Sun Life Assurance Company of Canada v. Conestoga Trust Services, LLC (PLR1)

Filing 111

MEMORANDUM OPINION in support of the following Judgment. Signed by District Judge Pamela L. Reeves on 7/12/17. (ADA)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE

SUN LIFE ASSURANCE COMPANY OF
CANADA,
Plaintiff,
v.
CONESTOGA TRUST SERVICES, LLC,
As Trustee of Conestoga Settlement Trust,
Defendant.

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No.: 3:14-cv-00539
REEVES/GUYTON

MEMORANDUM OPINION

This case concerns a life insurance policy issued by Sun Life Assurance Company
of Canada on the life of Erwin Collins. Sun Life filed this action seeking a declaration that
the policy is void due to having been procured as a wagering contract on the life of Collins.
Sun Life contends the policy is a “stranger originated life insurance (STOLI)” policy,
wherein investors utilized Collins’ life as a conduit to procure the policy, wager on his life,
and profit from his death. Therefore, Sun Life argues Conestoga has no right to recover
proceeds from the life insurance policy because the policy is void ab initio.
Defendant, Conestoga Trust Services, LLC, is the sixth assignee of the ownership
rights in the policy. Conestoga responds there is no evidence that “stranger investors”
procured the policy, and it is permissible to take out a life insurance policy with the hope
of trying to sell the policy on the secondary market. In the event the court declares the Sun

Life policy void, Conestoga asserts Sun Life must return to Conestoga the premiums paid
to Sun Life.
For the reasons that follow, the court finds there was a pre-existing agreement for
Erwin Collins to obtain the policy and transfer it to a stranger investor. Therefore, the
policy constitutes a STOLI scheme, and under Tennessee law, it violates public policy and
is void ab initio. As a result, Sun Life does not have to pay the death benefit to Conestoga.
However, Sun Life must refund the premiums to Conestoga so that Sun Life does not obtain
a windfall.
Prior to discussing the motions for summary judgment, the court will address
Conestoga’s motion to amend and Sun Life’s motion to strike.
I. Motion to Amend
Conestoga moves to amend its answer and counter-complaint to include an
alternative claim for bad faith under Tennessee law, and an alternative claim for return of
premiums paid by Conestoga to Sun Life [R. 71]. Sun Life opposes the motion as untimely,
futile, and delaying the proceedings [R. 82].
Pursuant to Federal Rule of Civil Procedure 15(a)(2), a party may amend its
pleading only with the opposing party’s written consent or the court’s leave. Although the
decision to permit amendment of pleadings is committed to the discretion of the court, the
court’s discretion is limited by Rule 15(a)’s liberal policy of permitting amendments to
ensure the determination of claims on their merits. Marks v. Shell Oil Co., 830 F.2d 68, 69
(6th Cir. 1987).

Because Rule 15(a) envisions liberal allowance of amendments to

pleadings, there must be some substantial reason justifying denial of the motion. Smith v.
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Garden Way, Inc., 821 F.Supp. 1486, 1488 n. 2 (N.D.Ga. 1993). In evaluating the interests
of justice, courts typically consider whether the amendment is brought in bad faith or for
dilatory purposes, would result in undue delay or prejudice to the opposing party, or would
be futile. Graham v. Luttrell, 191 F.3d 452 (6th Cir. 1999).
Here, Conestoga’s motion to amend is timely under the court’s order extending the
trial date and all associated pretrial deadlines. See R. 37. Further, the court finds the
proposed amendments will cause Sun Life no prejudice or delay because the parties’
summary judgment filings already address the claims for bad faith penalty and for return
of premiums.

Accordingly, in the interests of justice and pursuant to Rule 15(a),

Conestoga’s motion to file an amended answer and counter-complaint [R. 71] is
GRANTED.
II. Motion to Strike
Following the close of briefing on the parties’ cross-motions for summary judgment,
Sun Life filed a notice of supplemental authority to apprise the court of a development in
one of the cases cited in Sun Life’s brief [R. 107]. Conestoga filed its own notice of
supplemental authority that included argument regarding the relevance of Sun Life’s
supplemental authority and Conestoga’s supplemental authority [R. 108]. Sun Life, in turn,
filed a motion to strike Conestoga’s notice of supplemental authority on the grounds
Conestoga was attempting to expand on its previous arguments [R. 109]. Conestoga filed
a response to Sun Life’s motion to strike arguing that Conestoga merely responded to Sun
Life’s characterization of the supplemental authority [R. 110].

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The court appreciates the parties providing notice of supplemental authority decided
since the close of briefing. However, the court will decide for itself whether the cited
authority is relevant to the issues in this case. Accordingly, the court finds no merit to Sun
Life’s motion to strike [R. 109], and the motion is DENIED.
The court will now address the parties’ motions for summary judgment.
III. Motions for Summary Judgment
A. Standard of Review
Summary judgment under Rule 56 of the Federal Rules of Civil Procedure is proper
“if 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). The moving party bears
the burden of establishing that no genuine issues of material fact exist. Celotex Corp. v.
Cattrett, 477 U.S. 317, 330 n. 2 (1986); Moore v. Philip Morris Co., Inc., 8 F.3d 335, 339
(6th Cir. 1993). All facts and inferences to be drawn therefrom must be viewed in the light
most favorable to the nonmoving party. Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986); Burchett v. Keifer, 301 F.3d 937, 942 (6th Cir. 2002).
Once the moving party presents evidence sufficient to support a motion under Rule
56, the nonmoving party is not entitled to a trial merely on the basis of allegations. Celotex,
477 U.S. at 317. To establish a genuine issue as to the existence of a particular element,
the nonmoving party must point to evidence in the record upon which a reasonable finder
of fact could find in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
The genuine issue must also be material; that is, it must involve facts that might affect the
outcome of the suit under the governing law. Id.
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The Court’s function at the point of summary judgment is limited to determining
whether sufficient evidence has been presented to make the issue of fact a proper question
for the factfinder. Id. at 250. The Court does not weigh the evidence or determine the truth
of the matter. Id. at 249. Nor does the Court search the record “to establish that it is bereft
of a genuine issue of fact.” Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479 (6th Cir.
1989). Thus, “the inquiry performed is the threshold inquiry of determining whether there
is a need for a trial – whether, in other words, there are any genuine factual issues that
properly can be resolved only by a finder of fact because they may reasonably be resolved
in favor of either party.” Anderson, 477 U.S. at 250.
B. Background
Eugene Houchins1 was an insurance broker who sold life insurance policies.
Houchins was also President of Bonded Life Company, an entity he used to procure life
insurance policies. Houchins approached Robert and Nicole Coppock asking whether the
Coppocks were interested in earning fees by referring persons to him for a program where
they would earn money through life insurance policies taken out on the lives of elderly
persons. Under a written agreement, Mr. Coppock was retained as Bonded Life’s agent.
Pursuant to this agreement, Bonded Life paid the Coppocks a referral fee of 20% of the
first year premium on any completed transaction. As part of this arrangement, the
Coppocks referred Erwin Collins to Houchins.

1

At his deposition in this case, Houchins declined to answer questions, asserting a Fifth Amendment right to do so.
Facts regarding Houchins’ actions in this matter have been taken from the record and testimony of other
parties/witnesses.

5

Houchins worked with David Wolff, whose business (Iron Core Capital) brokered
the acquisition of beneficial interests in life insurance policies on behalf of Life Asset. Life
Asset would acquire a beneficial interest in exchange for payment of a percentage of the
face amount of the policy and reimbursement of any premiums paid on the policy before
acquisition. When an acquisition closed, Houchins compensated Wolff for his services by
paying him a portion of the insurance commissions received.
On September 25, 2007, Houchins submitted an informal inquiry to Sun Life to
determine if Erwin Collins was healthy enough to qualify for a Sun Life policy. On
October 4, 2007, Sun Life responded with a tentative offer for a policy on Collins’ life,
subject to submission of a formal application and full underwriting.
On November 1, 2007, Houchins wrote Wolff and provided information necessary
for Life Asset to evaluate the prospective policy, including Collins’ age and estimated life
expectancy. Wolff testified that a life expectancy projection would allow the Fund to make
a valuation of the policy.
On November 5, 2007, a formal application for a Sun Life policy was signed in
Knoxville, Tennessee by Collins’ wife, as trustee of the Erwin A. Collins Irrevocable Life
Insurance Trust. The trust named Mr. Collins as the grantor; Mrs. Collins as the trustee;
and listed their address in Knoxville, Tennessee. Between January 31 and February 8,
2008, the application and supporting documentation were submitted to Sun Life.
On February 26 or 27, 2008, Life Asset informed Wolff that it would not acquire a
beneficial interest in a policy on Collins’ life because the transaction was connected to
Tennessee. Tennessee was one of a number of states where Life Asset would not conduct
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business. Houchins then had a different trust, with a Georgia address, reapply for a policy
with Sun Life. The new application, which was dated March 31, 2008, was purportedly
signed in Tucker, Georgia by Erwin Collins as the insured, Ms. Gordillo (friend of
Houchins) as trustee of the trust, and Houchins’ father as the broker/registered
representative. Houchins controlled the Georgia trust with his friend Gordillo as trustee,
as the policy applicant, and proposed owner. Houchins removed any references to
Tennessee from the policy application and trust documents, including using a false Georgia
address as the residence of the Collins and having their signatures falsely notarized in
Georgia by his employee.
On March 17, 2008, Houchins sent an email to Wolff informing him that the
Tennessee problem had been resolved and that the policy transaction was “now on Georgia
paper.” Houchins asked Wolff to have Life Asset price the policy. On March 18, 2008,
Wolff forwarded life expectancy reports and a policy illustration provided by Houchins to
Life Asset. A week later, Life Asset priced the policy at 4% of its $2 Million face amount
($80,000). Wolff communicated Life Asset’s 4% price to Houchins.
On April 3, 2008, four weeks before the policy was issued, Houchins informed
Wolff that Mrs. Collins would sell her beneficial interest in the trust at 4% of face amount
Life Asset had quoted. In his April 3, 2008 email, Houchins stated: “Collins (SUN) – is
being re-issued in GA. We will then close with you at 4%.”
On April 5, 2008, Wolff informed Houchins of the closing requirements for Life
Asset’s acquisition. Wolff also provided Houchins with the sales contract documents for
Mrs. Collins to sign. With the arrangements in place to sell the beneficial interest,
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Houchins paid the $27,000 initial premium to place the policy in force. The premium was
paid by two cashier’s checks payable to Sun Life issued by the Bank of America branch in
Dunwoody, Georgia – check number 0897264 was issued on April 22, 2008 for $19,580,
and check number 08997265 was issued on April 25, 2008 for $7,420. Houchins funded
these checks using funds from Bonded Life’s bank account payable to Sun Life in the
trust’s name. After receiving the premium payment, Sun Life issued the policy on April
30, 2008.
The closing documents for the acquisition of Mrs. Collins’ beneficial interest
contained no references to Tennessee and, instead, stated that the Collins resided in Georgia
and that all documents had been signed by Mr. and Mrs. Collins in Georgia. Houchins
forwarded the signature pages for the contract documents to the Collins in Tennessee, on
May 5, 2008, and returned the signed documents to Wolff on May 9, 2008.2 Regarding the
Georgia trust and application – Mrs. Collins testified that she and Mr. Collins resided in
Tennessee; they had a winter home in Florida; they never lived in Georgia; and neither of
them ever signed any documents in Georgia.
Life Asset acquired the beneficial interest in the trust for 4% of the face amount of
the policy ($80,000) plus a reimbursement of premiums paid ($27,000) – a total of
$107,000. Houchins received $47,000 and Mrs. Collins received $60,000. Houchins’
father also received commissions from Sun Life in the amount of $62,605.35. The
Coppocks and Wolff were compensated by Houchins for facilitating the transaction.

2

For some reason not revealed in discovery, the contract documents had to be resigned on June 9, 2008.

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Conestoga Trust Services, LLC, is the sixth assignee of the ownership rights in the
policy, acquiring its interest on April 30, 2013. Erwin Collins passed away on June 19,
2014. On August 13, 2014, Conestoga submitted a death claim to Sun Life for the proceeds
of the policy.
Sun Life avers that the policy was at all times meant by the applicants as an illegal
wager on the life of Collins. Sun Life further avers that the Collins Trust was itself an
illegal sham created to give the false appearance of a valid insurance trust and thus, a
legitimate insurable interest in the life of Erwin Collins. Sun Life further avers that the
source of the funds for the initial premium payment on the policy was not Collins or any
person possessing an insurable interest in his life. Instead, the premiums were paid by
persons or entities who were wagering on Mr. Collins’ death so they could collect the $2
Million death benefit.
IV. Analysis
A. STOLI SCHEME
In a STOLI scheme, stranger investors wager on the life of elderly individuals by
procuring high dollar insurance policies on their lives. The death benefits are not payable
to the insureds’ families or loved ones, but to the investors, who have no insurable interest
in the insureds’ lives, and who wager that the insureds will die as soon as possible so the
death benefits can be obtained with the least possible outlay of premiums, thus maximizing
their returns. The Eleventh Circuit described the scheme as follows:
A STOLI policy is a speculative investment device that entails gambling on
the lives of the elderly. In its purest form, a STOLI transaction works like
this: A speculator secures an agreement with a person, who is usually
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elderly, authorizing the speculator to buy insurance on that person’s life. The
speculator usually gets the policy in the largest amount available and pays
the premiums, hoping to profit in one of two ways. One way is if the insured
dies before the premiums paid exceed the death benefit. Under that scenario
the sooner the insured dies, the fewer the premium payments that are
necessary to obtain the payout, and the greater the return on investment. The
other way the speculator can profit is by selling the policy to another
speculator for more than the premiums paid up to the point of that sale.
Sciarretta v. Lincoln Nat. Life Ins. Co., 778 F.3d 1205, 1207-08 (11th Cir. 2015).
Tennessee prohibits STOLI policies through both statutory and common law.3
Since 1799, wagering contracts have been held void under Tennessee law. See Tenn. Code
Ann. § 2919-101 (“All contracts founded, in whole or in part, on a gambling or wagering
consideration, shall be void to the extent of such consideration”). Consistent with this
prohibition, the Tennessee legislature adopted an insurable interest requirement for
insurance policies to prevent wagering contracts. See Tenn. Code Ann. § 56-7-101 (“A
contract of insurance is an agreement by which one party, for a consideration, promises to
pay money or its equivalent, or to do some act of value to the assured, upon the destruction
or injury, loss or damage of something in which the other party has an insurable interest”).
Tennessee’s insurable interest requirement serves the substantive goal of preventing
speculation on human life by ensuring that a life insurance policy cannot be procured unless
the person procuring it has an interest in the continued life, health, and bodily safety of the
person insured.

3
Consistent with the common law, the Tennessee Legislature addressed the illegality of STOLI when it adopted the
Viatical Settlement Act of 2009. Although the Act does not apply to the Sun Life policy because the Act was enacted
after the policy transaction, the Act is instructive. The Act prohibits “entering into any agreement or undertaking any
act or plan that involves stranger-originated life insurance.” Tenn. Code Ann. § 56-50-102(6)(A(iii). The Act defines
STOLI as “a practice or an act to initiate a life insurance policy for the benefit of a third-party investor who, at the
time of policy origination, has no insurable interest in the insured.” Tenn. Code Ann. § 56-50-102(12)(A).

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Important to the instant discussion, Tennessee courts have held for over one
hundred years that life insurance taken out as a wager is void. See Clement v. New York
Life Ins. Co., Id. 46 S.W. 561 (Tenn. 1898); Marquet v. Aetna life Ins. Co., 159 S.W. 733,
735 (Tenn. 1991) (“The rule is well established that a lack of insurable interest by the
beneficiary in the life of the insured, where the insurance is taken out and paid for by the
beneficiary as a speculation, vitiates the contract . . . All such contracts are wagering
pure and simple”).
Typically, the prospective insured acts as a nominal grantor of a life insurance trust
that is used to apply for the policy. Where a policy is procured through the use of a trust,
the insured must create and fund that trust in order to satisfy the insurance interest
requirement. There is no insurable interest if a policy is procured as a cover for the wager.
See PHL Variable Ins. Co. v. Price Dawe, 28 A.3d 1059, 1075 (Del. 2011).4 When
analyzing whether such a procurement is a cover, courts scrutinize the circumstances under
which the policy was issued and determine who in fact procured or affected the policy. Id.
at 1076. Price Dawe noted one telltale sign of such a scheme – “If a third party funds the
premium payments by providing the insured the financial means to purchase the policy
then the insured does not procure or affect the policy.” Id. at 1076.
The court has scrutinized the circumstances under which the Sun Life policy issued
and finds the undisputed facts support the conclusion Houchins improperly used Erwin
Collins as a conduit to acquire a policy that Life Asset could not otherwise acquire. Life
4

The Tennessee Viatical Settlement Act of 2009 states, consistent with the common law, that trusts created to give
the appearance of an insurable interest, and used to initiate policies for investors, violate insurable interest laws and
the prohibition against wagering on life. Tenn. Code Ann. § 56-50-102(12(B).

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Asset priced the purchase of the beneficial interest at 4% of the face value of the policy
plus reimbursement of the premiums paid for a total of $107,000 prior to the issuance of
the policy. After confirming that Mrs. Collins would sell her beneficial interest for this
price, Houchins paid and funded the initial premiums required to place the policy in force.
When Life Asset closed on the acquisition, right after the policy was issued, Houchins was
reimbursed from the sales proceeds for the premiums paid by his company. Life Asset
acquired the beneficial interest in accordance with terms that were previously agreed upon,
and the participants in the transaction (Houchins, Wolff, the Coppocks, and Mrs. Collins)
were compensated for their roles in procuring the policy. Conestoga has presented no
evidence that Mr. Collins or any other person with an insurable interest in his life funded
any of the premiums paid on the policy. See Price Dawe, 28 A.3d at 1078 (a policy fails
at its inception for lack of an insurable interest 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).
Contrary to Conestoga’s argument, the policy is not supported by an insurable
interest because the policy was “at least nominally issued” to a trust with Mrs. Collins as
the beneficiary. Where a policy is procured through a trust, the insured must create and
fund that trust in order to satisfy the insurable interest requirement. Price Dawe, 28 A.3d
at 1076. Here, the Georgia trust lacked an insurable interest in Collins’ life. Although Mr.
Collins was listed as the nominal settlor of the Trust, he did not fund the trust or pay any
premiums on the policy. The Trustee, Gordillo, testified the trust never had any money,
did not pay any premiums on the policy, nor did she know the source of funds for any
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premium payments. Instead, the record shows premiums were paid by Houchins through
his Bonded Life account. Under Tennessee law, a policy must be taken out in “good faith”
and the rule is that if one procures a policy upon the life of another and pays the premiums,
that party “must have an insurable interest in the life of that other, or the policy will be a
mere wager policy.” Clement, 46 S.W. at 561; Sun Life v. Wells Fargo, 2016 WL 5746352
at *11 (D.N.J. Sept. 30, 2016) (holding that policy was void ab initio as a wagering contract
where the investors funded the premium by funneling the money through the trust
account).5
Conestoga argues the policy is not void merely because Houchins advanced the
money for the premium, characterizing the payment as a “loan.” In determining whether
a transaction is a loan, the Sixth Circuit instructs courts to examine certain “objective
criteria” that are “normally associated with legitimate debts,” including an unconditional
promise to repay, a fixed maturity date, an interest rate, and a schedule for payment of
principal and interest. Executive Jet Aviation, Inc. v. United States, 507 F.2d 508, 512 (6th
Cir. 1974).
Here, the record is devoid of any evidence that Erwin Collins knew that Houchins
made the premium payments. In addition, the trustee and Mrs. Collins both testified they
had no knowledge whatsoever about the premium payments. They did not know whether

5
The Tennessee Viatical Settlement Act of 2009 is instructive as to Tennessee law. Consistent with the common
law, it defines STOLI to include “cases in which life insurance is purchased with resources . . . from or through a
person or entity that, at the time of the policy’s inception, could not lawfully initiate the policy . . . and where, at the
time of the policy’s inception, there is an arrangement or agreement, whether verbal or written, to directly or
indirectly transfer the ownership of the policy or the policy benefits to a third party.” Tenn. Code Ann. § 56-50102(12)(B).

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any premiums had been paid; who paid the premiums; or the source of the funds for any
premium payments. Moreover, there is no loan documentation and no evidence of any
repayment terms – no interest rate, no repayment date, and no payment schedule. When
the Life Asset acquisition closed, the trustee testified there were no loans to the trust in
connection with the policy. Therefore, the court finds Conestoga’s argument that the
premium payment was a “loan” is without merit.
Conestoga next argues it is an “innocent bona fide assignee” under the policy.
However, the Tennessee Supreme Court held in Clement, “the transfer and assignment
must be in good faith, and not as a mere colorable evasion of the provision in regard to
wagering contracts, and in order to validate or legalize the same.” Id. 46 S.W. at 564; see
also Aetna Life Ins. Co. v. Hooker, 62 F.2d 805 (6th Cir. 1933) (“The mere fact that an
issued policy may be validly assigned to one not having an insurable interest has no legal
significance in determining whether the policy was initially procured by one without such
insurable interest”); Volunteer State Life Ins. Co. v. Pioneer Bank, 327 S.W.2d 59, 64-65
(Tenn.Ct.App. 1959) (“In this State, both at common law and by statute, a policy of life
insurance is an assignable instrument and, when not forbidden by the policy itself, or
otherwise, it may be assigned, in the absence of fraud or a wagering contract”). Thus,
Tennessee law holds that a transferee’s innocence or good faith will not revive a contract
void from inception as an illegal wagering contract. Clement, 46 S.W. at 595. An assignor
cannot transfer to his assignee any greater rights in the contract than the assignor possesses
under the contract. Tenn. Ins. Guar. Ass’n v. Century Ins. Co., 2005 WL 1384878 at *7
(Tenn.Ct.App. June 10, 2005) (citing Kennedy v. Woolfolk, 4 Tenn. 195 (1817). Once the
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policy has been tainted as a wagering contract, subsequent assignees take no greater rights
in the policy than the initial wagerer, and the law will not permit that illegal and void
contract to become valid and enforceable by virtue of a subsequent transfer. Accordingly,
the court finds Conestoga’s argument that it is an “innocent bona fide assignee” under the
policy without merit.
B. Return of Premiums
Having determined that there was no insurable interest at the inception of the policy,
the court turns to Conestoga’s request that Sun Life be directed to return all premium
payments paid by Conestoga for the policy. Sun Life moves to dismiss this claim on the
grounds that the policy is void ab initio and, therefore, the court should leave the parties
where it found them. In addition, Sun Life argues it would not be unjustly enriched by
retaining the premiums. As a result of this STOLI transaction, Sun Life has incurred
substantial policy expenses including $62,605.35 in commissions, additional expenses
related to policy underwriting and administrating, and legal expenses incurred in this
action.
Tennessee follows the majority rule that an assignee who has paid premiums in good
faith is entitled to recover premiums paid if the policy is later declared void because of the
misconduct of others. See Washington v. Atlanta Life Ins. Co., 136 S.W.2d 493 (Tenn.
1940); Branson v. Nat’l Life & Acc. Ins. Co., 1927 WL 2089 (Tenn.Ct.App. 1927). As
stated in U.S. Bank Nat’l v. Sun Life Assur. Co. of Canada, “an insurance company cannot
have it both ways” by obtaining rescission of a life insurance policy and simultaneously
retaining the premiums paid on the policy. Id, 2017 WL 347449 at *19 (E.D.N.Y. Jan. 24,
15

2017). The court agrees. Conestoga is not to blame for the fraud here; it merely acquired
a life insurance policy from a predecessor assignee and that policy turned out to be void.
Allowing Sun Life to retain the premiums would be a windfall to the company. See
Branson, 1927 WL 2089 at *3 (assignee of the policy who in good faith paid premiums
entitled to recover premiums paid); Washington, 136 S.W.2d at 494 (“The contract of
insurance is a conditional one. If no risk attaches, no premium, in the absence of fraud, is
earned. When the risk never attached, and no risk was ever run, the premium is to be
returned”).

Accordingly, Conestoga’s motion to recover its premium payments is

GRANTED. Conestoga will be limited to return of premiums paid after acquiring the
ownership rights in the policy (April 30, 2013).
C. Bad Faith Claim
In light of the court’s finding that the policy at issue is void as an illegal wagering
contract, Conestoga has no viable bad faith claim. The record establishes that there was a
reasonable basis for Sun Life’s challenge to the validity of the policy. The law is clear that
there is no viable bad faith claim where the insurer’s refusal to pay rests on legitimate and
substantial legal grounds. Tyber v. Great Central Ins. Co., 572 F.2d 562, 564 (6th Cir.
1978).
The court finds that the record evidence demonstrates that the policy lacked an
insurable interest at its inception and is therefore void ab initio under Tennessee law.

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V. Conclusion
In light of the foregoing discussion:
1.

Conestoga’s motion for leave to file amended answer and counter-complaint

[R. 71] is GRANTED.
2.

Sun Life’s motion to strike [R. 109] is DENIED.

3.

Sun Life’s motion for summary judgment [R. 74] is GRANTED in part.

The Sun Life policy on the life of Erwin Collins is declared void ab initio and Sun Life
does not have to pay the death benefit to Conestoga.
4.

Conestoga’s motion for refund of the premiums paid to Sun Life [R. 72] is

GRANTED. Sun Life shall refund only the premium payments made by Conestoga. In
all other respects, Conestoga’s motion for summary judgment is DENIED.
Enter:

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UNITED STATES DISTRICT JUDGE
UNITED STATES DISTRICT
A S S
C

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