Sun Life Assurance Company of Canada v. Wilmington Trust et al

Filing 71

MEMORANDUM DECISION AND ORDER granting 46 Motion to Dismiss. Signed by Judge David Nuffer on 3/13/17 (alt)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
SUN LIFE ASSURANCE COMPANY OF
CANADA,

MEMORANDUM DECISION AND
ORDER GRANTING
[46] MOTION TO DISMISS

Plaintiff,
v.
Case No. 2:15-cv-00758
WILMINGTON TRUST COMPANY,
District Judge David Nuffer
Defendant.
Defendant Wilmington Trust Company moves 1 to dismiss all claims made in Sun Life
Assurance Company’s Second Amended Complaint. 2 The Complaint seeks declaratory relief
that a life insurance policy is void. Sun Life responds in opposition.3 Wilmington replies in
support of its motion.4
Wilmington argues that Sun Life’s claims are barred by an incontestability statute 5 while
Sun Life argues that the insurance contract is void ab initio. 6 Because the incontestability statute
bars the claims and the policy is not void ab initio, Wilmington’s motion is GRANTED. Sun
Life’s claims are DISMISSED WITH PREJUDICE.

1

Motion to Dismiss Claims in the Second Amended Complaint Against Defendant Wilmington Trust Company,
(Motion), docket no. 46, filed April 29, 2016.
2

Second Amended Complaint and Jury Demand, (Complaint), docket no. 35, filed March 24, 2016.

3

Response of Sun Life Assurance Company of Canada to Wilmington Trust Company’s Motion to Dismiss Claims,
(Opposition), docket no. 49, filed June 17, 2016.

4

Reply Memorandum in Support of Motion to Dismiss Claims Against Defendant Wilmington Trust Company,
docket no. 52, riled July 18, 2016.

5

Motion at 7.

6

Opposition at 4.

Table of Contents
Background ..................................................................................................................................... 2
Standard of Review ......................................................................................................................... 5
Discussion ....................................................................................................................................... 6
1.
The Incontestability Statute Extinguishes the Claims. ........................................... 7
2.
The policy is not void ab initio. .............................................................................. 7
A.
The policy does not violate the Utah Constitution and is not invalidated by
the requirement that there be an insurable interest. .................................... 8
B.
Sun Life cannot have the policy declared void ab initio because of
invalidity of the Trust................................................................................ 12
3.
Barring Sun Life’s Claims is Not an Endorsement of STOLI Schemes. .............. 15
Order ........................................................................................................................................... 16

BACKGROUND
On June 4, 2007, an application for a $6 million dollar universal life insurance policy on
Florence Creer was received by Sun Life. 7 The application listed the 85-year-old Forence Creer
as the insured, the Florence Creer Irrevocable Trust (“the Trust”) as the owner and beneficiary of
the policy, and Joseph E. Creer, Florence’s husband, as the trustee. 8 It was represented that
Florence Creer had a net worth of $7,895,000 and annual income of $300,000. 9 The initial
premium payments of $115,335 were paid through Creer Industrial Park in early October 2008,
with the actual monies coming from Steven Heinz, the broker who facilitated the Creer policy
application. 10 Heinz in turn, was reimbursed for these monies by investors. 11 Sun Life issued the
policy after the payments were received. 12

7

Complaint at 2.

8

Id.

9

Id. at 4.

10

Id. at 6–7.

11

Id.

12

Id. at 7.

2

On November 29, 2007, the Trust was amended to name the Daily and Knudson Law
Group, LLC, as the trustee instead of Joseph Creer. 13 Robert Creer was named as beneficiary of
the Trust. 14 The remaining balance for the first year premiums of $346,005 was wired to Sun
Life on December 31, 2007, from an unidentified source. 15 In July 2008, another $454,222 was
received by Sun Life, again through wire payments from an unidentified source. 16 Sun Life
asserts that all the monies used to pay the premiums for the Creer policy were in fact made with
monies from investors. 17 Sun Life asserts that Private Equity Management Group, Inc. (PEM
Group) was the investor group funding the Creer Policy from the beginning.
In April 2009, an action was brought by the United States Securities and Exchange
Commission against the PEM Group and others who were allegedly engaged in the fraudulent
offer and sale of securities including life insurance policies on the elderly. 18 The court
supervising the PEM Group action froze the assets of the PEM Group and appointed a receiver. 19
The receiver was appointed to serve as trustee for all the life insurance policies and trusts
associated with the PEM Group action, some 275 polices, which included the Creer Policy. 20
Eventually, control of these policies was transferred back to the PEM Group where the
investors still participating in the Trust chose Wilmington Trust to act as a securities
intermediary. 21 In October 2011, Wilmington Trust was designated as both owner and

13

Id.

14

Id. at 8.

15

Id.

16

Id.

17

Id.

18

Id. at 9.

19

Id. at

20

Id. at 10.

21

Id.

3

beneficiary of the Creer Policy. 22 Wilmington Trust has continued to administer the Creer Policy
since 2011. After the death of Florence Creer on August 31, 2015, Wilmington Trust submitted a
claim for the death benefit on the Creer Policy. 23 Sun Life performed a routine review of the
claim and learned from Florence Creer’s son Edward that no member of the Creer family
provided any funds for the payment of premiums and that the Creer family could not have
afforded the policy. 24 Sun Life also received a copy of the 2007 Creer tax return which showed
total income for the year as $73,116. 25 Sun Life asserts that the Creer policy was always
controlled by investors, and created to give the appearance of a legitimate policy when in reality
it was just a sham policy set up for the benefit of investors. 26 These arrangements are often
referred to as Stranger Originated Life Insurance (STOLI) Schemes.
Sun Life first filed a complaint on October 26, 2015. 27 Eventually, a second amended
complaint was filed March 24, 2016, setting forth three causes of actions. 28 Sun Life seeks a
declaratory judgement that the policy is void ab initio as an illegal wagering contract, 29 or in the
alternative a declaratory judgement that the policy is void ab initio for lacking an insurable
interest, 30 or a declaratory judgement that the policy is void ab initio because the Trust was
invalid and lacked the capacity to contract. 31 Wilmington moves to dismiss this complaint. 32
22

Id. at 11.

23

Id. at 12.

24

Id. at 12–13.

25

Id. at 13.

26

Id. at 13–14.

27

Complaint and Jury Demand, docket no. 3, filed October 26, 2015.

28

Complaint at 1.

29

Id. at 17.

30

Id. at 18.

31

Id. at 19.

32

Motion to Dismiss at 1.

4

STANDARD OF REVIEW
Wilmington moves to dismiss Sun Life's action pursuant to Rule 12(b)(6) of the Federal
Rules of Civil Procedure.
Defendants are entitled to dismissal under Rule 12(b)(6) when the complaint, standing
alone, is legally insufficient to state a claim for which relief may be granted. 33 When considering
a motion to dismiss for failure to state a claim, the thrust of all well-pleaded facts in the
complaint is presumed, but courts need not consider conclusory allegations. 34 Nor are the
complaint’s legal conclusions and opinions accepted, whether or not they are couched as facts. 35
“In evaluating a Rule 12(b)(6) motion to dismiss, courts may consider not only the complaint
itself, but also attached exhibits, and documents incorporated into the complaint by reference.” 36
The United States Supreme Court has held that satisfying the basic pleading requirements
of the federal rules “demands more than an unadorned, the defendant-unlawfully-harmed-me
accusation. A pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the
elements of a cause of action will not do.’” 37 “[T]he tenet that a court must accept as true all of
the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals
of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” 38

33

See Sutton v. Utah State Sch. for the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 1999).

34

See Cory v. Allstate Ins., 583 F.3d 1240, 1244 (10th Cir. 2009).

35

See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). See also Brown v. Zavaras, 63 F.3d 967, 972 (10th
Cir. 1995).

36

Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009) (citations omitted). See also Tellabs, Inc. v. Makor
Issues & Rights, Ltd., 551 U.S. 308, 322 (2007) (citing 5B WRIGHT & MILLER § 1357 (3d ed. 2004 & Supp.
2007)).

37

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555).

38

Id.

5

“[N]aked assertions devoid of further factual enhancement,” 39 do not state a claim sufficiently to
survive a motion to dismiss.
“But where the well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the pleader
is entitled to relief.’” 40 “[T]he mere metaphysical possibility that some plaintiff could prove some
set of facts in support of the pleaded claims is insufficient; the complaint must give the court
reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for
these claims.” 41 That is, “[t]he allegations must be enough that, if assumed to be true, the
plaintiff plausibly (not just speculatively) has a claim for relief.” 42 “This requirement of
plausibility serves not only to weed out claims that do not (in the absence of additional
allegations) have a reasonable prospect of success, but also to inform the defendants of the actual
grounds of the claim against them.” 43
Measured against this legal standard, Sun Life’s second amended complaint fails to state
a claim for the reasons stated below.

DISCUSSION
Sun Life’s claims are barred by Utah’s Incontestability Statute. 44 Sun Life’s attempt to
avoid the statute—arguing that for various reasons the life insurance policy is void ab initio—is
meritless.

39

Id.

40

Id.at 679 (quoting Fed. R. Civ. P. 8(a)(2)).

41

The Ridge at Red Hawk, LLC v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007).

42

Robbins v. Oklahoma 519 F.3d 1242, 1247–48 (10th Cir. 2008).

43

Id. at 1248.

44

Utah Code Ann. 1953 § 31A-22-403 (West 2016).

6

1. The Incontestability Statute Extinguishes the Claims.
Utah law states that after a life insurance policy has been in force two years, it is almost
beyond challenge: “a life insurance policy is incontestable after the policy has been in force for a
period of two years from the policy’s date of issue.” 45 There are limited exceptions. 46 None
apply.
The policy was issued near the early part of October, 2007. 47 The complaint contesting
the validity of the Creer policy was filed October 26, 2015. Because the incontestability statute
cuts off the ability of Sun Life to contest the Creer policy after two years, Sun Life is barred from
seeking to invalidate the policy. Sun Life is six years too late.
Sun Life could have investigated and contested the policy within the first two years.
Indeed, it may have even had information alerting it to the need to investigate and contest the
validity of the policy. 48 Yet, for whatever reason, it chose to do nothing other than continue
receiving significant premium payments.
2. The policy is not void ab initio.
Sun Life attempts to avoid the incontestability statute by arguing that the policy was void
ab initio. 49 If true, Sun Life argues, the incontestability statute would not apply. It would be as if
the policy never existed.

45

Utah Code Ann. 1953 § 31A-22-403(2)(a) (West 2016).

46

Utah Code Ann. 1953 § 31A-22-403(3)(a–c) (“A life insurance policy described in Subsection (2) may be
contested for nonpayment of premiums”; “A life insurance policy described in Subsection (2) may be contested as to
. . . provisions relating to accident and health benefits allowed under Section 31A-22-609; and . . . additional
benefits in the event of death by accident.”; “If a life insurance policy described in Subsection (2) allows the insured,
after the policy's issuance and for an additional premium, to obtain a death benefit that is larger than when the policy
was originally issued, the payment of the additional increment of benefit is contestable.”).
47

Complaint at 7.

48

Exhibit K to Complaint, docket no. 35-11, filed March 24, 2016 (SEC complaint against PEM Group, Inc.).

49

Complaint at ¶¶ 67–79.

7

The policy is not void ab initio because the policy was not a wagering contract and
because Sun Life’s challenge of the validity of the Trust has no merit.
A. The policy does not violate the Utah Constitution and is not invalidated by the
requirement that there be an insurable interest. 50
The Utah Constitution states, “The Legislature shall not authorize any game of chance,
lottery or gift enterprise under any pretense or for any purpose.” 51 In Commercial Travelers’ Ins.
Co. v. Carlson, 52 the Utah Supreme Court, interpreting the anti-gambling provision of the Utah
Constitution, stated
The almost universally accepted rule is that a party insuring a human life must
have an insurable interest therein if the insurance is effected for his own benefit,
or the policy will be void; and he must prove such interest in order to recover,
since public policy does not permit one having no insurable interest to procure a
policy of insurance upon the life of a human being, and pay the premiums as a
speculation, or on a chance of collecting the insurance money. 53
In other words, one person cannot make an insurance wager on the life of another unless
that person has “an interest in having the insured life persist,” 54 i.e. an insurable interest. Without
an insurable interest, it is unconstitutional gambling. As Justice Holmes said in Grigsby v.
Russell, 55 “A contract of insurance upon a life in which the insured has no interest is a pure
wager that gives the insured a sinister counter interest in having the life come to an end.” 56

50

Sun Life claims the analysis is different for the first and second causes of action (respectively, the policy is void
because it is a wagering contract and the policy is void because of a lack of insurable interest). Opposition at 21–22.
But the examples it provides of how there could be an insurable interest but still be an unconstitutional wagering
contract are either factually distinct or just another way of saying there is no insurable interest. The two causes of
action will be analyzed together.

51

Utah Code Ann. 1953, Const. Art. 6, § 27 (West 2016).

52

137 P.2d 656 (Utah 1943).

53

Id. at 659.

54

First PennPac. Life Ins. Co. v. Evans, 313 F. App’x 633, 636 (4th Cir. 2009).

55

222 U.S. 149 (1911).

56

Id. at 154.

8

Appropriately, Section 21-104 of the Insurance Code states, in part,
2(a) An insurer may not knowingly provide insurance to a person who does not
have or expect to have an insurable interest in the subject of the insurance.
(b) A person may not knowingly procure, directly, by assignment, or otherwise,
an interest in the proceeds of an insurance policy unless that person has or expects
to have an insurable interest in the subject of the insurance. 57
Yet Section 21-104 also states,
(6)(a) An insurance policy is not invalid because:
(i) the insurance policy is issued or procured in violation of Subsection
(2) 58
The determinative question, then, is how does (6)(a) square with the Utah Constitution,
Carlson, and general common law expressed in Grigsby?
Sun Life argues that 6(a) hinges on the difference between “knowingly” and
“intentionally.” 59 The acts prohibited in Subsection (2) are those taken “knowingly”: “knowingly
provide” 60 and “knowingly procure.” 61 Sun Life argues that “[b]y including only knowledge and
omitting any reference to intent in Subsection 2(b) of the Insurable Interest Statute, the
Legislature manifested its view that intentional conduct falls outside this subsection [2(b)] and is
treated differently.” 62 Sun Life continues, “Because the strangers in this case intentionally
originated the Policy without an insurable interest, the second scenario (set forth at Subsection
2(b)) did not occur.” 63

57

Utah Code Ann. 1953 § 31A-21-104 (West 2007).

58

Id. (emphasis added).

59

Opposition at 16–21.

60

Utah Code Ann. 1953 § 31A-21-104(2)(a) (West 2007).

61

Utah Code Ann. 1953 § 31A-21-104(2)(b) (West 2007).

62

Opposition at 17.

63

Id. at 17–18.

9

Sun Life’s argument is not persuasive. First, Sun Life fails to explain why the legislature
would prohibit knowing conduct in 2(b) and ignore intentional conduct. The result of Sun Life’s
argument that 2(b) does not apply because the strangers acted intentionally in procuring a policy
without an insurable interest also means that the saving provision of 6(a) does not apply and
would allow Sun Life to claim the policy is invalid. While this explains Sun Life’s argument,
Sun Life does not explain why the legislature would make this distinction. Therefore, Sun Life’s
interpretation of Section 21-104 as excluding knowing conduct is not persuasive.
Second, it is not clear how Sun Life’s distinction between “knowingly” and
“intentionally” is consistent with Sun Life’s arguments that the policy is void ab initio because
the owner had no an insurable interest. The alleged constitutional and common-law concerns Sun
Life raises when a policy is procured without an insurable interest are just as significant if
someone knowingly originated a policy without an insurable interest as they would be if someone
intentionally originated the policy without an insurable interest.
Sun Life summarized its argument that this policy is an illegal wagering contract:
“[G]ambling is what a STOLI scheme is all about: investors fund a policy, knowing for certain
that the insured will one day die, and taking the chance that this will happen quickly.” 64 But how
does a distinction between “knowingly” and “intentionally” fit with that policy statement? Even
the arguably lower scienter of knowledge should—according to the rest of Sun Life’s briefing—
be in direct conflict with the Utah Constitution, Carlson, and the common law. Sun Life’s
distinction, therefore, does not satisfactorily explain how subsection 6(a), which precludes
invalidating a policy because it was “issued or procured in violation of Subsection (2),” accords

64

Opposition at 10.

10

with Sun Life’s arguments that the Utah Constitution, Carlson, and the common-law prohibit
gambling on another’s life.
Finally, Sun Life’s distinction between “knowingly” and “intentionally” is also not
convincing because it is hard to imagine a scenario where one would procure an interest in the
proceeds of an insurance policy intentionally but not knowingly. According to Sun Life,
someone could validly procure the proceeds of an insurance policy negligently, recklessly, or
knowingly, but not intentionally. For this argument, Sun Life relies on dictum in a footnote in
Derbidge v. Mut. Protective Ins. Co. 65 Specifically, the Derbidge footnote states that “in the
Insurance Fraud Act . . . the Legislature considers ‘intent to deceive’ and ‘knowledge’ to be
distinct concepts, with the former in no way subsuming the latter.” 66 This footnote dictum is not
binding. And the footnote does not explain how intentionally buying a policy without an
insurable interest would not also be done knowingly. This argument does not effectively explain
how subsection 6(a)’s validation provision harmonizes with the Utah Constitution, Carlson, and
the common-law prohibition against gambling on another’s life. It is apparent that 6(a) represents
a policy statement of validation weighing against the Utah Constitution, Carlson, and the
common-law prohibition against gambling on another’s life.
The Seventh Circuit offers a convincing explanation. In Sun Life Assurance Co. of
Canada v. U.S. Bank National Association, 67 the court reconciled the common-law principle that
you cannot “own an insurance policy on the life of a stranger”; 68 Wisconsin’s Constitution which
states that “except as provided in this section, the [Wisconsin] legislature may not authorize

65

963 P.2d 788 (Utah Ct. App. 1998).

66

Id. at 795 n.6.

67

839 F.3d 654 (7th Cir. 2016).

68

Id. at 656.

11

gambling in any form”; 69 and a Wisconsin statute, § 631.07(4), that states that “no insurance
policy is invalid merely because the policyholder lacks insurable interest.” 70
The court held that there is nothing inconsistent between the three:
[T]he legislature has not [authorized gambling] in . . . § 631.07(4), or anywhere
else for that matter. Gambling contracts, including life insurance policies that lack
an insurable interest, are still forbidden. The statute changed only the remedy for
violation, from invalidation of the policy to requiring the insurer to cough up the
proceeds [policy face amount] rather than—as Sun Life claims entitlement to—
being allowed to keep all the premiums and pay nothing to the policy holder
because the latter had no insurable interest in the policy. 71
The Seventh Circuit’s interpretation explains Utah’s incontestability statute discussed
above. The insurer has two years to investigate. If during those two years the insurer does little
or no due diligence, then the legislature, in enacting Section 21-104, has not authorized
gambling; it simply changed the remedy for violating the insurable interest requirement.
Finally, Judge Kimball’s holding in PHL Variable Insurance Company v. Sheldon
Hathaway Family Insurance Trust 72 did not address subsection 6 of Section 21-104. Thus, it is
not persuasive.
Therefore, the policy is not void ab initio for failing to have an insurable interest; it is not
void ab initio for being a wagering contract.
B. Sun Life cannot have the policy declared void ab initio because of invalidity of
the Trust.
Sun Life’s third cause of action seeks a declaratory judgment that the Trust, which was
the initial owner of the policy, “never came into existence and thus lacked capacity to apply for

69

Id. at 657.

70

Id. at 656.

71

Id. at 657.

72

No. 2:10-cv-67-DAK, 2011 WL 703839 (D. Utah Feb. 20, 2011).

12

or enter into the . . . Policy.” 73 Wilmington argues that Sun Life “lacks standing to challenge the
validity of the . . . Trust.” 74
Neither party provides convincing legal sources to support their arguments. Wilmington
refers to a couple of non-binding federal cases. 75 And Sun Life refers to case law that says
nothing about challenging the validity of a trust. 76 Wilmington also refers to several statutory
provisions that seem to suggest that only settlors, trustees, and certain beneficiaries have
standing to challenge the validity of a trust. 77 Sun Life does not address these statutory
provisions. 78 Instead, Sun Life offers the following argument:
There is no logical way to . . . conclude that Sun Life lacks standing to challenge
the validity and capacity of the party with whom it initially contracted, and to
suggest otherwise is like arguing that someone who contracts with a non-existent
corporation could only challenge the corporation’s existence and capacity if that
person were also a shareholder, which makes no sense. 79
Logical or not, the law before 2009 seems to have been that someone who contracts with
a non-existent corporation could only challenge the corporation’s existence and capacity if that
person were also a shareholder. In 2009, the legislature added a provision to the Insurance Code
that arguably—it is not certain whether it does—gives insurers standing to challenge the validity
of a trust. It states
(c)(i) A trust has an insurable interest in the subject of the insurance to the extent
that all beneficiaries of the trust have an insurable interest.
(ii) A trust violates this section if the trust:
(A) is created to give the appearance of an insurable interest, but an insurable
interest does not exist; and
73

Complaint ¶ 79.

74

Motion at 18.

75

Id. at 17–18.

76

Opposition at 24–25.

77

Motion at 18, n.15.

78

Opposition at 24–25.

79

Opposition at 24–25.

13

(B) is used to initiate a policy for an investor or other person who has no
insurable interest in the insured. 80
The policy in this case originated in 2007 when the provision above did not exist.
Without this provision, Sun Life has no standing to challenge the trust. Sun Life makes the
general assertion that as a party to the policy it has standing to challenge the Trust’s capacity to
contract. This is not convincing. Aside from failing to offer relevant case law, Sun Life does not
acknowledge that it is attempting to make a collateral attack on a contract to which it was not a
party. That is, Sun Life is not just attacking the policy it made with the Trust on the grounds that
the Trust did not have capacity to enter into an agreement, it is necessarily arguing that the
original parties to the Trust did not have capacity to enter into the Trust. The Trust was not the
insured. Sun Life presumably made its actuarial calculations based on the life of the insured
without considering the nature of the Trust. As the court in West Coast Life Insurance Company
v. Life Brokerage Partners LLC 81 stated: “Entering into a contract with a trust is not enough to
give [the insurer] the ability to challenge the validity of the trust itself.” 82
Finally, Sun Life’s argument that the Trust is void and therefore the policy is void, hinges
on allegations of fraud. But importantly, the incontestability statute’s 83 limited exceptions for
contesting a policy after the two-year statute of limitations do not include an exception for fraud.
That is, the incontestability statute provides for contesting the policy after two years for
“nonpayment of premiums,” 84 a “reinstated life insurance policy,” 85 “additional increment[s] of

80

Utah Code Ann. § 31A-21-104(3)(c)(i–ii) (West 2016).

81

No. 08-cv-80897-RYSKAMP/VITUNAC, 2010 WL 11426162 (S.D. Fla. May 24, 2010).

82

Id. at *2.

83

Utah Code Ann. 1953 § 31A-22-403.

84

Id.

85

Id.

14

benefit[s],” 86 and “additional benefits in the event of death by accident.” 87 But it says nothing
about contesting a policy because it was fraudulently obtained. By contrast, many other statutes
within the Insurance Code do specifically mention fraud. 88 Not including fraud as a basis for
contesting a policy after two years suggests that the legislature is interested in incentivizing
insurance companies to investigate early and diligently and interested in finality.
3. Barring Sun Life’s Claims is Not an Endorsement of STOLI Schemes.
In its Opposition, Sun Life warns that failure to sustain its claims would be a wholesale
endorsement of STOLI schemes. 89 This is not correct.
Claims are routinely dismissed when, for instance, they are not filed timely. Courts in
those instances are not endorsing the underlying alleged illegality. They are simply enforcing
time bars put in place for important policy considerations.
Appropriate interests supported by incontestability statutes include the ability of insured
parties to rely on policies without constant worry that an insurance company may at any future
time contest the policy. The incontestability statute promotes prompt and thorough investigation
of policy formation prior to or shortly after policy issuance. To invalidate polices long after the
period of incontestability would give an insurance company a perverse incentive to reap
windfalls by not challenging suspect policies up front so that the company may collect premiums
indefinitely, and only later, after risks are fully quantified, allege illegality.
And, as stated by the 7th Circuit, there are important considerations for not invalidating a
policy that potentially has no insurable interest. The legislature is within its right to limit the

86

Id.

87

Id.

88

See, e.g., Utah Code Ann. 1953 § 31A-22-609 (West 2016).

89

Opposition at 20.

15

remedy for violating statutory provisions. In this case, the legislature makes the insurer
responsible for failure to timely investigate.
ORDER
IT IS HEREBY ORDERED that the Motion to Dismiss Claims in the Second Amended
Complaint Against Defendant Wilmington Trust Company90 is GRANTED WITH PREJUDICE.
The clerk of the court is directed to CLOSE THIS CASE.
Dated March 13, 2017.
BY THE COURT:
____________________________
David Nuffer
United States District Judge

90

Docket no. 46, filed April 29, 2016.

16