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Estates Sue Over $26M in Life Policies Held by U.S. Bank

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What You Need to Know

  • One lawyer, Heather Marx, filed the four suits.
  • Estate reps say the death benefit recipients had no insurable interest in the lives of the insureds.
  • The estate reps contend that estates can sue for the benefits to owners of stranger-originated life insurance policies.

Representatives for four estates are suing to keep U.S. Bank and three trusts from collecting about $26 million in life insurance policy death benefits.

The estate representatives contend that, in 2006 and 2007, investors used “stranger-originated life insurance” transactions to buy five policies insuring the lives of the estate decedents.

The STOLI transactions were illegal, U.S. Bank and the trusts have no right to collect the policy death benefits, and the death benefits should go to the estates, the estate representatives say.

Heather Marx of Cozen O’Connor filed the suits in the U.S. District Court for the District of Minnesota.

Representatives for the plaintiffs, U.S. Bank and the trusts did not respond to requests for comments about the cases.

What it means: If your clients have let investors buy policies insuring their lives, the clients’ families may try to sue for the policy death benefits.

Clients who have invested in life settlement arrangements should ask their investment and legal advisors about the implications of the STOLI litigation.

Life settlements and STOLI: Traditionally, regulators have prohibited life insurance buyers from taking out policies on strangers’ lives, to avoid giving the policy owners an incentive to hope for the strangers’ deaths.

For the past two decades, regulators have let investors buy in-force policies from the original insureds but have generally opposed the creation of policies by strangers with no insurable interest in the lives of the insureds.

Life insurers, the families of the people insured by investor-owned policies, life settlement companies and other players have clashed in court over the boundaries between STOLI and more broadly accepted forms of investor-owned life insurance.

In 2015, for example, the 7th U.S. Circuit Court of Appeals ruled in favor of a life insurer and against trusts that had invested in life insurance policies written by the insurer.

In 2019, the New Jersey Supreme Court ruled that STOLI policies are against public policy and void from the beginning.

The Minnesota case parties: The four new Minnesota STOLI cases were all filed Dec. 22.

The plaintiffs in the cases are:

  • The personal representative of the estate of John C. Breslin, a Colorado resident who was insured by a $3.65 million policy and who died March 17, 2023.
  • The executor of the estate of Jacqueline Hopfinger, a Florida resident who was insured by a $3 million policy and who died Oct. 27, 2021.
  • The administrator of the estate of Susan Jacobs, a California resident who was insured by two $7 million life insurance policies and who died Jan. 1, 2022.
  • The administrator of the estate of Raymond Cappelli, a Pennsylvania resident who was insured by a $5 million policy and who died Dec. 19, 2017.

The defendants in all four cases are U.S. Bank, which serves as the record owner and beneficiary for the policies, and three trusts: Financial Credit II Trust A, Financial Credit Investment Trust C and Financial Credit Investment II Trust F.

Financial Credit Investment, the entity that formed the trusts, is owned by an Irish entity and is a citizen of Ireland, according to the plaintiffs’ complaints.

Apollo Global Management lists Financial Credit Investment Advisors II and Financial Credit Investment II Manager as subsidiaries in its Form-10-K annual report for 2022, and it includes fee revenue from Financial Credit Investment II and related funds in its Form 10-Q quarterly report for the quarter ending Sept. 30, 2023.

The allegations: The plaintiffs allege that a bank created premium financing arrangements and trusts to “wager on the lives of hundreds of American senior citizens,” obtained life insurance policies insuring the lives of senior citizens, then sold the policies to other entities.

Over the years, the policies passed through a number of different portfolios and ended up in the Financial Credit Investment trusts, according to the complaint.

The policy portfolio managers repeatedly contacted the insureds and their family members to check on the insureds’ health, obtained the insureds’ medical records and gave the insureds’ medical records to life expectancy analysts, the plaintiffs allege.

The plaintiffs say the health monitoring efforts invaded the insureds’ privacy.

Under common-law principles recognized by jurisdictions such as Wisconsin, the estate of the insured can sue to collect the benefits a life insurer pays to a policy owner that lacks an insurable interest in the life of an insured, according to the plaintiffs.

The plaintiffs have accused the defendants of unjust enrichment. They are asking the court to award the estates amounts equal to the death benefits the life settlement trusts have received, along with attorneys’ fees and interest.

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