). When a conflict does exist in a case
involving a contract, including one involving a life insurance policy, “New York courts apply a
‘grouping of contacts’ analysis . . . to determine which to apply.” Id. at 81. This process is
known as a “center of gravity” analysis. Matter of Allstate Ins. Co. (Stolarz – New Jersey Mfrs.
Ins. Co.), 613 N.E.2d 936, 939 (1993). “This approach requires application of the law of the
jurisdiction with the most significant interest in, or relationship to, the dispute.” Bank of New
York v. Yugoimport, 745 F.3d 599, 609 (2d Cir. 2014). “Under this approach, courts may
consider a spectrum of significant contacts, including the place of contracting, the places of
negotiation and performance, the location of the subject matter, and the domicile or place of
business of the contracting parties.” Brink’s Ltd. v. S. African Airways, 93 F.3d 1022, 1030-31
(2d Cir. 1996); see also Restatement (Second) of Conflict of Laws § 188 (1971).
C. Findings of Fact Based on Evidentiary Hearing
Determining whether a choice of law clause is enforceable – or, if a conflict of laws
exists, where is the center of gravity in the dispute – requires factual findings to be made by the
court, applying a preponderance of the evidence standard. See Toll v. Tannenbaum, 982 F. Supp.
2d 541, 551-52 (E.D. Pa. 2013) (adopting the holdings of the Fifth and Seventh Circuits that it is
for the court to make factual findings necessary to a choice of law determination using a
preponderance of the evidence standard), aff’d, 596 F. App’x 108 (3d Cir. 2014); Coltec Indus.
Inc. v. Zurich Ins. Co., No. 99-CV-1087, 2004 WL 413304, at *4 (N.D. Ill. Jan. 30, 2004) (“The
court, not the jury, is responsible for making any factual determinations necessary to resolve the
choice-of-law issue based on a preponderance of the evidence standard.” (citing Chance v. E.I.
du Pont De Nemours & Co., 57 F.R.D. 165, 171 (E.D.N.Y. 1972))); Nunez v. Hunter Fan Co.,
920 F. Supp. 716, 717-18 (S.D. Tex. 1996) (“Because choice-of-law is the dispositive issue, the
summary judgment standard with regard to disputed facts does not apply. Instead, the facts on
which choice-of-law depends are properly determined by the [district] Court after considering
the affidavits, depositions, and other matters submitted by the parties.” (footnote omitted)).
D. Incontestability Clauses
1. New York Law
New York law requires all life insurance policies to contain a two-year incontestability
[T]hat the policy shall be incontestable after being in force during
the life of the insured for a period of two years from its date of
issue, and that, if a policy provides that the death benefit provided
by the policy may be increased, or other policy provisions
changed, upon the application of the policyholder and the
production of evidence of insurability, the policy with respect to
each such increase or change shall be incontestable after two years
from the effective date of such increase or change, except in each
case for nonpayment of premiums or violation of policy conditions
relating to service in the armed forces.
N.Y. INS. LAW § 3203(a)(3) (McKinney 2013) (emphasis added).
“An incontestability clause renders void any defense that the life insurance policy was
invalid at its inception.” Ganelina v. Pub. Adm’r, New York Cty., 963 N.Y.S.2d 545, 548 (N.Y.
Sup. Ct. 2013) (citing Berkshire Life Ins. Co. v. Weinig, 47 N.E.2d 418 (1943)). If the policy
does not contain an enforceable incontestability clause, New York law, this court holds, will
imply one. “The statute does not provide for exceptions for claims of fraud or lack of an
insurable interest.” Principal Life Ins. Co. v. Erno Altman Ins. Trust, No. 10-CV-1936, 2011
WL 7498936, at *3 (E.D.N.Y. Sept. 20, 2011) (emphasis added), report and recommendation
adopted, No. 10-CV-1936, 2012 WL 869303 (E.D.N.Y. Mar. 13, 2012). “[F]raudulent
misrepresentations, fraud in the procurement, and fraud in the making of the contract have been
held barred as defenses after the expiration of the period of contestability.” 69 N.Y. JUR. 2D INS.
§ 1470 (emphasis added). See also Halberstam v. United Stated Life Ins. Co. in City of N.Y., 945
N.Y.S.2d 513, 517 (N.Y. Sup. Ct. 2012) (“The legislature specifically permitted insurers to
include exceptions to the incontestability clause for fraud in disability and health insurance
policies, (New York Insurance Law section 3216), but did not provide for such an exception for
life insurance policies. (New York Insurance law section 3203(a)(3).”).
That a policy governed by New York substantive law cannot be voided for fraud or lack
of insurable interest once the two-year contestability period has expired is grounded in statute
and public policy. “A failure to enforce the incontestability rule now would result in a forfeiture
to [the policy owner] . . . and an unnecessary advantage to [the insurer] by enabling it to avoid a
claim it previously accepted.” New England Mut. Life Ins. Co. v. Caruso, 535 N.E.2d 270, 27475 (N.Y. 1989). The New York Court of Appeals explained that “[t]his inequity may be
avoided, and the public purpose underlying the insurable interest requirement implemented, by a
rule which encourages the insurer to investigate the insurable interest of its policyholders
promptly within the two-year period. Such investigations would not only eliminate ‘wagering’
contracts but would do so promptly.” Id. at 275 (barring an insurer from challenging a life
insurance policy after the two-year contestability period had passed).
In New York, allegations of forgeries on application forms can survive an incontestability
clause because the benefits of an incontestability clause inure to the contractually insured and his
or her beneficiaries, not to a stranger to the contract. Am. Mayflower Life Ins. Co. of New York v.
Moskowitz, 794 N.Y.S.2d 32, 35-36 (N.Y. App. Div. 2005). An entity or person deriving an
interest in a policy from the trust instrument is not a stranger to the contract, even if there is an
allegation of forgery on the insured’s application. Berkshire Settlements, Inc. v. Ashkenazi, No.
09-CV-0006, 2011 WL 5974633, at *4 (E.D.N.Y. Nov. 29, 2011) (“Plaintiffs derive their interest
from the Trust, which was the undisputed purchaser, owner and beneficiary of the policy. As
such, it is not a complete stranger to the policy, even if [the insured] did not consent to its
purchase. Moskowitz, therefore, is not apposite.” (emphasis in original)).
Under New York law it is permissible to transfer a life insurance policy to a person
without an insurable interest. Kramer v. Phoenix Life Ins. Co., 940 N.E.2d 535, 536-37 (N.Y.
2010) (“New York law permits a person to procure an insurance policy on his or her own life and
immediately transfer it to one without an insurable interest in that life, even where the policy was
obtained for just such a purpose.”).
2. New Jersey Law
New Jersey law also requires that all life insurance policies include a two-year
[A] provision that the policy (exclusive of provisions of the policy
or any contract supplemental thereto relating to disability benefits
or to additional benefits in event of death by accident or accidental
means or in event of dismemberment or loss of sight) shall be
incontestable, except for nonpayment of premiums, after it has
been in force during the lifetime of the insured for a period of 2
years from its date of issue.
N.J. STAT. ANN. § 17B:25-4 (West 1972). “Statutorily mandated incontestability clauses are
generally construed as statute of limitations that, upon expiration, preclude all coverage defenses,
including fraud.” Mitchell v. Banner Life Ins. Co., No. 08-CV-5984, 2011 WL 5878378, at *4
(D.N.J. Nov. 22, 2011) (internal quotation marks and citations omitted).
But unlike New York law, notwithstanding an incontestability clause in the insurance
contract, under New Jersey law “an insurer may deny a claim if the insured committed fraud in
the policy application.” Ledley v. William Penn Life Ins. Co., 651 A.2d 92, 95 (N.J. 1995)
(emphasis added); Lincoln Nat. Life Ins. Co. v. Calhoun, 596 F. Supp. 2d 882, 887 (D.N.J. 2009)
(“A life insurance policy may be rescinded or voided where an applicant makes a
misrepresentation on a policy application that is material.”). “Insureds begin to run afoul of the
insurable interest requirement . . . when they intend at the time of the policy’s issuance, to profit
by transferring the policy to a stranger with no insurable interest at the expiration of the
contestability period.” Calhoun, 596 F. Supp. 2d at 889. This is a critical difference between
New York and New Jersey law.
Application of Law to Facts
A. Choice of Law
Under the law of conflicts, the insurance policy’s choice of law provision should be
enforced unless there is a showing of fraud, the clause violates public policy, or the selected
forum does not have sufficient contacts with the dispute. Hartford Fire Ins. Co., 230 F.3d at
556. Enforceability of a choice of law provision is a matter of law for the court to resolve. See
Chance, 57 F.R.D. at 168-70.
1. Findings of Fact Based on Evidentiary Hearing
For the purposes of resolving the conflict of law analysis, the court finds by a
preponderance of the evidence – based on the parties’ pre-hearing briefs, post-hearing briefs, and
the testimony in depositions and elicited at the evidentiary hearing on September 23 and
September 26, 2016 – that the insurance policy on Ms. Fischer’s life, now owned by AEI, was
fraudulently obtained. The place of execution was misstated as were the assets of the insured.
Ms. Fischer stated during her testimony that she was unaware that there was an insurance
policy of more than $6 million on her life. Hr’g Tr., 14-CV-6449, Sept. 23, 2016, ECF No. 88
(“Sept. 23 Hr’g Tr.”), at 36:22-37:8. She said that she did not recall signing the policy or
meeting with Mr. Jacob, the insurance agent. Id. at 35:2-4. She admitted that she did not have
sufficient funds to pay the minimum initial payments or the planned annual payments to keep the
policy in force. Id. at 37:3-39:8; Def.’s Ex. 1, 14-CV-6449, Sept. 21, 2016, ECF No. 87-1.
When reviewing the policy, Ms. Fischer stated that she “never saw this document” and when
asked to look at the signature of the primary proposed insured to determine if she actually signed
that document, she stated, “I did not.” Sept. 23 Hr’g Tr. at 44:24-45:6. She further testified that
she neither had an earned annual income of $1.5 million nor an estimated net worth of $87
million, as certified in the financial statement appended to the policy. Id. at 41:18-44:14; Def.’s
Ex. 2, 14-CV-6449, Sept. 21, 2016, ECF No. 87-2.
Ms. Fischer’s son, Mr. Fischer, testified that he had arranged for the life insurance policy
with his mother and Mr. Jacob, the insurance agent. Sept. 23 Hr’g Tr. at 54:3-55:7. He recalled
signing documents in connection with the insurance contract, but did not remember signing the
policy application specifically. Id. at 57:14-59:12, 140:20-141:2. He was unable to recall details
about speaking with his mother with respect to the insurance policy, but was “sure [he] did
discuss with her that she should . . . meet with Mr. Jacob to buy insurance.” Id. at 79:25-81:11.
He did not recall being present when, or if, Ms. Fischer signed the policy application. Id. at
Regarding the financing of the policy, Mr. Fischer testified that Mr. Jacob helped him
arrange and set up the Trust instrument, but that he never read the documents Mr. Jacob asked
him to sign. Id. at 70:6-25, 73:11-18. Mr. Fischer did not know who paid the premiums on his
mother’s insurance. Id. at 83:23-84:10. When reviewing a check issued by the Trust and a bank
statement associated with the Trust, Mr. Fischer neither recalled writing any checks from the
trust to pay premiums nor granting anyone else authority to do so. But he admitted that it was
possible that he gave Mr. Jacob the checkbook and signed checks that Mr. Jacob issued. When
asked why one million dollars was wired into the Trust account and where that money
originated, he stated that he “couldn’t care less” that money was wired into and out of the
account to pay for the premiums, since “[i]t wasn’t [his] money.” Id. at 90:7-98:6; Def.’s Ex. 6,
14-CV-6449, Sept. 21, 2016, ECF No. 87-6; Def.’s Ex. 7, 14-CV-6449, Sept. 21, 2016, ECF No.
87-7. Finally, Mr. Fischer admitted that he received $50,000 from Mr. Jacob for acting as a
middleman in the sale of the life insurance policy, and that he did not share this payment with his
mother. Sept. 23 Hr’g Tr. at 109:18-111:6, 114:8-114:12.
Mr. Jacob, the insurance agent, testified that he sold Ms. Fischer three large life insurance
policies. He indicated that he did not know whether she needed these policies, but that it was his
job to sell as much insurance as possible. Id. at 212:19-213:18. Like Mr. Fischer, he did not
know who wired one million dollars into the Trust bank account to cover policy premiums. Id.
at 215:8-14. He admitted to receiving a commission of roughly $100,000 and giving $50,000 of
this commission to Mr. Fischer despite knowing that he was not permitted to share the
commission with a client. Id. at 226:15-228:19, 261:2-16. He also admitted that he reached out
to a contact who sells insurance policies in the secondary market before Ms. Fischer’s policy was
issued, and that it was his general practice to do so when he knew that clients would be unable to
cover the premiums themselves. Id. at 252:13-254:12.
All three witnesses – mother, son, and broker – lied. For whatever reason, they would
not admit that they remembered any details of the issuance of this policy (a large one for people
in their economic position); they were afraid to admit their knowledge because they feared they
might have to pay a penalty or, in the case of the son and the agent, disgorge a large profit. The
witnesses’ testimony and lies support a finding that the policy was fraudulently obtained.
Ms. Fischer and Mr. Fischer’s testimony was evasive and was not veracious. Both
denied having known the value of the policy or having provided false financial information to
apply for the policy. It is obvious that the financial statement accompanying Ms. Fischer’s
application was false and vastly overstated her net worth. Id. at 44:6. It has been established
that Mr. Fischer received a sizeable payment for introducing his mother to the insurance agent,
even though the agent – who received a large commission for the sale – was not permitted to
share his commission. That none of the witnesses said they knew where the one million dollars
wired into the Trust originated and who paid the premiums on the policy supports a finding that
the policy was issued fraudulently.
Because of the extensive fraud in the inducement, the choice of law clause contained in
the policy is not operative. Benefitvision Inc., 2011 WL 888280, at *5.
b. Center of Gravity
New York choice of law rules apply. Forest Park Pictures v. Universal Television
Network, Inc., 683 F.3d 424, 433 (2d Cir. 2012). A conflict in law exists; the law on exceptions
to incontestability clauses in life insurance contracts is different in New York and New Jersey.
Compare Ganelina, 963 N.Y.S.2d 545 at 548 (under New York law, “[a]n incontestability clause
renders void any defense that the life insurance policy was invalid at its inception” (emphasis
added)), and Principal Life Ins. Co., 2011 WL 7498936, at *3 (“The [New York] statute does not
provide for exceptions for claims of fraud or lack of an insurable interest.” (emphasis added)),
with Ledley, 651 A.2d at 95 (under New Jersey law, “an insurer may deny a claim if the insured
committed fraud in the policy application” (emphasis added)), and Lincoln Nat. Life Ins. Co.,
596 F. Supp. 2d at 887 (under New Jersey law, “[a] life insurance policy may be rescinded or
voided where an applicant makes a misrepresentation on a policy application that is material”
(emphasis added)). See also Aug. 8 Order.
A court applying New York conflicts law will, as already noted, apply the “center of
gravity” test to determine which state has the most significant interest in the dispute. Matter of
Allstate Ins. Co. (Stolarz – New Jersey Mfrs. Ins. Co.), 613 N.E.2d at 939; Bank of New York v.
Yugoimport, 745 F.3d 599, 609 (2d Cir. 2014).
Ms. Fischer testified that she lives in Brooklyn, has lived there for about 60 years, and
never traveled to Lakewood, New Jersey. Sept. 23 Hr’g Tr. at 27:11-28:13, 30:18-32:16. This
testimony is consistent with her lifestyle and is true.
Mr. Fischer testified that he lives in Monsey, New York, and has lived there for about 30
years. Id. at 52:2-5. He acted as a middleman between his mother and Mr. Jacob, and met with
Mr. Jacob at his home in New York on several occasions in order to discuss the sale of an
insurance policy on his mother’s life. Id. at 54:3-55:7. He did not sign any documents in
Lakewood, New Jersey, and did not recall ever meeting Mr. Jacob there. Id. at 60:1-61:5, 138:812. The Trust, which paid premiums on the policy, was formed by Mr. Fischer in New York. Id.
at 70:6-71:17. He testified that all documents he signed relating to the policy were signed in
New York. Id. at 143:18-144:7. This testimony is true.
Joseph Bergman, an employee of Innovative Brokers, testified that his company is a New
York-based general insurance agency that assisted Mr. Jacob in placing Ms. Fischer’s life
insurance policy with LBL. Id. at 155:10-19. The general agency submitted Ms. Fischer’s
policy documents to LBL from its office in Brooklyn, New York. Id. at 195:11-196:8. This
testimony is true.
Mr. Jacob confirmed that when he sold Ms. Fischer the life insurance policy, he met with
her in Brooklyn. Id. at 207:18-24. He did not deliver the policy to Ms. Fischer in New Jersey,
and he himself signed the policy application in New York. Id. at 220:2-16, 243:2-7; Pl.’s Ex. 1,
14-CV-6449, Sept. 16, 2016, ECF No. 83-1. LBL stipulated during the evidentiary hearing that
Mr. Jacob conducted all activities relating to the policy in New York. Mr. Jacob confirmed these
facts. Sept. 23 Hr’g Tr. at 269:17-270:19. This testimony and stipulation is true.
The policy was negotiated, contracted, signed, and issued in New York to individuals
residing in New York. Brink’s Ltd., 93 F.3d at 1030-31. The broker and general agency who
sold the policy were located in New York, and the Trust was executed and operative in New
York. Transfers of the Trust’s funds were made through a New York bank account. Neither the
insured nor her son traveled to New Jersey to sign the application; plaintiff produced no
believable evidence to prove that the policy was signed outside of New York. References to
New Jersey law in subsequently issued documents and a reference to Lakewood, New Jersey in
the policy application’s signature block – which none of the witnesses recall filling in – are false
and will not support a finding that the center of gravity is in New Jersey. Sept. 23 Hr’g Tr.,
2. Conclusion on Choice of Law
Because the choice of law provision in the insurance contract is invalid (based on fraud),
and the center of gravity is in New York, the law of New York is operative on the substantive
issues in dispute.
B. Incontestability Clause
Under New York law, allegations of fraud in the procurement of the policy do not enable
an insurer to circumvent the two-year incontestability rule. Ganelina, 963 N.Y.S.2d at 548;
Principal Life Ins. Co., 2011 WL 7498936, at *3. Though LBL proved that the policy was
fraudulently obtained, the expiration of the two-year incontestability clause of the policy bars
any challenge now.
Not even LBL’s allegations of forgery in the application forms are sufficient to
circumvent the incontestability. As in Berkshire Settlements, plaintiff AEI derives its interest in
the policy from the Trust set up by Mr. Fischer, not the insured herself. AEI is not a “complete
stranger” to the policy; allegations of forgery do not void the incontestability clause. Berkshire
Settlements, Inc., 2011 WL 5974633, at *4 (distinguishing Moskowitz, 794 N.Y.S.2d at 35-36).
LBL argues that public policy considerations should bar enforcement of the life insurance
contract. Def.’s Post-Hr’g Br. at 14-18. The case on which it relies to support that argument
barred the insurer from asserting invalidity of the policy when the statutory two-year
contestability period expired before the insured died. Caruso, 535 N.E.2d at 271. The Caruso
court noted that “balancing of the policy considerations” should be taken into consideration
when determining the enforceability of a life insurance policy, but it concluded that it did not
find “anything in the public policy of this State which militates against enforcement of the
incontestability clause in these circumstances.” Id. at 273-74.
Another case on which LBL relies, New England Mut. Life Ins. Co. v. Doe, is also
inapposite. An insurer was barred from disclaiming coverage for a claim made more than two
years after issuance of a disability policy where the insurer had purposely chosen not to include a
fraud exception in the policy’s incontestability clause. New England Mut. Life Ins. Co. v. Doe,
710 N.E.2d 1060, 1063-64 (N.Y. 1999). The court acknowledged that “a far more difficult case
would be presented” had the policy at issue been one for life insurance, because New York law
permits disability insurers, but not life insurers, to include a fraud exception in a policy’s
incontestability clause. Id. at 1064.
Neither Caruso nor Doe is applicable in the instant matter. Dicta suggesting that public
policy could bar enforcement or that a court considering disability insurance might rule
differently if life insurance were at issue, are inapplicable. Insurance law is heavily controlled
by the state. If there were any area in which a federal court would be reluctant to challenge
existing state substantive law or policy, it would be in the area of insurance. See Hr’g Tr., Nov.
The court need not reach LBL’s argument that the life insurance policy cannot be
enforced because Ms. Fischer failed to consent to obtaining it. See Def.’s Post-Hr’g Br. at 3-11.
Under New York law, questions about an insured’s consent to an application for, or issuance of,
a life insurance policy are subject to the incontestability clause and cannot be challenged
following the two-year contestability period. Berkshire Settlements, Inc., 2011 WL 5974633 at
*5 (relying on Caruso to conclude that “[t]he Court can think of no reason why the insured
consent provision would receive a different treatment” than the insured interest provision, and
holding that the incontestability clause prevented challenge to the policy); Halberstam, 945
N.Y.S.2d at 517 (relying on Berkshire Settlements, Inc. to conclude that the expiration of a life
insurance policy’s two-year contestability period prevented insurer from challenging its
enforceability on the basis that insured lacked consent).
LBL’s argument that the policy is void because the Trust was improperly constituted
fails. See Def.’s Post-Hr’g Br. at 11-14. LBL has not advanced any substantial evidence in
support of this argument. LBL did not offer any evidence that the witnesses to the documents
that formed the Trust acted fraudulently. See Sept. 23 Hr’g Tr. The facts surrounding creation
of the policy remain shrouded in mystery. LBL concedes in its brief that the fact that the Trust
documents were notarized creates a presumption that the signatures are authentic. Def.’s PostHr’g Br. at 13 n.9. That presumption may only be rebutted by clear and convincing evidence,
which has not been provided. Orix Fin. Servs., Inc. v. Thunder Ridge Energy, Inc., No. 01-CV4788, 2008 WL 953994, at *5 (S.D.N.Y. Apr. 8, 2008); Orix Fin. Servs., Inc. v. Roth, No. 06CV-2069, 2006 WL 587483, at *18 (S.D.N.Y. Mar. 8, 2016); Chianese v. Meier, 729 N.Y.S.2d
460, 466 (N.Y. App. Div. 2001), aff’d as modified and remanded, 774 N.E.2d 722 (N.Y. 2002);
Spilky v. Bernard H. La Lone Jr., P.C., 641 N.Y.S.2d 916, 917-18 (N.Y. App. Div. 1996).
Equity and Laches
LBL waited more than two years from the inception of the life insurance policy to contest
its validity. AEI was a bona fide purchaser for value of the life insurance policy; it relied upon
LBL’s failure to challenge the policy earlier – when witnesses might have been able to explain
its genesis. New York’s incontestability rule renders the policy enforceable.
The equities favor enforcement of the policy (Policy No. 01N1404934) in this case. The
fact that plaintiff has been making premium payments in good faith for approximately five years
supports a decision that New York law rendered the policy incontestable after two years.
Defendant, the issuer, was taking full economic benefit of the policy and could have made an
earlier investigation into its validity. Laches as well as equity favors AEI.
The motion of plaintiff for summary judgment in the instant action, AEI Life, LLC v.
Lincoln Benefit Life Co., No. 14-CV-6449, is granted. Policy No. 01N1404934 is enforceable.
No costs or disbursements are granted. The case was brought in the interest of improving
ethics and open dealing in the insurance industry.
) ~ 4--
Jack B. Weinstein
Senior United States District Judge
Brooklyn, New York
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